INSURANCE SECTOR : An Industry Overview

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INSURANCE SECTOR : An Industry Overview

While the insurance sector has made some progress over three decades, there are also several reforms that are overdue.

--BY RABINDRA GHIMIRE

Nepal's commercial insurance has a history of 75 years while the social security system started 25 years ago. Social insurance has a history of less than a decade. Economic liberalisation, which began in the 1980s, got accelerated in the 1990s, spurring the growth of private companies. Compared to the situation of three decades ago, we can see significant changes in the insurance sector today.

Establishment of Beema Samiti
Before 1992, the insurance industry was regulated by Beema Samiti as a branch of the Ministry of Finance. In addition to the Insurance Act, 1968 and the Insurance Regulation of 1969, there was Rastriya Beema Sansthan Act, 1968 to regulate the insurance market.

Five insurance companies were providing life and non-life insurance services at that time. The general public did not know much about insurance. Insurance service was limited to businesses and employees.

Deposit and Credit Guarantee Corporation was established in the 1970s to secure deposits and loans for farmers from the Small Farmers Development Project - a project launched with the support of the Asian Development Bank.

Between 1947 and 1967, there was neither any regulatory body nor insurance act to govern the insurance sector. A general law was enacted to regulate this sector from 1968 to 1991. In 1992, a new insurance act was introduced to regulate, expand, develop and promote the insurance market. The act made Beema Samiti the powerful regulatory body for the insurance sector

Current situation and major achievements
The number of insurance companies has gone up to 41 from five. There are over 250,000 insurance agents in the country while the number of surveyors has exceeded 400. The percentage of people with insurance coverage stands at 27%. Insurance companies have been able to collect Rs 152 billion in premiums in fiscal year 2020/21. The insurance industry provides jobs to 11,000 people in the country.

Drafting strong bill: Beema Samiti has been able to present the government with a draft of a strong insurance act that envisages the Insurance Regulatory Authority. This was done upon the initiative of various stakeholders in the insurance sector. Unfortunately, the bill has not yet been taken into the debate in the parliament. If implemented, this bill is expected to make important and positive impacts on Nepal's insurance sector.

Split of insurance companies: The existing act was amended to establish separate insurers to provide life and non-life insurance services. This is commendable.

Establishment of Insurance Institute: Beema Samiti has succeeded in establishing an insurance institute in partnership with all insurance companies. Employees, agents, and surveyors working in the insurance sector have got the opportunity to receive training from this institute. This has put an end to the compulsion to go to India, Malaysia, and Singapore to receive insurance-related training.

Establishment of Reinsurance Company: In 2014, Nepal Reinsurance Company was established as the first reinsurance company in Nepal with a joint investment from the government and other insurance companies. The company was established by mobilising the insurance pool that was created to provide coverage for terrorism and riots. The company has been provided authority to do business with domestic and foreign insurance and reinsurance companies. Realising the need for another reinsurance company, the Beema Samiti provided a licence to another reinsurance company - Himalayan Re - from the private sector in 2021.

Better regulation: Insurance companies are subject to regulation from regulatory bodies. Beema Samiti has been issuing various directives in line with those requirements. Beema Samiti's structure is also expanding and its human resource is also increasing. More than 70 directives have been issued over the last 15 years.

Growth in capital and solvency regulation: Beema Samiti has been raising minimum paid-up capital requirements for insurance companies. Until 2007, a life insurer was required to maintain a paid-up capital of Rs 250 million while such requirement for a non-life insurer was Rs 100 million. Recently, such a paid-up capital requirement has been raised to Rs 2.5 billion for a non-life insurer and Rs 5 billion for a life insurer. In addition to the paid-up capital floor, the Beema Samiti has also made solvency capital a requirement for insurance companies. The insurance market regulatory body has been tightening the solvency regulation in recent years.

Rise in the number of insurers: By 2021, the number of insurers has reached 41. The number is likely to go up further in the days to come. In a country with a population of 30 million and an economy of USD 32 billion, all companies will have to build their market on their own. Insurance companies have both opportunities and challenges in the market. They can take the advantage of the market that has largely remained untapped.

Overdue works
Nepal's insurance market is different from the insurance markets of advanced economies in many ways. While the market is operating even in the absence of much-needed infrastructures, some work needs to be done to improve the performance of the insurance industry.  

Establishment of Insurance College: Nepal does not produce human resources like Risk Managers, Actuary, Underwriter, Loss Assessor, Loss Adjustor, Claim Adjustors, Claims settlement experts, Reinsurance experts, Reinsurance Accountants, Insurance Accountants, Insurance Brokers, reinsurance brokers, Marketing Experts, and Insurance Analyst, etc needed for the market. Universities also cannot produce such manpower. For this, it is necessary to establish an insurance college. Beema Samiti and the government should take the needful initiative in this direction. Until and unless skilled manpower is produced within the country, billions of rupees will continue to flow abroad for insurance education.

Setting up Insurance Information Centre: The insurance industry is facing various problems in the lack of adequate information and data. Lack of information hampers policymaking. There should be a system of listing repeated fraudsters and sharing the information among insurance companies so that loss to the sector can be minimised.

Bringin strong Acts: Though there has been some progress and achievements in the insurance sector, the sector is governed by an Act that is 30 years old. The new insurance bill is somewhat progressive, but it is gathering dust in the parliament. The bill needs to be revised as per the changed context. Similarly, there is a need to implement a separate act to prevent insurance offences and take action against the wrongdoers.

Introducing insurance brokers:  There are three types of brokers: 1) insurance brokers who sell insurance policies, 2) reinsurance brokers who sell reinsurance policies, and 3) composite brokers who offer both services. Insurance brokers play an important role in the insurance industry. In developed countries, the insurance market cannot be imagined without brokers. However, Nepal is the only country where the market is running even without brokers.

Research and Study: In Nepal, neither insurance companies and Beema Samiti nor universities are giving priority to research on the insurance sector. We cannot expect the quality of insurance services to improve without adequate research or study. There should be a collaboration between universities and insurance companies to conduct studies and research on various aspects of the insurance sector.

Mr. Ghimire is the Chairperson of Nepal Reinsurance Company Limited.

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