The financial system is not limited to a single geography. It is a global issue. This complex system is being addressed by the insurance regulatory body, adopting the policies and regulations that have been adopted internationally.
Although this journey is complex and complicated, its implementation is certain to change the landscape of insurance in a different way. Because overall, ORSA, Risk Based Capital and Financial Soundness (Solvency) will strengthen the entire insurance sector and establish healthy competition among insurers. The implementation of ORSA will begin an important chapter. The effectiveness of the financial system, sense of responsibility, financial discipline, managerial thinking, level of risk management, etc. will also be effectively depicted.
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## ##ORSA, Risk Based Capital and Financial Soundness (Solvency)
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## ORSA helps insurers to identify their risks in a timely manner, assess the risks, make correct decisions and manage the results of that assessment. Under this process, risks such as risk, concentration risk, investment risk, operational risk, reinsurance, credit risk, etc. It fully approves the insurer’s risk management and evaluates the adequacy of capital in proportion to the risk through solvency, thereby fully depicting the insurer’s current and future risks and financial strength. Its assessment method is both quantitative and qualitative. Its objective and process not only covers this but also other impacts on the insurer’s risk profile, strategy and regulatory compliance, etc. and plays a major role in taking relevant decisions and being aware of them within a timely manner.
It is necessary to determine the strategy, business growth policy, risk appetite, risk tolerance to be taken by the insurer, while the ORSA directive has it as one of the main points of the insurer’s business model. It may be challenging to adjust its parameters in the initial stage.
Solvency margin is a key financial indicator for the insurer to measure the current and future financial position. During stress testing or in the event of any natural disasters, it mainly shows whether the insurer is able to pay claims arising from various risks assumed by the insurer. It is a mathematical assessment of the excess of assets over liabilities of an insurer. Which is mandatory by the regulator. The calculation of the solvency margin is done under the framework of risk-based capital, while the basis of risk-based capital is the risk profile of the insurer. Its main function is to determine whether the capital management, risk profile and the policy and business policy of the insurer are aligned with each other. Its other bases include financial risk, insurance risk. Risk-based capital mathematically assesses the measurement, need, availability, and adequacy of capital for the risks identified by the ORSA. For example, it evaluates the bases of unearned premium reserves and unexpired risk reserves, evaluates the bases of various types of reserves, investment bases, which results in the amount or percentage of capital to be charged. Therefore, the important subject for insurers is ratios or financial indicators. Which provides guidance to the insurer to move forward.
ORSA, Risk Based Capital and Financial Soundness (Solvency) are all regular processes for the insurance company and if aligned with each other, it strengthens the financial health of the insurer. In addition, it provides stability to the financial system and establishes a strong financial foundation for the insurer’s risk management system. However, it is necessary to properly evaluate and analyze both the theoretical and practical aspects of the challenges that arise in the initial stages of implementation. The more the gap between the theoretical and practical aspects can be reduced, the more effective and result-oriented it will be.
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## ##Insurers’ awareness of risk and making the insurance market competitive
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## The main function of insurance is to effectively manage various risks and pay claims to the insured for losses and to conduct its insurance business under the guidance of regulators. ‘Risk comes from not knowing what you are doing’: Warren Buffett. In the way that the entire insurance sector is moving towards adopting the concept of the financial system. The importance of this statement is equally important.
Orsa is the benchmark for insurance companies’ risk management and financial condition. The higher the risk, the more proportionately capital is managed. In order to move forward with an aggressive market policy for business growth, capital according to risk is required in addition to the minimum regulatory capital. That is why it is right to say that this risk-based capital guideline has also come into existence. In the coming days, adopting an aggressive business policy will change the mindset of being a large insurance company based only on the insurance business. These guidelines will make it difficult for the mindset that success can be achieved by expanding the business network in a short period of time. It is probably impossible to say which portfolio insurance companies will go towards in the future.
