- Dinesh Kumar Lal
Background
Nepal Insurance Authority (NEA) is the process of indemnifying the financial loss of life, property and liability of a person. Insurance is an important tool of risk management. Insurance manages risk by minimizing damage caused by loss of life or property and providing financial security to the property. Today, if we look around the world, there is some kind of risk in the world. It is natural to have human concern and concern about how to get rid of such risks. Insurance cannot prevent any incident. However, insurance has been developed so that human beings can be free from anxiety by compensating the economic losses arising out of the incident. With the development of insurance, its practice and practice is gradually expanding all over the world. Insurance is one of the world’s oldest social tools. In ancient civilizations of the world such as Rome, Greece, Persia, Babylon, China, India, etc., if someone faced a difficult situation in the society, such as theft, fire, death or any other damage, all the householders of the society compensated by donating cash or labor, so that such a person’s economic condition was restored in the society. It is believed that the use of the term insurance developed at the height of Persian civilization. After the development of marine and fire insurance, life insurance has been developed since the middle of the sixteenth century, while various insurance has been developed and expanded since the second half of the nineteenth century. Engineering insurance, contractor risk insurance, micro insurance, health insurance, livestock and crop insurance are the products of modern insurance.
If you look at the history of insurance in Nepal, it has not even reached a century. After the establishment of Nepal Bank in 1994 BS, it was necessary to insure the goods that were imported and exported in the banking system to provide financial security to the goods that were mortgaged. In 2004 BS, Nepal Goods Challan and Insurance Company was established as the first insurance company at the initiative of Nepal Bank. Through this company, the way was opened for those who want to insure Nepali goods in Nepal. As the need and importance of insurance increased, insurance companies were gradually established with the investment of the government and private sector. Currently, there are 37 insurance companies operating in Nepal including 14 life insurance companies, 14 non-life insurance companies, two reinsurance companies and seven micro-insurance companies. These insurance companies are being regulated by the Nepal Insurance Authority. Insurance practices vary globally due to differences in a country’s laws, regulations, social, cultural, economic and political conditions, people’s needs, risk conditions, and the structure of the insurance market. However, there are some practices and principles, which are followed in most countries. The international practice of insurance and its impact in Nepal can be discussed point by point as follows.
International practice
1. Types of insurance
Generally, there are three types of insurance: life, non-life and reinsurance. Life insurance refers to a contract made by the insurer with the insured to receive a certain sum of money in relation to the life of a person, depending on his age, in a lump sum or installment, by the person authorized by him or the person authorized by him or the person he wishes or his entitled person as mentioned in the insurance policy in the event of his death. Similarly, non-life insurance and reinsurance insurance is non-life insurance. Non-life insurance refers to an agreement made by the insurer with the insured to provide a certain amount of compensation or compensation for accepting the risk mentioned in the policy by charging insurance fee in relation to the risk of any property or liability. And a reinsurance is a contract made by one insurer with such insurer to bear the risk of a fraction of the risk held by the reinsurer or another insurer.
There are three types of insurance in circulation in any country of the world, while similar types of insurance are also prevalent in Nepal. Under life insurance, term life insurance, life insurance, term life insurance and miscellaneous life insurance are purchased by the insured all over the world. Under non-life insurance, various non-life insurance articles such as home, property and business insurance, motor insurance, transport insurance, engineering insurance, air insurance, liability insurance, health insurance, micro insurance, agriculture, livestock and herbal insurance are in circulation.
2. Regulation
The regulation of the insurance industry varies from country to country. Regulation by establishing separate institutions in each state is a decentralized structure, and if all states are regulated by the same institution, then it is centralized regulation. The U.S. and Canada have decentralised regulation by setting up separate regulatory bodies in each state. Countries like Nepal, India, Bangladesh, Pakistan and Japan have adopted a centralized regulatory system. In some countries, banks, insurance and capital markets are regulated by the same regulatory body, while in some countries, banks and insurance are regulated by the same institution. Switzerland, The United Kingdom and China regulate the multi-sector. The insurance sector in Nepal is regulated by the Nepal Insurance Authority. The scope of regulation includes insurers, reinsurers, insurance agents, insurance surveyors, insurance brokers, TPA, insurance bridges, insurers, etc. They include registration of license, renewal, fixing minimum capital, approving the policy, fixing the rate rate of the policy, deciding the dispute of the insurer and the insured, supervising, controlling, promoting and developing, protecting the insured interest in the insurance sector, ensuring solvency and fair practices. The government has set up the Nepal Insurance Authority in Nepal to carry out such activities.
