Maintain Regulatory Independence

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Maintain Regulatory Independence

After a long wait, the government has submitted the Bill to Amend and Integrate Laws Related to Insurance in the federal parliament. One purpose of the Bill, as stated by the government, is to reorganise the structure of insurance regulator. If the Bill is passed, the existing Insurance Board will be replaced by Insurance Authority. 

While the proposed Bill includes some long sought reforms in the insurance sector, there are also some worrying signs that have a potential to undo all the improvements. Already there are signs of conflict between the insurance sector regulator—the insurance board—and the government. While the Insurance Board had sought more autonomy and independence in its functioning, the Ministry of Finance has sought to reduce the authority of the regulatory body, transferring some of the board's powers to the government, namely the Ministry of Finance. This indicates that the government wants to control and use the regulatory body to advance its political interests. While democratic norms related to functioning of a modern government require autonomous and independent regulatory institutions, the Bill has sought to do just the opposite. This is a worrying sign that politics is likely to encroach on the independence and autonomy of other regulatory institutions as well.

One of the regressive features in the Bill is the authority that Ministry of Finance will have over appointment and removal of the chairman of the existing insurance board and the future insurance authority. Normally, regulatory agencies like Nepal Rastra Bank and Insurance Board have some element of protection from the whims of the government, but in the current instance, the passage of the insurance bill would change this. Under existing provisions, the current Chairman of the Board, ChiranjibiChapagain, is supposed to serve for the next two years with a possible extension of another year. Another negative feature is that while the new bill requires a graduate degree for the CEO of an insurance company, it ignores the required experience and expertise. Most importantly, the new authority will need the consent of the Finance Ministry to carry out any significant function or take any decision.

As Nepal slowly graduates from a LDC to a developing economy, the expansion of the market and the private sector requires efficient and professional regulatory institutions that can function independently and withstand pressure from politicians and government bureacrats. At present, many of the regulatory institutions have succumbed to vested political interests and are unable to perform their functions objectively. The growing influence of crony-capitalism and patron-client relationships in politics is distorting Nepal's market economy to an extent that it can seriously dent citizen's welfare. While autonomy and independence is not enough to ensure regulatory objectivity and success, it is the first step. Regulatory institutions must not become part of a government ministry; they must be able to perform their duty independently. The second step is to provide them adequate infrastructural support and opportunities to develop their capacity.

Madan Lamsal
[email protected]

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