Kathmandu. While there are reports of a large group of fraudsters active in Indian states through term insurance, irregularities have started in the business of term and micro insurance in Nepal as well. Microfinance companies have become active in the business of cheating under the guise of insurance.
For the distribution of micro insurance or term insurance, insurers are spending more than the commission rate or management expenditure limit fixed by the Nepal Insurance Authority for this. Due to unhealthy competition among insurance companies to get the business of term insurance, the expenditure has exceeded the limit.
The Insurance Authority has prohibited issuance of insurance policy at the same insurance rate for all age groups on the sale of any life insurance policy. However, microfinance and co-operative societies are buying life insurance at a very low rate, pressuring them to have term insurance at almost the same insurance rate for all ages.
Microfinance companies provide term insurance equivalent to the amount of loan and interest while providing loans to their borrowers. Such term insurance is necessary for both the protection of the borrower and the security of the loan. In the event of the death of the borrower without repaying the loan amount, the microfinance company recovers the principal and interest amount from the claim payment for insurance.
Microfinance companies are taking advantage of unhealthy competition among insurance companies to insure borrowers at very cheap rates. Microfinance companies charge money from borrowers and buy term and micro insurance from life insurers and micro-life insurers. Although there is a high risk in term insurance, all the insurance companies are struggling for this as profit can be booked within a period of one year in case of savings from it.
In order to protect the loan, the microfinance company has the right to receive payment of the insurance amount from the borrower through tamsuk and approval from the borrower at the time of life insurance. If the borrower dies due to non-payment of the principal interest of the loan, the first beneficiary of the insurance money is microfinance. Since microfinance has insured to protect the loan, at first glance it seems to be a very appropriate task. However, there is some irregular work going on in it, about which microfinance, insurers and regulators are all standing in a state of ‘you are silent’.
It has been found that some borrowers’ term insurance has been done by microfinance companies not only with one but also with more than one insurer. In this way, some microfinance companies are doing the business of collecting claim money from all the insurers in the death of the borrower by insuring life insurance with more than one insurer. Elsewhere, the insurer does not have a mechanism or a base to confirm that he is not insured.
According to the employees of the Insurance Claim Department, most of the cases of death claims received through microfinance are suspicious. According to them, the microfinance companies are pressurizing for the death claim on the basis of death registration certificate, citing reasons such as death without treatment, death at home. They demand payment of claims by not giving enough time for investigation.
