Kathmandu. As the deadline for the implementation of the Accounting Standards NFRS 17 issued by the Accounting Board for the insurance sector is approaching, the CEO of the insurers has increased their restlessness. As the restlessness has increased, they have been repeatedly pleading with the regulator Nepal Insurance Authority through the Life Insurance Association Nepal for a solution. <\/p>\n
Despite the restlessness of the insurers, the Insurance Authority is trying to present itself in a slightly harsh manner by showing the regulatory form. The authority is insisting on its implementation by saying that the deadline for the implementation of NFRS 17 has been fixed in consultation with the insurer. On the contrary, the insurers are pressuring to postpone the deadline citing lack of preparation, lack of skilled manpower and lack of technical infrastructure. <\/p>\n
If the authority does not pay the bill, most of the insurers will have to pay a hefty penalty for the late presentation of the balance sheet to the authority. On the other hand, the patience of the employees, investors and even the chief executive officer who is waiting for the incentive will be tested by completing the general meeting on time and getting the benefit of bonus. <\/p>\n
In the guidelines related to NFRS 17 issued by the authority, it is mandatory to implement NFRS 17 from the current fiscal year 2083. From the first quarter report of 84, it is mandatory to implement NFRS 17. Apart from this, the insurer has also directed to prepare the balance sheet and financial statements of the last fiscal year 2082. 83 on the basis of this. <\/p>\n
In principle, NFRS is a very positive and epoch-making step for risk-based capital strategy, transparency and sustainable financial evaluation. But this sudden step without concrete preparation, skilled manpower and infrastructure has increased the risk of making the Nepali insurance sector a ‘laboratory’ once again. <\/p>\n
1. Nepal’s current insurance market and practical challenges<\/strong><\/span><\/p>\n }<\/p>\n A policy that is prepared without considering the current structure and practices of Nepal’s insurance market can lead to serious imbalances in the market. The main practical aspects are as follows: <\/p>\n Advance Payment & Limited Payment Insurance Pressure<\/span><\/p>\n }<\/p>\n Money back (advance payment), single fee, and limited payment insurance policies are more popular in Nepal. In such insurance articles, the outflow in the name of agent commission and incentive is high. According to NFRS 17, there is a high possibility of losing the insurance plan agreement while preparing the report. As a result, the profit has to be reduced and a large amount of money has to be kept in provisioning. As a result, both the investors and the industry may not be able to distribute the dividend. <\/p>\n Lack of separation of assets, funds, and expenses<\/span><\/p>\n With the exception of MetLife or a few companies, most of the insurers in Nepal do not have a separate tracking or asset share calculation of how much fund or investment is associated with which product. Similarly, there is no clear depiction of which expenditure is attributable and which is a one-time expenditure. In the absence of practice, adjusting the details on the basis of estimates may not reflect the actual financial position. <\/p>\n ambiguous dividend policy<\/span><\/p>\n The recent NFRS 17 Directive provides that only the profits which are less should be distributed. It is not practical for the regulator to look at the reports of the NFRS and the previous regulatory framework for 2-3 years as reflected in the financial statements under both the provisions and give time to the insurer for provisioning, instead of giving time to the insurer. <\/p>\n 2. Actions against consumers, investors, and their own principles<\/strong><\/span><\/p>\n }<\/p>\n The Insurance Authority has adopted the principles of IAS and has come up with a policy to treat the customers fairly and to address the legitimate expectations of the insured. While approving insurance plans, approval is not given without necessarily addressing both these factors. However, in a broader sense, the stakeholders include not only the insured but also the stock investors. Imposing forced decisions ignoring the practical capacity of the investors and the industry as a whole who are expecting returns is against the spirit of cooperation. Since the banking or insurance sector is directly connected with the public, administrative and managerial wisdom is required here. <\/p>\n 3. International practices and shortage of manpower Shortage of skilled manpower <\/span><\/strong><\/p>\n Even powerful and big countries like neighboring India are taking enough time to implement NFRS 17 and are looking at the practice of other countries. There is still no risk-based capital