- Bina Bhusal
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On September 11, 2001, terrorists attacked the World Trade Center (Twin Towers) in the United States. More than 3,000 people were killed in the airstrikes. The attacks caused about $83 billion in damage. Of this, insurance companies had to pay more than $59 billion in damages to property and business.
Due to this incident, insurance companies and reinsurance companies were hesitant to insure in the international insurance market. After that incident, reinsurance companies stopped reinsurance for terrorism. At that time, there was a lot of damage to human and physical property due to LTTE terrorism in Sri Lanka.
FY 2058. In 1959, the Maoists also reached the height of the People’s War in Nepal, causing loss of human and physical property. As a result, the amount of claim payments that insurance companies had to pay was increasing. As a result, foreign reinsurance companies did not want to reinsurance Nepal for terrorism. After continuous efforts from Nepal, foreign reinsurance companies proposed to reinsurance only by increasing the insurance premium, which was unusually expensive.
When the situation in the insurance market was uncomfortable, the then Insurance Board (now Nepal Insurance Authority) and the insurance companies decided to go for the model of reinsurance of terrorism insurance by building a bridge like in Sri Lanka. At that time, the government of Nepal had set up a capital fund of Rs 50 million and insurance companies had set up a capital fund of Rs 100 million. He established the fund as per the Emergency Insurance Fund Operation Regulations, 2060 issued by the government to provide reinsurance for the insurance of the risk group that may fall within the geographical area of the non-life insurance policy made in Nepal and to pay other insurance risks related to it. The then Insurance Board started monitoring and monitoring the activities related to the operation of the fund. In this way, the insurance of the risk group was managed in the country.
After that, the Nepal Reinsurance Company was established in 2071 BS to stop the situation of millions of foreign currency going out abroad through foreign currency reinsurance even after the situation of the country became easier. The Contingency Insurance Fund has been responsible for paying the claims of the Risk Group of Non-Life Insurers (RSMDST), arranging reinsurance and other insurance risks related to it and the rights, assets and liabilities of the insurance fund have been transferred to Nepal Reinsurance Company. Nepal Reinsurance Company did not have to bear much claim from the reinsurance premium received under the risk group. However, there is uncertainty in the insurance business. At any given time, unnatural damage can deplete the accumulated capital and reserves of a large claim.
Case analysis{
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Billions of rupees worth of money has been lost across the country during the Jenji movement. During the protests, demonstrators vandalized, vandalized and looted public, commercial and private property. The buildings of the Federal Parliament, Police Office, Supreme Court Building, Department of Roads, local level buildings and other office buildings were vandalized and set on fire. In addition, important documents, vehicles, equipment, and property of various agencies were looted and arson.
Likewise, the international chain Hilton, Hyatt Regency Hotel and Ncell as well as Bhatbhateni department stores, motor showrooms and banks and financial institutions operating with investment from the private sector were also badly damaged in the incident. Similarly, insurance companies estimate that the insurance claims could be worth billions of rupees due to damage to private and commercial buildings, residential buildings, office equipments and vehicles. The private sector contributes 81 per cent to Nepal’s economy, 80 per cent to revenue and more than 85 per cent to employment.
The developments in the agitation have terrified the industrialists and businessmen on the one hand, while on the other hand, some businesses are unable to recover. This will affect domestic and foreign investment, production and employment in the long run and affect the overall economy.
Insurance companies’ assets and motor insurance portfolios are bound to have the highest insurance claim payments. The current damage has been caused by mob riots and malicious acts within the risk group. In insurance, risk group refers to the risk that will be provided against damage caused by mob riots, losses due to strikes, losses due to malicious acts, and damages caused by terrorist or subversive activities. The non-life insurance companies had insured the current risk group in Nepal Reinsurance Company. According to the Property Insurance Directive-2075 BS issued by the Insurance Authority, the insurance rate of the risk group has been fixed as a lump sum insurance rate for all the risks including that of the risk group and the insurance rate of the risk group will be automatically included in the insurance rate. The directive also states that if the insured does not want to take cover for the loss caused by the risk group, the insurer should issue a policy with confirmation. There is also a legal provision that the insurer cannot issue the confirmation after the insurance policy has been issued.