Especially risk profile, governance, risk awareness, etc. have important meanings. Therefore, for its implementation, it is necessary for the insurer to develop a risk management culture by being self-aware of the assessment and evaluation of the risk system. Everyone needs to be educated on how these guidelines help strengthen the company’s baseline. And since there is a strong possibility that the insurance landscape will move forward in a different way and insurance will emerge as a very emerging sector, it seems that those who are new to the insurance sector or intend to make a career in insurance or those who are insurance professionals in the insurance sector, who have a mindset and style that focuses on the results of their work rather than the traditional style and who are particularly aware of the use of various technologies, digital platforms and financial analysis and who perform their work accordingly, will be successful in the insurance profession.
Since the practice of ARSO gives importance to the practice of evaluating risk from a broad perspective in a subtle and mathematical way, it can question the current thinking and mindset towards risk. Risk management, ORSA’s approach should also be taken into account in its responsibilities and regular work, otherwise the understanding and learning alone can appear as a challenge to many insurance professionals. Therefore, it is necessary to pay positive attention to the issues pointed out by risk management and the information received from the Chief Financial Officer.
The work of actuaries in the insurance sector is important. The introduction of a guideline in this regard is a good sign for the overall development of insurance. They can be considered as the first brains for the insurance sector. In this context, the challenge may be brain drain. How brain gain can be done in this is worth considering.
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## ##Insurance Awareness
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## Naturally, the relationship between insurance and risk is inextricably linked. Generally, risk is understood as the possibility of something not happening as expected, the possibility of a worse outcome than expected, and for insurance, risk is the certainty of financial loss, and where there is risk, there is insurance.
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## The non-life insurance market in particular is a larger share of the policy-mandated insurance. For example, third-party insurance for vehicles, comprehensive insurance for contractors, agricultural insurance, insurance for obtaining loans, etc. You can read news that some local governments are automatically instituting insurance in their areas. This is a positive aspect to be aware of.
Although insurance is not a new topic at present, it is usually done only in cases of necessity and necessity. People do not agree or do not want to take insurance except when it is mandatory. Some customers say that they no longer need insurance after paying off their loans from financial institutions. Some insureds who take insurance also take insurance for a few years, and if there is no accident, they think that they do not need insurance and do not do so. Since insurance is not mandatory, it cannot be made compulsory for insurance.
Even if we look at the risks geographically, we can take the great earthquake of 2072 BS and the floods and landslides of 2081 BS. Apart from this, we can also take forest fires that occur from time to time. The damage they cause can be unimaginable. Although we may not have experienced earthquakes and floods, we cannot say that fires cannot take a terrible form in the future as human settlements expand. An example of this is the recent fires in the United States.
We may not be able to estimate the risks and damages that may occur due to digital platforms and new technologies (cyber risk) in the future. Another important issue is related to insurance entrepreneurship. Insurance helps any person or entrepreneur in reducing risk. He can do any business with confidence and if something happens in the future, insurance takes care of taking him back to the same position. No one has to bear the financial burden in this. However, even though the history of insurance is long, it would not be wrong to say that insurance has never been a priority in terms of policy. When the scope of insurance is being raised repeatedly and disasters are being faced, it seems that a solution should be found at the policy level.
Some time ago, there was sad news that 4 people died in a gas explosion in a mam shop in Kathmandu. With their deaths, the financial situation of their dependent families was further aggravated. What will be the financial situation of the remaining family after the death of the breadwinner? How will they make ends meet? Therefore, if a rule is made that all workers, no matter who they are, wherever they work, should have compulsory accident and health insurance, it will provide relief to such people and their dependent families. Instead of unnecessary disputes and legal hassles in times of grief, insurance will provide compensation to the deceased’s family, and it will not only maintain financial but also social harmony.
