Kathmandu: The Insurance Board (IB) has decided to implement ‘Risk Based Capital(RBC)’ in insurance industry within year 2024. The regulatory authority has already started detail study for RBC in collaboration with the World Bank.
As it is in the early stages, it is not possible to say what kind of RBC arrangement will be implemented in Nepal. But a document presented on the implementation of RBC in South Asian country Sri Lanka states that ”Additive”(index based) RBC model will be executed in Nepal.
RBC model in Asia, Source: Access to Insurance Initiative
The IB has held an interaction with the Chief Finance Officers(CFOs) of all insurance companies to deliver them the basic idea about RBC. The regulatory authority had informed that RBC will be fully implemented by the end of year 2024. In order to achieve the goal, the IB is conducting studies for the policies, rules, directives and other legal provisions. The NFRS system was made mandatory for insurance companies from last year.
RBC improves risk management of insurers. It makes arrangement for adequate capital that supports the insurance industry to absorb risk. The concept of RBC emerged after regulatory authorities came into conclusion that all the insurance companies can not be kept in one basket in terms of their exposure to risk and risk absorption capacity. So, RBC recommends capital for the insurance companies based on their exposure to risk.
