Sakathmadau. Life insurers, under pressure to provide returns to shareholders in a short time, have recently started prioritizing the sale of term life insurance policies with short-term liabilities.
In search of a short and quick way to meet the expectations of investors along with the increase in paid-up capital, life insurers have now started prioritizing the sale of term and short-term life insurance policies issued for a maximum period of 1 year. There is a provision that 100% of the savings of term insurance policies can be distributed to shareholders. 90 percent of the savings and returns received from the sale of traditional term insurance policies can be distributed to the insured and only the remaining 10 percent can be distributed to the shareholders.
Term insurance income increased by almost 50 percent:
According to the Nepal Insurance Authority, the term insurance premium income of life insurance companies has increased by almost 50 percent by mid-Falgun 2081.82 compared to mid-Falgun 2080.81. As of Falgun 2081.82, a total of 7.15 billion 3.8 million 25 thousand rupees have been earned in term insurance premiums, including foreign employment term insurance. This amount was 4.77 billion 79 million 36 thousand rupees in the last fiscal year 2080.81. During this period, the entry of micro life insurance into the market and the increase in the number of people going abroad for foreign employment also resulted in an increase in income from insurance premiums.
Insurance competition, micro finance quilt
Micro finance and cooperative organizations are taking advantage of the unhealthy competition between life insurance companies. Micro finance is forcing life insurance companies to sign risk-bearing agreements at very low insurance premiums and illegally pressuring life insurance companies for additional commissions based on annual turnover figures. Despite this, the attraction of booking profits in a short period of time is attracting both the top management and the board of directors of life insurers to the term insurance business.
There is a situation where small insurers are taking unfair advantage of death claims by insuring the same borrower under different life insurance policies. Microfinance has ensured the business of microinsurance, but life insurers have been hit by death claims from borrowers who are elderly or chronically ill or suffering from fatal diseases.
The Nepal Insurance Authority, which has brought in the insurance bridge to curb distortions in the business of foreign employment term insurance, now has to take some corrective steps to control the distortions in the term insurance business.
Insurance of a large amount for a small amount of money:
Through a term life insurance policy, the insured gets the facility of bearing a risk equal to a large sum of insurance for a small premium payment. Term life insurance policies are important in Nepal’s insurance market as more than 70 percent of the population is deprived of the benefits of insurance.
Market limited to compulsory insurance only:
The marketing practice of term insurance by life insurance companies focuses only on term insurance that must be done due to easy means and mandatory regulatory provisions. Term insurance is mandatory for the security of loans distributed by microfinance institutions and cooperatives. Foreign employment term insurance is mandatory for workers going for foreign employment. Third party motor insurance is mandatory in non-life insurance. The sale of these three types of term insurance policies is included in term insurance. In addition, group term insurance or accident insurance for employees of organized organizations. Since these insurances have been made mandatory, insurers are doing business. Insurers are not interested in selling insurance policies other than these three types.
Recently, some life insurers have been aggressively selling foreign employment term insurance policies. Although the provision of insurance pool has been introduced for the sale, risk and return distribution of this insurance policy, it has not been fully implemented yet.
Term insurance policies are more beneficial for shareholders than traditional term insurance policies since 100% of the savings of non-profit insurance policies can be distributed among the shareholders.
The regulatory provisions are as follows:
In each financial year, after the determination by the insurer, the Authority shall There is a provision that 100 percent of the savings of non-profit insurance policies can be transferred to the shareholders’ fund. Due to this provision, the top management of the insurer has started selling term insurance policies, even though it is risky.
The regulator has limited the agent commission or management expenses in the sale of term life insurance policies compared to traditional insurance policies. On the other hand, the Nepalese insurance market is small in terms of sales of term insurance policies. Here, when a limited number of insurance policies are sold, there is always a risk that the loss due to claims will be more than the insurance premium income.