Therefore, if insurance is made mandatory in all economic activities and other areas, its impact will be positive. It will be irrelevant in the current situation to think that any disaster can be managed only through the budget. The right decision is that instead of spending the large amount of money received from the budget on disaster management, it can be spent on other development activities. It seems that everyone will benefit from this. Therefore, it is necessary to keep insurance within the scope of economic development. In this sense, each municipality and province needs to formulate an insurance policy in their respective areas. It is necessary to bring all people within the scope of insurance in their areas. The benefits provided by insurance can be reviewed and the success stories of this can be spread to other areas and encouraged to take up insurance. If possible, a separate desk can be set up for this task. The advantages and disadvantages of having insurance and not having it should be discussed regularly with the residents of their areas. The insurance industry should not be the only one involved in this issue, the government machinery needs to be aware of it. Due to this, after the state formulates a policy, the people have to obey it.
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## ##General understanding of insurance
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## Insurance has reached its current state after overcoming the ups and downs of the past many years. This has been possible only because the interests of the insured have been taken into account. I would like to mention here my experience of going to the western field to understand the understanding and condition of insurance through a program recently. There, I felt that insurance is not a new subject from discussions with local government representatives and the general public, and emphasized the need to simplify the process for insurance claims. He expressed his regret over the compulsion to visit various agencies for damage verification. He expressed the view that insurance should cover all risks. He expressed his anger at not receiving the claim due to the lack of photos required for the death claim under animal insurance. He also complained to us that he did not receive the health insurance payment from the state.
Similarly, a person had insured the property of his shop. When the insurance was taken out, its value was 7 million. But the actual value was 2 million and the shop was completely destroyed in the fire. After the damage assessment, he received 1.8 million. This was the correct assessment of the damage. However, he was not satisfied. His opinion was that the assessment should have been 7 million. Some also said that the insurance premium should have been lower.
Some people said that they should receive the payment of the claim and expressed their regret at having to go to the district headquarters for the necessary documents for the insurance claim. Some were happy that they had received the claim payment for the damage. Everyone needs insurance and even if it is necessary, the insurance was found to be insufficient.
Although insurance is mainly a bilateral contract in the legal system, there is a problem for insurance in identifying its customers. Therefore, to solve all these problems, it seems that if insurance is prioritized before any financial transaction and there is a direct contact between the actual insured and the insurer, such problems will not arise. By making a policy that gives insurance an important place in the process of every work, there will be no dispute for anyone and the real rich or insured will definitely benefit from insurance during a disaster. Unnecessary misunderstandings that arise from unrelated elements regarding insurance claims will be resolved. Insurance will be simpler and easier if a policy is made to easily obtain the documents required for insurance from all concerned bodies at the time of claim.
The proposer or insured must first provide the information required for insuring their property and the information asked in the question form, such as the lot number, complete details of the property to be insured, and the name of the landlord. General details also cause problems at the time of claim. The address of the property to be insured and the address of the insured may be different. This also creates problems for the insurer. If the insurance number is low according to the insurance rules, an average condition is applied. If the complete details of the insured property are not received, how will the insurer know which property is insured?
A similar problem arises in vehicle insurance. Especially in commercial vehicles. No matter how many times an insured vehicle is bought or sold, the name of the insured must be amended in the insurance policy. However, in practice, this is not found to be implemented much and only negative comments are received that the insurance company did not grant the claim.
For the convenience of the insured, instructions have been received from the regulatory body to arrange SMS about the status of the claim process. This is a good arrangement for the information of the insured. However, since commercial vehicles are affiliated with various committees and insurance is also obtained under them, the access of the insurance worker to the actual vehicle owner or the insured is reduced, making it difficult to fully adopt it.
Financial institutions can evaluate their customers’ houses and land for collateral and provide loans as per their rules. However, insurance only insures the structure, not the land. If the insurer receives the address of the land as per the information received for insuring and the insurance policy is also issued accordingly, the insured will be unable to provide compensation.
