Major shareholders of ins. companies can’t also be major clients: Property and liability ins. companies will be restricted in how much business they can do with their principal shareholders under a recent decision from the Financial Regulatory Authority (FRA). Shareholders will now only be able to account for 10% of insurers’ total premiums in a move designed to curb concentration risk and minimize conflicts of interest.

What’s the logic here? Shareholders can often receive preferential treatment from insurers in which they hold stakes when taking out policies on separate holdings, including markdowns and lightly-scrutinized claims, which could put the insurer at financial risk, a source at the FRA told Enterprise yesterday. Limiting the number of policies insurers can write for their owners also helps mitigate portfolio concentration, they said.

Regulators have been stepping in in recent months to curb concentration risk — which arises when a financial intermediary is overly invested in a single individual, company, sector, or related group. Mortgage and consumer finance companies are examples of non-banking financial services players, which all fall under the FRA’s purview, currently subject to limits against concentrated portfolios (see our coverage here and here). Other rules by the central bank also prevent commercial banks from lending more than 15% of their base capital to a single borrower— what’s called a “single obligor” limit in the trade.