The notifications of the Office of Insurance Commission ("OIC") on good corporate governance of life and non-life insurance companies were published in the Royal Gazette on 27 February 2019 ("Notifications"). These Notifications will come into effect on 26 August 2019 – except for certain provisions coming into effect on 1 January 2020 ‒ and will replace their predecessors, which were the guidelines issued by the OIC in 2014.
Who will be affected by these Notifications?
The Notifications impose obligations not only on life and non-life insurance companies, but also their directors, top-level management personnel, as well as any other person upon whom the directors assign an executive function (e.g. the chief executive officer and the chief financial officer).
What do these Notifications mean to insurance companies?
The Notifications prescribe the structure, composition, qualifications, duties and responsibilities of directors of insurance companies. They spell out how directors should supervise, monitor, and direct the work of each of the functions in an insurance company, as well as particular rules or in-house regulations that directors would need to make available and enforce at their companies.
How should insurance companies respond?
After the Notifications take force (i.e. 26 August 2019), each insurance company will be required to submit a "good corporate governance framework" to the OIC within 30 days. The framework must receive approval from the company's board of directors prior to submission to the OIC. Companies should note that any material amendment to this framework will have to be formally reported to the OIC within one month.
What other important matters should be considered?
Less pressing than the framework submission obligation is compliance with the structure of the company's board of directors provision. It is one of the two provisions which will come into effect on 1 January 2020. Insurance companies are required by law to have not more than one-third of its directors as executive directors and not less than one-fourth of its directors as independent directors. In addition, save for an exemption granted in adverse circumstances, the chairperson must be an independent director or a non-executive director (as defined by the Notifications).
The Notifications specify the qualifications of independent directors of an insurance company, clearing any ambiguity and taking away any flexibility companies previously enjoyed. With these rigid and extensive qualifications, it will be challenging for insurance companies to seek, appoint and fill-up one-fourth of their directors with individuals having those qualifications. Companies are strongly encouraged to revisit the qualifications of their existing 'independent' directors.
What are the risks of non-compliance?
Unlike the previous OIC guidelines in 2014, the Notifications have legal enforcement. Non-compliance with the provisions of the Notifications will subject the company to criminal liability of a maximum of THB 500,000, and daily fine of up to THB 20,000 for each day that the non-compliance continues.
We will monitor the implementation of the Notifications and release further updates as necessary.