The insurance regulator has mandated a lock-in period of three years for executing a transfer of over 50% shares in any insurance broking firm.
IRDA has introduced lock-in period for shareholding in insurance broking firms.
IRDA has recently issued a circular in which it has mandated a lock-in period of three years for executing a transfer of over 50% shares in any insurance broking firm. Similarly, for executing a change between 5% and 50% in share-holding pattern, there is a lock-in period of one year. No lock-in period is applicable for executing a transfer of less than 5% shares.
Experts say that the move is aimed at ensuring that only serious players operate as brokers.
The decision was taken after the insurance regulator came across instances of frequent changes in share holding pattern of broking firms. The regulator said, “The authority has been receiving frequent requests for changes in the shareholding pattern by the broking entities. Such frequent changes are not viewed in good light by the authority as they reflect financial volatility of the company. Since, it has always been the endeavor of the authority to ensure presence of long term players in the market, the need for certain stipulations in this regard, is considered necessary.”
Also, IRDA has tightened its vigilance on share-holding pattern of insurance brokers. Now, the insurance regulator has made it mandatory for insurance brokers to take its approval before executing any change in share-holding pattern. Even for executing a mere transfer of 5% shares, insurance brokers are required to take IRDA’s approval.
“This practice was already in existence; however, many insurance brokers were not following it in spirit. Hence, the insurance regulator has come down heavily on insurance brokers by making it mandatory,” said a managing director of an insurance broking firm.
New guidelines mandate insurance brokers to comply with fit and proper norms. Simply put, insurance brokers need to apply fresh as when they apply for acquiring broking license. They have to submit fresh documents and appear for a personal presentation before IRDA for executing any change in share-holding pattern. These guidelines come into force with immediate effect.