Kathmandu. As the number of Nepali workers going abroad for foreign employment is increasing in the Middle East and Gulf countries, insurance companies have started to see the possibility of business in foreign markets as well.
Currently, the life insurance company has been providing life insurance cover up to Rs 20 lakh to the workers who are in foreign employment without requiring health check-up report. Although they have the ability to buy life insurance, migrant Nepali workers have not been able to get insurance services from Nepali insurance companies due to legal complexities and underwriting policies.
Insurance companies are now enthusiastic to open branches and expand their investment abroad due to increasing competition in the domestic market and limited investment area. Although the Insurance Act, 2079 has paved the way for this, some other old laws are still standing in the way.
According to the Nepal Insurance Authority, Nepal Life Insurance, Sun Nepal Life Insurance, Sanima Reliance Life, Nepal Reinsurance and Himalayan Reinsurance have received approval in principle to open branches in foreign countries.
Chief of the Regulation Division of NEA, Shambha Raj Lamichhane, said that insurance companies have not been able to open branches in foreign countries due to lack of legal basis to take investment even after giving preliminary consent. “This issue is not only the issue of the NRA, it is a policy decision of the government,” he said.
Insurance Act and Branch Expansion Provisions
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Clause 31 of the Insurance Act, 2079 states that a Nepali insurance company can open a branch, liaison office or representative office in foreign countries with the prior approval of the Nepal Insurance Authority. In order to implement this Act, the NEA has also issued directive related to the branch office of the insurer, 2079.
According to Section 11 of the Directive, a branch can be opened in a foreign country if the minimum paid-up capital is maintained, no action has been taken against the directors (or if the completion of six months has been completed) and the approval of the regulatory body of the branch is obtained.
What is the barrier to investing?
Although the Insurance Act allows the opening of branches, the six-decade-old ‘Foreign Investment Ban Act, 2021’ remains the main obstacle in terms of investment. The Act prohibits Nepali citizens or organizations from making any kind of investment in foreign countries such as real estate, shares or cash deposits.
However, recently the government has adopted some relaxed policies through the Act to Amend some Nepal Acts related to improving the economic and business environment and promoting investment. As per the new amendment, Nepali companies can invest up to 20 percent of their paid-up capital in companies listed on the foreign securities exchange.
This provision should also be in line with the authority’s own investment guidelines in the case of insurance companies. As of now, the Insurance Authority’s investment guideline has made it mandatory for most of the investment to be concentrated in the banks and financial institutions and development projects of Nepal.
Why branch overseas?
The presence of Nepali insurance companies in foreign countries is not only a matter of strategic importance but also of strategic importance. Life insurance and accident insurance schemes targeting more than 50 lakh Nepalese in foreign employment can be easily accessed.
Diversification of risk The fluctuations in the economy of Nepal will directly affect the insurance companies when they focus only on investment in Nepal. When you invest and do business abroad, risk is shared.
The insurance premium and profit earned by doing insurance business abroad contributes to Nepal’s foreign exchange reserves. In addition, working in the overseas market will provide Nepali companies with the opportunity to improve their modern technology, new insurance equipment, and efficiency.
Challenge associated with opening a branch{
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The main challenge for Nepali insurance companies in opening an office abroad is to ensure adequate business to cover the operating expenses. In addition, there is the risk of foreign exchange. Although there is talk of opening branches in the Gulf countries or Malaysia, Nepali companies need to increase their capital base and technical capacity to compete with the strict regulatory structure there.
The Insurance Act, 2079 has opened the door and although the legal amendment of 2081 has removed the investment barrier to some extent, the way is not open for the opening of a branch. Now, it is necessary for the Insurance Authority to revise its investment guidelines and take the initiative of policy reforms to enter the foreign market safely by persuading the Ministry of Finance.
