KATHMANDU, Nov 17: The Insurance Board (IB) is soon coming up with a directive that will oblige all non-government organizations (NGOs) and other firms operating microinsurance businesses to work as agents of government-authorized insurance companies.
Currently, dozens of NGOs, community groups and microfinance companies are selling microinsurance policies that among others provide coverage to life, health, cattle, crops and even small teashops and workshops.
The insurance sector regulator has termed activities of these organizations ´illegal´ as many of them have not obtained license from the IB to operate their businesses.
“What many are doing is against the law,” Fatta Bahadur KC, chairman of the IB, told Republica. “They should either obtain license from the government or register themselves as agents of insurance companies.”
The Insurance Act 1993 clearly states that companies involved in insurance business must obtain license from the IB. The Act also states that anyone found violating this rule can be fined up to Rs 10,000.
But so far the government has turned blind eye to the activities of many social organizations as they have not created a situation of moral hazard. However, the government has now argued that the possibility of such a situation cannot be ruled out as many social organizations do not have adequate capital to cushion huge losses.
“For instance, organizations that are currently providing compensation in case of death or injury of one or two cows may not be able to settle claims if all cattle in an area die because of outbreak of some disease,” a senior official of the IB told Republica. “In such circumstances, policyholders may not be able to receive compensation despite having paid premium on time.”
This is the reason why the IB has refused to define their nature of business as ´insurance´.
“What they are basically doing is giving assurances to policyholders to provide compensation in case they incur losses. Assurance is not the same as insurance,” the IB official said, justifying the need to bring organizations conducting microinsurance businesses under the legal ambit.
“Once these organizations affiliate themselves with insurance companies, they will have a cushion to fall upon as the insurer, and not the organization, will be responsible for settling all the claims, whether big or small,” the official said. “This will ensure policyholders will get compensation even in case of a disaster.”
The government is soon launching microinsurance program in rural markets in cooperation with insurance companies. Currently, the IB has identified six microinsurance products which could be sold for a couple of hundred rupees and provide coverage of up to Rs 100,000.
The government has also floated self-employment insurance scheme which provides compensation in case the source of livelihood of policyholders, such as tea shops, are destroyed by fire, floods or earthquake.
Other products include endowment and term-life insurance policies that provide a lump sum in case of policyholder´s death or after maturity of the policy.
Published on 2011-11-17 07:30:03