The recent activism of regulatory authority of insurance industry of Nepal, the Insurance Board (IB) or Beema Samiti, has created new ripples in the sector. Some of the very bold actions taken against ‘erring’ insurance companies, including the fully government-owned Rastriya Beema Sansthan (RBS), have apparently served to establish that it is not a toothless entity, as seen so for years now.

More interesting drama unfolded when the IB ordered RBS to defer its annual general meeting scheduled for the first week of October and ordered to stop its engineering insurance business the following week. This episode has special significance as the government-owned financial institutions have a history of invariably remaining recalcitrant to the regulatory authorities which has often given ground to the private sector operators to complain of not getting a level-playing field to compete with these ‘protected’ public sector companies. It may be recalled that a number of government-owned large banks were, for all practical purposes, acting beyond the regulatory mechanism of the central bank until their net worth became untenably negative, about a decade or so ago.

At the core of such controversy and temerity to non-compliance to the regulator are the separate Acts that instituted these entities. Still, RBS Act of 1969 is intact. (Similar Acts were there for Banks as well until an Umbrella Act ‘BAFIA’ was enacted in 2006.) This incident also establishes the fact that government should not continue to be one of the competitors in the business where private sector has already made competent market presence. Let’s hope the IB will also force the RBS to speed up the process to split its life and non-life insurance businesses. The only private sector company that was operating both of these businesses has already obliged to IB’s directive whereas RBS is still adamant.

But the cardinal question here is: Is this all an insurance regulator of the country expected to do? Certainly not! A regulator has a responsibility of evaluating the situation of service availability, and on the basis of such evaluation, creating appropriate legislative and institutional frameworks to ensure a healthy growth of the market as well as a ground for fair play. But, the recent acts of the IB appear more of populist and bullying nature than the ones having long-lasting meaningful impacts. Some of the decisions like limiting the operation expenses of the insurance companies only to 6 percent of their total expenses are unquestionably naïve, to say the least. This favours the old and established companies and puts the new companies in disadvantage while the latters deserve credit for the speedy expansion in the insurance services across the country.

Still, barely six percent of the population that has capacity to buy insurance coverage has got some sort of insurance coverage. The knowledge about the insurance among the masses is negligible and products that are suitable to Nepali context are neither available nor accessible to the potential clients. Nepal’s insurance industry lacks human resource of all levels and we don’t even have a training academy for the sector, so far.

Though the IB has been repeating its plan to set up such an academy time and again, the plan is still rudimentary at best. Updating several legal arrangements is long overdue. The very Insurance Act has become outdated. It is the responsibility of the regulator to develop a universal framework of evaluation to avoid institution-wide discretionary practices of evaluation and compensation. It is already late to bring in international best practices into our insurance industry.