Kathmandu. Due to unhealthy competition among non-life insurers, the wrong practice of ‘cash back’ i.e. returning a certain percentage of the premium to the insured has become a trap for the insurer.
Even though the policy is issued at the minimum tariff rate, the tendency to return the amount to the insured has spread alarmingly. This is the reason why the insurer, once known for excellent customer service, efficient management and quick claim payment, is gradually slipping out of the hands of the business.
Currently, 5 to 10 percent of illegal cash back transactions are going on. Those who raise money illegally and those who receive the money cannot disclose the legitimate source of such money, which will ultimately be spent on illegal business.
It has been found that the money given for ‘cash back’ is being collected under the heading of advertisements, various meetings, hospitality, office management, etc.
Even if the insurer can bear the loss of cash back until the claim is not made, it is possible to get into financial crisis due to the small premium savings when the claim is paid.
All insurers are aware of the wrong practice of ‘cash back’ among non-life insurers. With excellent customer service, immediate compensation claims, and years of old business being lost, CEOs do not fail to assume that ‘cash back’ is the reason.
The NRA has issued a circular on September 27 to stop the non-life insurance company from paying any wages and remuneration in cash after it was found that the non-life insurer had spent suspiciously in the heading of wages and remuneration during the on-site and non-site inspection.
The Nepal Insurance Authority (NEA) has fixed the minimum insurance premium rate after the non-life insurers compete to slitch their throats and accept the risk at very cheap insurance rates. The NEA had introduced ‘Minimum Premium Rate for Non-Tariff Insurance’ from June 20, 2021 to curb the tendency of not insuring the engineering insurance of hydropower projects at very low fees.
If the scale of the damage caused by the devastation during the ‘Gen G’ movement is huge, and if the damage is within the limits of the insurers themselves, it is certain that the insurance companies that have been giving cash backs will be affected.
According to the preliminary damage assessment done by the non-life insurer, the claim for damage to the insured property is estimated to be around Rs 22 billion. Actual compensation claims are likely to increase or decrease than anticipated.
In the early days, the CEOs of the insurance companies were anticipating that the volume of the devastation could be even bigger than the 2072 earthquake. This may have been inferred after seeing the devastating scenes broadcast on social media from all over the country.
Hardly anyone could have imagined the unprecedented devastation across the country. Similarly, property insurance is designed to cover unforeseen accidents.
Even if the insurance premium is collected enough to bear the risk specified in the policy, after giving ‘cash back’, the remaining amount of the insurance premium will be less. In this case, there is little chance of adequate reinsurance.