These are just a few examples. Such problems exist in other products as well. If the insurer cannot pay the claim even though it wants to, then it seems that no one will benefit from having a problem after getting insurance like this. Who should be held responsible for this? Some of the responsibility for this lies with the insurance company, but the lack of access to the customer is another problem. ‘
Insurance has its own principles and scope. It seems that it is necessary to create a proper base rate modality for determining insurance premiums. It is customary to look at the history of claims while insuring and this should be mentioned in the proposal form. In fact, it would be good if those who have received claim payments practice taking a few percent more insurance premiums on that base rate! This seems to provide relief to the insured who have not had a claim. Some insureds complain, saying, ‘I have been insured for so many years, I have not made a claim yet, but I still have to pay the same premium.’ Their statement seems to be right in a way. It is necessary to evaluate the difference between receiving a claim and not claiming! That is why non-life insurance pays a large amount to claimants every year for claims. Even if we look at the ratio of insurance premium and claim, no claimant has any basis to complain. Although insurers are aware of the claims of their regular customers, if the details are not clarified for new customers, problems will arise, so the relevant departments need to be aware.
If a separate, independent, impartial, and systematic system is developed for false claims and fraud in insurance, not only an insurer or insured, but the entire economic cycle will benefit from insurance, and this will be a good lesson for those who create ‘means of earning’ in the name of insurance.
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## ##Information Technology and Digitalization
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## If information technology and digitalization play an equally important role in any sector, then the insurance sector is also not left untouched. Even small details related to risk are of great importance. Its use makes any process easy and makes complex mathematical calculations simple. Those small but important details help in analyzing the overall risk parameters.
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## In the current situation, data is of great importance for the development and promotion of any sector. Information or information obtained through quality data proves to be a milestone for the implementation of these guidelines. Its use seems to be effective in making policies, evaluating, monitoring, and predicting the future. Therefore, the question of what kind of basic facts or details should be entered into computer data is important. If sufficient attention is not paid at the initial stage to how to track which risks, the problem of not having the necessary details available on time, or the availability of incorrect details, can affect the quality of the data and, as a result, it affects the policy-level issues.
Basic standards are needed to make this type of method and system realistic, accurate, and systematic. This will ensure uniformity in the details entered by insurance companies, quality data will be obtained, which will help in various issues such as detailed risk analysis, penetration of the insurance business, areas not covered by insurance, insurance market trends, and product utility in terms of sector. These data can be useful not only for the insurance sector but also for other sectors. Therefore, it seems that if policies, standards, and implementation aspects are made by paying attention to information technology and digitalization for the implementation of ORSA, it will be more effective.
While being aware of your risks, you also have to face some external challenges, such as data required for natural disasters. This data may have to be obtained from various agencies. If the analysis of this data is needed to estimate the possibility of natural disasters such as earthquakes, floods, and landslides in the country and arrange for reinsurance, then a complex question arises as to whether this data can be provided or not, or even if it is obtained, how accurate and realistic it will be.
As the scope of insurance is accelerating over time, it seems that it will be challenging for insurers to manage balanced reinsurance under their risk profile if such important data required for reinsurance is not obtained. With the increase in reinsurance risk, its cost will increase and it seems that the insurer will have to incur additional financial burden as additional capital has to be arranged as per the ORSA guidelines. In fact, insurance is also a profitable business. Therefore, if facilitation is provided from all sectors in such matters, a prosperous future can be envisioned.
##Insurance, public confidence and ecosystem
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## To change the attitude towards insurance, the insurance sector needs to make the public aware of risks by providing information on how to insure their property under the ‘Insurance Literacy’ campaign. How to make insurance easy and accessible? Insurance plays a catalytic role in the ecosystem, including social. To make insurance easy and accessible, it is necessary to prioritize insurance and facilitate it from the level concerned with policy formulation.
If these challenges seen in the implementation of ORSA are addressed and challenges are transformed into opportunities, the year 2084, when the ORSA Directive will be implemented, will be historic for everyone.