Insurance companies have been retaining 35 percent of the risk under the risk of mob riots and terrorism while the remaining 65 percent is handed over to the Nepal Reinsurance Company. Nepal Reinsurance Company also has to bear the liabilities other than retrosession. The current pressure of high claims is sure to take a big blow to the capital and reserve fund of Nepal Reinsurance Company. The reinsurance company had been insuring the risk group from the initial years till now. Currently, Nepal Reinsurance and Himalayan Reinsurance are also engaged in the reinsurance business in the country. Himalayan Reinsurance Company (HIC) had been claiming that it should be entitled to reinsurance of the risk group since its entry into the market. However, Himalayan Reinsurance has not been able to get the reinsurance of the risk group due to various reasons.
Two domestic reinsurance companies operating in Nepal have been contributing to the national economy by stopping the outflow of foreign currency through reinsurance and bringing in foreign currency through reinsurance. Insurance companies in Nepal have been helping to meet the growing needs of the insurance market in Nepal by accepting the risk of big insurers through reinsurance. The reinsurance companies have also been helping to mobilize capital for long-term investment in the country. From the point of view of profit, the risk group is insured by the same reinsurance company and it wants to continue it forever because of the profits. However, the fiscal year 2062. After the 1963 people’s movement, the assumption of insurers and reinsurers who thought that the insurance portfolio of the risk group was profitable was proved wrong by the assumption that there would be no major loss in the insurance sector due to incidents such as mob riots, angry acts, strikes and terrorist activities g.
Conclusion
Insurers have to pay huge claims due to the damage caused during the Genji movement, especially in property and motor insurance. Therefore, there is a need to look at Nepal’s reinsurance sector from a new perspective in the coming days. Due to the changing situation, there is a need for not only one reinsurer but also another reinsurer to insure the risk group. At present, due to the risk accumulation in the same reinsurer, there is a financial burden on the same reinsurer in the current difficult situation. Risk should be diversified without aggregating risk into a single insurer. If we look at the history of the country, mob riots and malicious activities have caused huge damage to government and private property, industries, factories, offices and vehicles during every movement. Most of the private vehicles, industries, factories, residential buildings and warehouses are insured by non-life insurance companies. Just as the insured manages the risk in the insurance company through insurance, the insurer also re-insures the insurer. Reinsurance companies also do risk management through retrosession. Insurance companies reinsurance a portion of the risk they hold, and insurers in the reinsurance business also retrocession a portion of the risk they hold. Risk management is the action taken to minimise the financial loss of life or property of any person.
Analyzing the current developments, when all the risks are concentrated in a single reinsurer, the claim burden is higher on a single reinsurer. In the current situation, due to the placement of risk in the same reinsurer, the pressure of claims may not make it easy to pay the claim on time. According to the principle of insurance, risk should be managed by diversifying it into different baskets rather than putting risk in one basket.
As the erstwhile Emergency Insurance Fund established under the Emergency Insurance Fund Operation Regulations, 2060 BS has been managing the bridge, the authority, property and liability of the insurance fund has been transferred to the Nepal Reinsurance Company. It does not seem justified to deprive another reinsurer from insuring the risk group as there are only one reinsurance company and two reinsurance companies are currently in operation. Both the reinsurers are registered with the Registrar of Companies and licensed by the regulatory body and the rules, laws, capital, scope, objectives and revenue payment are also the same. If this happens in the future, if the damage is caused by mob riots, strikes, malicious acts and terrorist and destructive activities under the risk group, there will be no accumulation of risk in the same reinsurance company and the claim payment will also be made easily. This will also increase the credibility of Nepal’s reinsurers in the national and international insurance market. Therefore, it is imperative for the state and regulatory bodies to promote domestic reinsurers with legal and policy provisions to ensure that both risk group reinsurance can be operated by reinsurers.
(Bhusal is known as an insurance expert.) )
