Existing Scenario of Nepalese Insurance Industry

Transcription

1 Existing Scenario of Nepalese Insurance Industry

2 1. BRIEF HISTORICAL BACKGROUND The History of financial system in Nepal began in 1881 with the establishment of Tejarath Adda (The National Treasury Office) in initiation of the then Prime Minister Ranodweep Singh which was used as the government and public bank and Ministry of Finance by Rana rulers. Before this Kumari Chowk Adda was the main treasury office but not organized well. Later, in initiation of Nepalese Ambassador to UK, Nepal Bank Limited as the first commercial bank, was established in 1937 with technical help of British Indian commercial banks. In those days, foreign (mostly Indian) insurance companies met the insurance need of Nepal. In eve of Rana Regime, Nepal Insurance and Transport Company (named as Nepal Insurance Company later) was established in 1947 by Nepal Bank Ltd. as its subsidiary company. It was the only national insurance concern before establishment of Rastriya Beema Sansthan (RBS) in After the establishment of RBS, the then main business holder of life portfolio, Life Insurance Corporation of India transferred the business to RBS and closed its office in Nepal in None the less, non life companies are in operation till to date. In 1968 Rastriya Beema Sansthan (RBS) was established under Company Act, 2024 and was converted into Corporation in the following year under Rastriya Beema Sansthan Act, This is a government owned organization even now, and has been operating both life and non-life insurance business. Prior to the enactment of Insurance Act, 1968 there was no regulatory body that supervises insurance business in the country. Under the Insurance Act, 1968, Beema Samiti (Insurance Board) was formulated as the insurance supervisory Authority. In 1986, a new experiment was done in Nepalese insurance scenario by licensing a joint venture insurance company to operate both life and non life business. But the real expansion of the insurance industry in Nepal took place during the 1990s following the financial sector reform and liberalization of the economy by the government. The new policy gave emphasis to the involvement and growth of insurance business in the private sector. As a result, many companies came into the scene in the private sector including foreign equity. Even branches of Indian and US companies are working in the field. As shown in table 1, the number of insurance companies including RBS reached 25 by the end of F.Y. 2009/10. 2

3 Table 1 Insurers at a Glance Nature of the Company The table 2 shows year-wise premium collected by the existing companies and its weightage over the GDP. i) Life Insurance Ownership F.Y Table 2 Insurance penetration Premium (NRs. in Million) Premium as % of GDP 2011/12* / / % 2008/ % 2007/ % 2006/ % 2005/ % 2004/ % * Projected a) Number of insurers and their branches General Life Composite Government Owned Private Sector Foreign Joint Venture Total Indian insurance companies including Life Insurance Corporation of India (LIC) were the life insurance service provider in Nepal till RBS had started to operate life business from 1972 and in the same year LIC voluntarily withdrew from the Nepalese market. In 1986, National Life and General Insurance Company Limited (Now operating life and non life business separately) was licensed as the first insurance company in the private sector with minority interest of foreign equity. It began life insurance business in Three life insurance companies were licensed in 2001 and four in Total 3

4 Table 3 Life Insurance Companies S.N. Company Estd. Year Branches 1 Rastriya Beema Sansthan National Life Insurance Co Ltd.* Nepal Life Insurance Co. Ltd Life Insurance Corporation (Nepal) Ltd Met Life ALICO Asian Life Insurance Co. Ltd Surya Life Insurance Co. Ltd Guras Life Insurance Co. Ltd Prime Life Insurance Co. Ltd * Former National Life and General Insurance Company Limited b) Premium volume of life business The premium volume of Nepalese life insurance market in last five years is as follows: Fiscal Year Table 4 Premium Collection, Life Insurers Premium (In million NRs) Premium Growth Rate (in %) 2011/12* / / / / / / / Average * Projected ii) Non- life insurance a) Non life insurers and their branches Before establishment of Nepal Insurance Company, Nepalese non life insurance need was met mostly by different Indian Insurance Companies. After the establishment of Nepal Insurance Company in 1947, Nepalese business started to be carried out by this company. Subsequently in 1968, RBS came into the scene as a composite organization for both businesses i.e.; life and non life. Similarly National Life and General Insurance Company was licensed in 1986 as the Insurance Company in the private sector with partial foreign equity in composite form. In 2005, however, the non-life business of National Life and General Insurance Company was transferred to its subsidiary company NLG Insurance Company. The name of Non-life insurance companies and their establishment year are as follows; 4

