Kathmandu. There is no doubt that in a short period of three years of the operation of micro insurance companies in Nepal, it has contributed to expanding the reach of micro insurance in a quantitative way. However, the fact that most of the business of the micro insurance company is centered on the city-centered motor vehicle and compulsory foreign employment insurance, which is still considered a luxury in the case of Nepal, shows a mismatch between its purpose and achievement.
Nepal Insurance Authority (NEA) has published two reports on micro insurance in a month’s time. One has published the Nepali edition under the leadership of Executive Director Sushil Dev Subedi and another in English under the leadership of Director Pujan Dhungel.
The main conclusion of both the reports is that microinsurers have missed the main target. Both reports point to the need for regulatory intervention. Out of the two, the recommendations of the study report prepared with the involvement of director Pujan Dhungel have already been published in Insurance Khabar. Here we have included the suggestions included in the report titled ‘Study and Analysis of Nepal’s Micro Insurance Business’ prepared by the study team led by Subedi.
1) Legal and Policy Reforms
1. Review of Actuarial Limit of Micro Insurance: The Micro Insurance Directive should be amended to include the target group (low income and backward classes) in the Micro Insurance Directive, 2079. Currently, the sum assured (sum assured) of life insurance has been fixed at Rs 5 lakh while the non-life insurance premium has been fixed at Rs 50 lakh.
2. While granting license to micro-insurance companies, it should be mandatory to expand the business only in the specified province. A separate provision should be made in the case of micro insurers in the directive regarding branch approval of the insurer. Clear provisions should be made regarding the use of alternative distribution systems for remote areas.
3) In order to give priority to microinsurers to work in remote areas, concessions should be made in risk-based capital and other regulatory provisions. It would be more effective if the government could waive the tax on the insurance premium of micro-insurance.
4) In order to provide micro insurance to the low-income and backward classes, it is necessary to set a minimum limit of total business to focus the micro non-life insurer towards the insurance of agriculture, health, accident, property, etc.
5. By amending Section 76 of the Insurance Act, 2079, it is necessary to make arrangements for the business to be sustainable, simple, easy and economical while bundling both life and non-life insurance.
5.2.2 Corporate Governance, Human Resources and Market Reforms
1. The employees of the top managerial level, including the Chief Executive Officer of the micro insurer, should be compulsorily made to perform their work from the central office. The board of directors of the insurer should be made responsible for giving priority to the expansion of business activities in the province where the central office is located.
2. Micro-insurers should prepare a long-term action plan and mobilize human resources giving priority to low-income and backward areas.
3. Insurers should continuously conduct microinsurance training and training, public awareness programs and social responsibility programs for qualitative improvement along with the number of agents.
5.2.3 Technology and Distribution System Improvements
1. In order to reduce the operating cost, the micro insurer should enter into an agreement with the institutional agent and delegate the rights related to risk assessment and claims.
2. In order to reduce the high cost of the distribution system, the partnership agent model should be expanded by entering into agreements with microfinance institutions, cooperatives and local bodies.
3. Micro insurance services should be expanded through mobile banking, digital wallet system and telecommunications system. Investment in digital infrastructure should be increased.
5.2.4 Improvement in Insurance Diversification, Social Security and Claims Management
1. Develop a simple insurance policy based on weather index for the target group and link it with the government’s agricultural insurance subsidy program.
2. Micro insurers should develop targeted health insurance plans and alternative distribution systems.
3. Women-centered micro-bee schemes should be promoted to cover women entrepreneurial safety and maternity health by utilizing the majority of women in micro-life insurance.
4. Implement a digital claim settlement system, develop a claim payment system through online tracking, develop a micro-insured complaint management system based on a toll-free helpline and make arrangements for providing the terms and conditions of the policy in the local language in a simple manner.
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