Year 2079: A Year of policy level reform in the insurance industry

Kathmandu. The Bikram Sambat year 2079 witnessed many rapid changes in the insurance industry, from the execution of the new insurance act to new license distribution for micro-insurance companies.

After a decade of tireless efforts, the Insurance Act 2079 was released. Outgoing President Bidya Devi Bhandari authenticated on 23 Ashoj 2079 and executed from 22 Kartik. Thus, after 30 years of the execution of the first insurance act, the insurance industry got a new insurance act. The Insurance Board transformed into Nepal Insurance Authority. The industry is eagerly awaiting the insurance bylaw to omit the existing dilemma over provisions of the Act. A bylaw is issued to explain the legal requirements of the act and facilitate its effective execution.

The new Act compelled insurance agents to choose only one insurer of similar business. Now, the provision has been fully executed by the end of Chaitra 2079.

The Authority has decentralized itself following the federal system. It has established 6 province offices in 6 different provinces except for Bagmati Province.

During the first week of Baisak 2079, the Authority(former Insurance Board) issued and executed a non-tariff rate for the general insurance business amid wide criticism from the builders and hydropower developers.

All 38 insurers including 18 life insurers submitted their capital plan by 10 Baisakh 2079 following the instruction of the Authority on new regulatory paid-up capital. The minimum paid-up capital for life and non-life insurance companies is assigned to NPR 5 billion and NPR 2.5 billion respectively. The capital increment plan was introduced with the motive of forceful merger among insurance companies with similar business life. Such a strategy has delivered some good results too for the industry. To date, mergers among twelve insurance companies completed forming six companies. Himalayan General and Everest Insurance were the first insurers to merge and conduct integrated business.

Among life insurers that emerged in the year 2074, Citizen Life, Sun Nepal Life, Reliable Life, and IME Life have applied to the Security Board of Nepal (SEBON). It will be the first case in the history of the life insurance business that IPOs issued at a premium price.

Among 7 companies shortlisted for the microinsurance business, the Authority has distributed operating licenses to four micro insurer Crest Micro Insurance, Protective Micro Insurance, Guardian Life Micro Insurance, and Nepal Micro Insurance.

The risk-based capital (RBC) model was introduced for insurance companies. It will be gradually implemented from the beginning of the upcoming financial year.

On 5th Bhadra 2079,  the Authority shared the direct cession business of the state-owned Nepal Reinsurance Company to the private sector’s Himalayan Reinsurance Company. Later, it was made mandatory for the general insurers to seek 100 percent reinsurance support from indigenous re-insurers restricting business with foreign reinsurance companies.

The then finance minister, Janardan Sharma, through the budget statement of the current fiscal year released on 15th Jestha 2079, hiked the subsidy on agriculture and livestock insurance from 50 to 80 percent. Further, the income tax exemption on life insurance premiums hiked to NPR 40,000 from NPR 25,000 per year.

The long-pending Covid19 Insurance claims could not be fully settled last year. The Federal Government allocated only NPR 1 billion against its liabilities over NPR 11 billion.

From the second quarter of the current fiscal year 2079-80, the growth rate of the insurance business has declined sharply. There’s a high possibility of negative growth in the insurance industry amid the ongoing economic recession.

The policy level improvements made in the last year are expected to bring reform in the insurance industry and strengthen the capacity of insurance companies to timely meet financial obligations.

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