Kathmandu. With the growing size of Nepal’s insurance industry, the Insurance Act 2079 was issued by the House of Representatives to make the regulation of the insurance sector effective. Insurance Regulations 2081 have also been issued for the implementation of the act.
The Nepal Insurance Authority is a body established purely for the regulation and promotion of the insurance sector. Effective regulation of the insurance sector is its main responsibility. Ironically, the authority seems to be failing in this main responsibility. There is an urgent need for the authority to take some important reform steps to maintain its dignity as a regulatory authority and to upgrade the overall insurance sector of Nepal.
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## ##Strict monitoring, weak action
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## The Insurance Authority has been conducting on-site and off-site monitoring of the business of insurers based on the level of risk. The Authority’s employees, who are deployed during such regular monitoring, appear very serious during the monitoring, conduct thorough research and find dozens of complaints. Then they ask the insurer for explanations regarding the complaints, most of the explanations are not satisfactory and old mistakes of a serious nature are repeated. After this, the duty of the Authority as a regulator is to take action against the insurer. However, no action is taken, there is a blunder. The report is hidden or shelved. This process continues like this. There is a fear that the authority will take action, but the concerned officer of the insurance company has become confident that it will be settled anyway.
The authority has issued dozens of rules, directives, guidelines and circulars for the effective regulation of the insurance sector. The authority seems mysteriously innocent until the provisions mentioned in these legal documents are directly violated. On-site and off-site inspections have all become mere rituals.
The challenge of the authority is that it is unable to regulate insurance companies effectively. Despite not following so many policies and rules, it has not been able to bring them under the ambit of action. Even when there are complaints in the on-site inspection report, it has not been able to take action. We have many laws and rules to regulate insurance companies, but they have not been implemented effectively.
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## ##Lack of unified guidelines
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## In recent times, the Authority has been issuing specialized guidelines, guidance and circulars on many subjects for policy clarity. However, there is no unified guideline to cover such documents issued by the Authority. Due to the lack of storage of old circulars issued by the Authority itself, when it is necessary to study a subject or study old documents on a disputed subject, the Authority itself does not have a systematic record of its circulars, policies and guidelines.
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## In a recent dispute regarding a non-life insurer, the insurer is presenting its argument based on the Authority’s circular of 2058 BS. However, the irony is that the Authority itself does not have that document to verify the insurer’s claim.
Inter-branch information exchange within the Authority is also not regular and effective. Information storage has not been systematic and reliable.
##Making arbitrary policies and regulations
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## It is natural for the Authority’s divisions and branches to issue instructions, guidance or circulars on related matters as required. Before issuing such regulatory documents that are applicable like laws for insurance, it does not seem that the legal department has taken the opinion of the subject matter expert as well as the opinion of the legal department regarding their inconsistency with the prevailing laws. Even when issuing arbitrary documents, integrated record-keeping has not been done.
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## ##Work according to qualifications
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## The practice of assigning the responsibility of work according to qualifications to the human resources working within the authority has not yet matured. The tendency of changing the responsibilities of employees in a short time, giving responsibility to those who are not qualified and leaving the qualified ones aside still seems to exist. Employees have not been given adequate training opportunities to enhance their skills in a timely manner.
##Implementation of Insurance Regulations
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## Effective implementation of the recently issued Insurance Regulations has also emerged as a challenge for the Authority. The Authority will have to address the issues of insurance agents, web aggregators, insurance information centers, and insured interest protection funds included in the Insurance Regulations. The Professional Insurance Agents Association has already formally objected, saying that the provisions of the regulations will deprive agents of their profession. If the Authority does not take the initiative to address their concerns in a timely manner, the entire life insurance business is likely to be affected.
The Authority has issued licenses to 17 companies to operate as insurance brokers. There is a policy ambiguity regarding which department of the Authority will monitor and regulate these companies.
##Distortions in Small Insurance
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## Based on the number of insurance policies and the ratio of population, 36 percent of the population is covered under the insurance protection umbrella. This means that the majority of the people are deprived of the benefits of insurance. According to the fourth public Nepal Living Standards Survey (2079.80) a year ago, 20.27 percent, or more than 5.8 million people, are still below the poverty line. Such a challenging situation reflects how indispensable microinsurance is for Nepal.
The Kathmandu Valley-centered offices and activities of microinsurance companies licensed to expand access to insurance to the poor and marginalized groups are troubling the Authority. The very same group for which microinsurance companies were licensed to serve has not been a priority for microinsurance companies.
The existence of microinsurance companies will have no meaning unless the needs of the marginalized groups are addressed and they are included within the insurance protection circle. In order to create a basis for meeting operating expenses while remaining loyal to microinsurance companies, the Authority has provided protection in foreign employment insurance and vehicle insurance.
Only if the micro insurance company is sent there to provide services to the same class for which it was established, will it bring opportunities for the development of the entire insurance sector. While micro insurance has been allowed to be established in the provincial office, no insurer has an effective presence there. Although they have been given permission to insure small insureds, they want to insure like big companies and are seeking policy facilitation from the regulator. However, they have failed to fulfill their duties as micro insurers.
Should they provide so-called micro insurance by making six houses in big cities or should they expand their services by insuring the homes and property of the poor by reaching rural areas? This question has been raised before micro insurers.