3. Insurance rate
Internationally, the determination of insurance rates in the market is determined by the insurance market, market experience, and the amount of personal claim payments and total trade. Deterrif is practiced in the global insurance market, while in Nepal, mainly marine insurance, motor insurance, property insurance, non-life insurance and foreign employment are in circulation under term life insurance tariff. Apart from this, other life insurance and non-life insurance policies are in vogue under non-tariff. Due to the determination of insurance rates in Nepal, the portfolio of the above insurance business is in profit. Analyzing international practices, Nepal’s tariff product is a bit expensive, which is beneficial for international reinsurance companies. As a result, world-renowned reinsurers such as JIC Re, Munich Reinsurance, Hannover Reinsurance, Swiss Reinsurance are being attracted to calculate business insurance fees in the insurance market in Nepal. Nepali reinsurers Nepal Reinsurance Company and Himalayan Reinsurance are doing insurance business on tariff and non-tariff basis.
4. Insurance count
In the international insurance market, life insurance charges are usually calculated on the basis of risk assessment factors such as the insured’s age, health status, occupation, location, and type and amount of protection. Even in Nepal, the insurance fee is calculated on the basis of the above.
5. Insurance broker
Insurance brokers play an important role in the international insurance market. Insurance brokers are the main intermediaries of the insurance business in many countries of the world. who acts as an intermediary between insurer or reinsurer and reinsurer in the insurance business. To mediate with another reinsurer on behalf of the insurer on behalf of the insurer regarding the liability arising under the policy issued by the insurer, to provide reinsurance specialization services and technical advice, to analyze the data of the insurance and reinsurance market and to provide it to the reinsurer and reinsurance, to assist in the preparation of the reinsurance agreement and to help in the settlement of the take and due as per the agreement, to prepare the reinsurance claim payment agreement; In order to assist in arranging appropriate reinsurance according to the risk, issue cover notes according to the consent of the insurer and reinsurer, and arrange for reinsurance, they get the appropriate reinsurance rate for the insured. In the global insurance market, there are renowned big insurance brokers like Mars & Mallen N CS Inc., Aon Plc, Ather J. Sallagher & Co. Willsey Towers Watson Plc, Hub International. In Nepal, a total of 16 reinsurance brokers, both domestic and foreign, have been carrying out activities as per the above international practice after the Directive on Reinsurance Brokers, 2078.
6. Reinsurance relationship
A reinsurance is a contract made by an insurer with a reinsurer or another insurer to bear a risk greater than what it holds. Once the insurer accepts the insurance risk from individuals, he determines the financial burden he can bear at the risk and transfers the rest of the risk to the reinsurance company. The main objective of reinsurance is to increase the underwriting capacity of the insurer, to bring flexibility in the insurance business and to bring stability in the account of the insurance business. At the international level, there are some similarities in insurance agreements. For example, the terms and conditions for the reinsurer to accept the fate of the insurer, the condition of settlement of the default, the conditions related to arbitration, the conditions related to the payment of premium, the conditions related to the termination of the reinsurance agreement and such terms are the conditions to be followed by the insurance companies registered in Nepal while entering into the reinsurance agreement. Internationally renowned reinsurance companies such as Munich Reinsurance Company, Swiss Reinsurance Company, Hannover Reinsurance Company, etc. are doing reinsurance business in the global insurance market and these companies have also shown their presence in the Nepali insurance market. In this way, reinsurance is not limited to one country but has expanded to different countries. There are only two types of insurance at the international level, beneficial insurance (optional reinsurance) and contract reinsurance( treaty reinsurance). Two decades ago, there were no policies, guidelines and guidelines available in Nepal regarding reinsurance, so insurers were free to choose reinsurance. However, based on international practices and practices, all insurance companies in Nepal prepare their reinsurance policy, approve it by the Board of Directors every financial year and submit it to the Nepal Insurance Authority. According to international norms, the level of reinsurance should be re-insured only with the minimum BBOB level set by the regulatory body of the concerned country, while in Nepal, as a result of this, reinsurance should be done at least as determined by the international rating agency reinsurance from the BBB level.
