. A new study by the Insurance Authority of Nepal (NIA) has pointed out that there is unbalanced competition between traditional insurance companies and micro insurers in the micro insurance sector in Nepal.
} The micro insurance promotion exercise that started in 2014 after the release of Micro Insurance Directive has taken a new turn with the legal provision to license micro insurance companies in 2023. Currently, there are 7 micro insurance companies operating in Nepal.
} According to the report, traditional insurers have given microinsurers a regulatory advantage by providing them with lower capital and regulatory fees. Micro insurers, on the other hand, say that established companies have a hard time entering the market due to their brand recognition and large market reach.
The TAG_OPEN_p_15 report recommends clarity in the guidelines to “ensure equitable competition”.
In the year 2080, 7 microinsurance companies were given licenses. While the move is aimed at deepening financial inclusion, traditional insurers argue that the regulatory distinction is unclear, except for minimum capital and regulatory fees.
Microinsurers are required to pay a regulatory fee of 0.5 per cent on premium income.TAG_OPEN_p_13 This is 0.75 percent for traditional insurers. They run a business with a remarkably low capital. A minimum paid-up capital of Rs 750 million has been fixed for micro-insurers and Rs 5 billion for traditional insurers. However, beyond these structural differences, the product range, insurance rate structure and compliance expectations are largely the same.
TAG_OPEN_p_12 There is a lack of clarity on whether traditional insurers can regularly sell old microinsurance plans.
Uniform insurance rates have been maintained, removing pricing flexibility. There is no proportionate difference in fines and penalties under the Insurance Act. Micro actuaries also have the constant burden of full actuarial and compliance costs.
On the other hand, the regulatory behavior is discouraging innovation and long-term investment in microinsurance by large insurers.TAG_OPEN_p_10
This report by the Insurance Authority of Nepal (IBA) has concluded that a clear distinction of roles and responsibilities is necessary to ensure fair competition and to avoid regulatory arbitration.TAG_OPEN_p_9
