Regulator to get more teeth

POST REPORT

KATHMANDU, NOV 03 - The new insurance Act will give more power to the regulator of the insurance company by converting the insurance board into an authority.

A final meeting of stakeholders including Finance Ministry, Insurance Board, insurers and surveyers held discussions on Wednesday on the new Act. The Finance Ministry will now do the needful, including sending the proposed Act to the law ministry for its opinion and then to the Cabinet, officials said.

If the proposed Act is endorsed as it is, the regulator will enjoy the power of taking over insurance companies in case they fail to abide by the rules, regulations and directives issued by the regulator and harm the interest of the insured.

There is no such provision in the existing Insurance Act. Nepal Rastra Bank has such power and it has time and again taken control of banks and financial institutions that fail to protect depositors’ interests.

“The new Act will strengthen the regulator which is essential to maintain financial discipline in the insurance sector,” Phatta Bahadur K.C., the chairman of the Insurance Board, said. According to a draft of the Act, the regulator has been given right to take control of such companies for up to two years.

The regulator will also have the right to merge such companies with another insurance companies, hand over business of such companies to another company and even scrap the registration. “Companies involved in financial indiscipline and involvement of the board of directors in internal tussle may invite such intervention,” K.C. said.

The proposed Act has also made a provision of merger and acquisition of insurance companies which are similar to that of the Bank and Financial Institution Act. The existing Act has no provision of merger and acquisition.

The new Act will also make a provision of micro-insurance under which low-income people can insure their properties of low value. “The provision of micro-insurance will open the door for micro-insurance companies,” said K.C.

The proposed Act has also opened doors for foreign insurance companies to open their benches in Nepal. Such companies, however, cannot open another joint venture insurance company here. They are subject to application of conditions fixed by the insurance authority. It is not explicit like the licensing policy of the Nepal Rastra Bank which has allowed foreign banks to get involved in wholesale banking.

The new Act will also open the door to reinsurance companies within the country. According to Insurers’ Association of Nepal, about Rs 800 million go for reinsurance abroad. The Insurance Board has been proposing to convert the insurance pool formed to mitigate major risks a few years ago into a reinsurance company. According to the insurance board, the pool currently has around Rs 850 million.

The proposed Act does not speak about the paid-up capital for insurance companies, although it has given right to the insurance authority to fix the amount. The Insurance Board seeks to keep it at Rs 2 billion for life and Rs 1 billion for non-life insurance companies. Currently, life insurance companies should have paid-up capital of Rs 250 million and non-life insurance companies must have Rs 100 million.

However, insurers have been opposing the hiked capital requirement, saying that it is not feasible. “How rational it is to increase the capital 10 times for non-life and eight times for life insurance companies at a time?” queried Deep Prakash Pandey, the president of Insurers’ Association of Nepal.

Insurers had shown the same concern during a stakeholders’ meeting held on Wednesday. For the reinsurance companies, the paid up capital has been proposed at Rs 5 billion, according to K.C.

Insurers have also complained the renewed provision for the renewal of the registration of the company. They have to renew their license every year before mid-March as their licenses remain valid until mid-April.

“Why are insurance companies alone subject to the renewal process; banks should also renew their licenses every year,” Pandey said.

http://www.ekantipur.com/the-kathmandu-post/2010/11/03/money/regulator-to-get-more-teeth/214506/