August 31: Discussion on the preliminary draft of Insurance Act forwarded by Insurance Board has commenced in Ministry of Finance. IB has prepared the draft of new Insurance Act in order to increase paid-up capital as well as to make the insurance companies more organised. Financial Sector Management Division of Finance ministry informed that the draft is at a discussion phase. 

“Discussion on the draft delayed due to the change in the government,” said Dhani Ram Sharma, Assistant Secretary of the Ministry. “The draft will be sent to Ministry of law for legal procedure immediately after concluding the discussion.  The draft needs to be endorsed from Law Ministry before it could be sent to cabinet for approval,” he added.

Endorsement of proposed draft means the insurance companies will have to increase their paid-up capital significantly. According to the Raju Poudel, Director of IB, life insurance companies will have to increase their paid-up capital to Rs 4 billion whereas non-life insurance companies will have a cap of Rs 4 billion paid-up capital. Presently, the paid-up capital for a life insurance company has a ceiling of Rs 250 billion and for a non-life company is Rs 500 million.  Right now, insurance companies with Rs 120 million to Rs 1.73 billion paid-up capital is operating in the country.

Raise in the paid-up capital of insurance companies is essential as the companies receive lesser amount compared to the amount these companies required to give, Poudel opined.  “Services rendered by the companies are inferior also because of low paid-up capital.”

Meanwhile, Insurance board had prepared to initiate merger two years ago in a bid to organise the insurance business. In this regard, the board has issued ‘Insurer Merger and Acquisition Directive 2070’ earlier. However, insurance companies are still unable to initiate the merger process after a long time. After the endorsement of proposed draft, the companies need to increase the paid-up capital within two years.

In the draft, IB has proposed to establish Nepal Insurance Authority in order to make the insurance sector dignified, organised, reliable and competitive.  According to the IB, in the recent days, remittance company, banks and other financial institutions are also demanding to grant them permission to operate an insurance company. However, IB has been restricting the operation of a new insurance company citing the mismanagement. Nevertheless, Director Poudel said that IB could grant a permission to operate a new insurance company given that the company comes up with the paid-up capital of Rs 4/5 billion as per the direction of IB.