7. Claim process
Claim payment is the act of compensating the insured financially for the loss caused to the insured person, goods, property and liabilities due to any incident. The process of timely and fair claim payment is important for maintaining customer trust at the international level. The insurer has to pay the insurance claim to the insured within the period mentioned in the policy. The insurer evaluates the claims submitted by the insured to determine his liability on time. If the claim is not paid as soon as possible, then there is no justification for insurance and the credibility of the insurance in the public will also decrease. Therefore, insurance companies and reinsurance companies have to pay claims to the insured. Internationally as well as In Nepal, there are certain procedures for payment of insurance claims. Insurance companies pay claims on the basis of insurance act, 2079, insurance regulations, 2081, claim payment guidance, 2080 and instructions issued from time to time by the Nepal Insurance Authority and the manual related to the payment of claims of insurance companies. According to the law, if the insurer does not pay the claim to the insured or if the claim is paid to the insured, then the insured can file a complaint with the Nepal Insurance Authority against the insurer. The authority decides on the complaints received after necessary investigation. Even at the international level, if the insurer is not satisfied with the payment of the claim, then there is a provision to appeal in the disputed section.
8. Universally accepted principles of insurance
In all countries of the world, the universally accepted principles of insurance are followed in the same sense. The principle of insurance is a kind of rule-making process. Some countries have laid down the principles of insurance in insurance laws. Although insurance principles are provided in the Insurance Act and Regulations in Nepal, these principles are mentioned in the insurance policy as a contractual condition. Reinsurance of insurance companies that do not follow the basic values and principles of insurance is not accepted. There are some universally accepted principles of insurance, such as the principle of absolute good faith, the principle of insurable interest, the principle of indemnity, the principle of anticipation, the principle of proximity, the principle of contribution. These principles must be fully adhered to internationally by all insurers, insurers, reinsurers and other insurance service providers. If these principles are not fully adhered to, the insurance business cannot run, so that one insurer’s risk may not be accepted by another insurer. Also, there are problems regarding insurance claim payment. Insurance is a business based on trust. Therefore, the universally accepted principles of insurance should be followed by all parties. In Nepal too, the insurance business is being run on the basis of the universally accepted principles of insurance.
9. Small insurance
Micro-insurance is an insurance for economically backward poor and low-income marginalized communities. The provisions of providing insurance cover to economically and socially backward classes through micro-insurance vary in different countries. In other countries, micro-insurance is designed to protect the target groups from the risks they may face. There are features like easy and easy access of the general public to micro insurance, easy and easy access to insurance fees with small savings, including more protection at a low insurance fee, less insurance, easy and quick insurance claim process. The concept of micro insurance has also been introduced in Nepal by adopting such international practices. At present, there are three separate micro-life insurance companies and four small non-life insurance companies in Nepal.
10. Marine insurance
Maritime insurance refers to an insurance that deals with the risks involved in transporting cargo using one or more means of transport. In other words, maritime insurance is an insurance that deals with potential damage to goods brought from one place to another by water or land. In international practice, the terms of the contract are mentioned in the Letter of Credit (LC) and Perfume Invoice, the basis for import and export of goods under maritime insurance.
For example terms such as
- FOB–free on board
- CIF– Cost Insurance and Freight
- C&F– Cost & Friet
- CFR– Cost and freight honor railing
- EW– Xwork
On the basis of the above, in the case of accident or damage, the decision is made on the basis of the insured interest. In Nepal too, maritime insurance business is carried out by recognizing ICAO terms as a result of this.