system. However, there is a lot of pressure to implement it immediately in Nepal, which lacks both manpower and resources. There is an acute shortage of experienced actuaries, modern software and chartered accountants who are trained in NFRS 17 in Nepal. Although some insurers have brought in foreign experts (from London, Europe or the Middle East) by paying high fees (up to Rs 1 crore), the pace of report preparation is very slow. The infrastructure and manpower to conduct technical and proper examination of the complex NFRS 17 reports prepared from outside is not ready even by the insurance authority itself. <\/p>\n The Insurance Authority, the Institute of Chartered Accountants (ICAN) has also spent training by bringing in foreign manpower for the implementation of NFRS 17. The office bearers of the Life Insurance Association of Nepal have also visited foreign countries to learn about the practical aspects of NFRS implementation. The insurance authority has set a ‘risk free rate’ which has made it easier for NFRS to determine financial liability and determine risk. <\/p>\n 4. The Regulator’s Rationale: The Road to Long-Term Improvement{<\/strong><\/span><\/p>\n }<\/p>\n The regulator has argued that the implementation of NFRS 17 will be beneficial to both the insured and the investors in the long run, even if it is difficult for the insurer to distribute the profit immediately. <\/p>\n Among the many provisions of NFRS 17, the profit amount has to be allocated for the duration of the risk on the basis of the premium accepted from the insured under the terms of the policy. This will result in a lack of immediate distributable profits. However, it will enhance the long-term financial health and credibility of the insurance sector. <\/p>\n 5. Conclusion and the Way Forward <\/strong><\/span><\/p>\n The entire insurance sector and stakeholders are positive in favour of the essence of NFRS 17, risk-based capital and financial transparency. The problem is not in its principles but in the style and schedule of implementation. There is a danger that the regulator will use force to mandate it on a quarterly basis but will not produce the desired quality results. <\/p>\n Suggestion<\/strong><\/span><\/p>\n Grading and gradual implementation Initially, the industry should be accustomed to implementing NFRS 17 annually for 2-3 years and only then should the quarterly report be made mandatory. Attention should be paid to the development of actuary, chartered accountant and software systems at both the actuary and regulatory levels. It would be a far-sighted step of the Government of Nepal and the Insurance Authority to take a flexible and collaborative policy to maintain investor morale and strengthen the industry during the transitional period.<\/p>\n","protected":false},"excerpt":{"rendered":" Kathmandu. As the deadline for the implementation of the Accounting Standards NFRS 17 issued by the Accounting Board for the insurance sector is approaching, the CEO of the insurers has increased their restlessness. As the restlessness has increased, they have been repeatedly pleading with the regulator Nepal Insurance Authority through the Life Insurance Association Nepal […]<\/p>\n","protected":false},"author":5,"featured_media":315915,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[45031,45152,45149,45096,45099,45102],"tags":[],"class_list":["post-320140","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banner-news-en","category-life-insurance-en","category-laghu-beema-en","category-non-lifeinsurance-en","category-regulatory-en","category-reinsurance-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/english.insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/320140","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/english.insurancekhabar.com\/ikbrapi\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/english.insurancekhabar.com\/ikbrapi\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/english.insurancekhabar.com\/ikbrapi\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/english.insurancekhabar.com\/ikbrapi\/wp\/v2\/comments?post=320140"}],"version-history":[{"count":1,"href":"https:\/\/english.insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/320140\/revisions"}],"predecessor-version":[{"id":320141,"href":"https:\/\/english.insurancekhabar.com\/ikbrapi\/wp\/v2\/posts\/320140\/revisions\/320141"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/english.insurancekhabar.com\/ikbrapi\/wp\/v2\/media\/315915"}],"wp:attachment":[{"href":"https:\/\/english.insurancekhabar.com\/ikbrapi\/wp\/v2\/media?parent=320140"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/english.insurancekhabar.com\/ikbrapi\/wp\/v2\/categories?post=320140"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/english.insurancekhabar.com\/ikbrapi\/wp\/v2\/tags?post=320140"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}