11. Insurance bridge
Insurance bridge is a collective insurance fund established by the insurer to collectively bear the risk, deposit the insurance fee in one place, arrange for reinsurance and to arrange claim payment in relation to a certain type of insurance or risk. If there is a new risk or such insurance business in which the claim is not experienced or the claim is high but such insurance is necessary for the country in the society, then all the insurance companies together form a bridge under the supervision of the regulatory body and do insurance business. At the international level, third party insurance, agricultural insurance, hydro insurance, air insurance have been formed in motor insurance. Influenced by this, the risk group, foreign employment insurance pool, third party insurance bridge in motor and corona insurance bridge have been formed under the supervision of Nepal Insurance Authority.
12. Air insurance
Air insurance refers to insurance against the loss of aircraft, aircraft goods and passengers due to accidents. At the international level, air insurance is made mandatory in all countries of the world. According to international practice in the field of air insurance, the Montreal Convention was recognized, but in Nepal, only $ 420,000 was paid according to the Versace Convention. However, since Nepal has signed the Montreal Convention, it can get a claim of about $ 4.175 million per passenger in case of damage caused by an air crash. According to the Montreal Convention, there is uniformity in the amount to be paid for accidental death, airplane delay, and damage to goods. In this, if the passenger of any country suffers loss in any country, then the amount is received. Such a practice is also prevalent in nepal’s aviation insurance business.
13. Use of technology
In the international insurance market, the issues of filling proposal forms, approving, evaluating, pricing insurance premiums, issuing insurance policies and paying claims and managing data also play an important role in insurance practices. In which the citizens of any country can get insurance services using technology from anywhere in the world. Due to the development of increasing technology, insurers and insurers in the Nepali insurance market are also working on buying and selling insurance policies using technology.
14. International Trade Organization
The World Trade Organization (WTO) is the world’s leading organization related to international trade. It provides for international standards for export and import of goods and services. The production of any nation reaches anywhere in the world through trade. Insurance is thus involved in the transfer of services and goods. Insurance is also being included in the transfer of goods and services as an international practice in Nepal. At the international level, various international organizations and organizations have been working on insurance. The members of these organizations are regulatory bodies in different countries of the world. It has been supporting insurance policy formulation, development and expansion of new technologies, capacity building of human resources and coordination and collaboration with regulatory bodies and insurers. The International Organization of Insurance Regulatory Bodies (IAIS) is an umbrella organization of supervisors and regulatory bodies of the insurance business. It encourages member states to formulate the basic principles of insurance on a global scale in effective regulation of the insurance market. Nepal has also been issuing necessary policies, rules and directives for regulating the insurance market in line with the spirit of the insurance core principal propounded by IAIS. Nepal Insurance Authority has been a member of this organization since its inception. At the international level, various other organizations have also been supporting coordination and collaboration for insurance development. Such as: International Organization of Insurance Regulatory Bodies of Asian Countries (AFIR), World Bank, Toronto Centre, Asis to Insurance Initiative, Micro Insurance Network, UK Aid, GIZ. Nepal has also been following the international practice of insurance by collaborating with these organizations.
Conclusion
The development of a country’s economy can be measured by the soundness of the insurance market of such a country. Because in the modern era business activities depend on the availability of insurance. The insurance industry provides capital for employment, capital formation, savings mobilization, economic security, social security, reconstruction of damaged assets, increase in GDP and investment in various sectors in the economy. Therefore, a world without insurance cannot be imagined, and if there is loss and economic loss in one country, its impact will not only be in that country but also in other countries. Such financial compensation should also be borne by other countries through insurance. The credibility and sustainability of the insurance business must be ensured. Although insurance practices vary globally due to differences in international insurance practice rules, cultural norms, economic conditions and structure of the insurance market, some practice principles, rules and procedures are followed in the same way in most countries, while Nepal has also been following international practices and practices accordingly.
Dinesh Kumar Lal is a former director of Nepal Insurance Authority. This article has been adapted from insurance news and views published on the 57th anniversary of the Insurance Authority. )