5 Table 5 Non-life insurance companies and their branches S.N. Company Estd. Year Number of Branches 1 Nepal Insurance Co. Ltd., The Oriental Insurance Co. Ltd (India) Rastriya Beema Sansthan National Insurance Co. (India) Himalayan General Insurance Co. Ltd United Insurance Co. (Nepal) Ltd Premier Insurance Co. (Nepal) Ltd Everest Insurance Co. Ltd Neco Insurance Ltd Sagarmatha Insurance Co. Ltd Alliance Insurance Co. Ltd N.B. Insurance Co. Ltd Prudential Insurance Co. Ltd Shikhar Insurance Co. Ltd Lumbini Insurance Co. Ltd Siddhartha Insurance Ltd NLG Insurance Co. Ltd b) Premium volume The premium volume of (Nepalese) non life insurance market in last five years is as follows: Table 6 Premium Collection, Non-life Insurers Fiscal Year Premium (In million NRs) Premium Growth Rate (in %) 2011/12* / / / / / / / Average * Projected 5

6 iii) Employees in this sector The lack of sufficient professionals in the Nepalese insurance companies is one of the reasons why Nepalese insurance sector is not developed in the degree of expected level. This problem equally exists in insurance supervisory body also. The F/Y 2011/12 shows that this sector has given direct employment to about 3,200 people in different levels. The existing situation shows that Nepalese insurers have not given much emphasis in order to develop their staff s capacity as reflected by their training expenditure compared to other headings of expenses. iv) Insurance surveyors There are about 425 licensed insurance surveyors in Nepal. Insurance surveyor's license is issued and renewed by the Insurance Board as per the Insurance Legislation. The insurers are dependent upon these surveyors report for settlement of claim. However, there is large amount of complaints against the performance of these surveyors because of which in many occasions, the companies make delay for claim settlement. The consensus in the supervisory body is that some sort of reform is required in their working style to improve claim related issues. v) Insurance Agents Though overall numbers of insurance agents are around 98,296 till 2012, one third of them are active. Most of the agents are attached to life insurance sector. These agents take training course of a week before they go to the service. vi) Products The Nepalese insurance market has a limited range of products. More innovative products are yet to be designed. However, with the entry of new companies it is expected that the market will to be more competitive and they will be forced to become service oriented with new products. Recently in life sector the players have issued nearly twenties new products. Likewise in non life sector, the products that came into markets are around fifteens different types. vii) Professional Insurance Organizations There are mainly four professional insurance organizations working in Nepal. They are; Nepal Insurers Association, Nepal Insurance Professional Society, Nepal Professional Insurance Agent Association and Nepal Surveyors' Association. However, their activities are limited and not on the path of international professional organizations to the expected extent. viii) Insurance Pool "Insurance Pool Nepal" was established in 2003 to manage reinsurance for terrorism risk of Nepalese insurers from one door. It has 50% equity participation of Nepal Government and remaining 50% of Nepalese insurers. It is now being run not as a company, but in the process of being converted to company in the future. 6

7 2. INSURANCE BOARD Insurance Act, 1968 made a provision of Beema Samiti (Insurance Board), as a sole authority to regulate the insurance activities within Nepal. During 1990s, Nepalese government adopted economic liberalization policy. The policy results in the rapid expansion of the Nepalese Insurance business in terms of number of companies working in the field and also, total premium income. In the mean time existing Insurance Act, 1968 and Insurance Rules 1969 was repealed by Insurance Act, 1992 and Insurance Regulation 1993 respectively. The main aim of the Insurance Act, 1992 is to establish Insurance Board to systematize, regularize, develop and regulate the Insurance Business in Nepal. At present, policy holders protection has become main focal point. However, the independence of regulatory body is still handicapped by existing law. This is among reasons why the Insurance Act of Nepal should be amended in an appropriate manner. The Board consists of; Chairman (CEO) Member Member Member Member A person nominated or designated by Government Representative, Ministry of Law, Justice and Parliamentary Affair Representative, Ministry of Finance A person nominated by Government from among the persons having the special knowledge in the Insurance Business A person nominated by Government from among the Insured a) Functions of the Board As per the Insurance Act, 1992 the Functions, Duties and Powers of the Board is as follows: To provide necessary suggestions to the Government of Nepal to frame the Policy regarding to systematize, regularize, develop and regulate the Insurance Business. To frame a policy for the investment of the amount received from the insurance and to prescribe the priority sectors. To register and renew the Insurer, Insurance Agent, Surveyor and Broker and to cancel or cause to cancel such registration. To arbitrate in the dispute arises between the Insurer and the Insured. To make decision on the complaints filed by the Insured against the Insurer regarding to the settlement of liability of the Insurance. To issue necessary directives to the Insurer from time to time regarding to the Insurance Business. To formulate necessary basis for the protection of interests of the Insured, and To do or cause to do other necessary functions regarding to the Insurance business. 7

8 b) Main Activities of the Board Activities of the Insurance Board are directed towards policyholder protection at large for the healthy growth of insurance industry. Main activities of the Board can be summarized as follows; i) Regulatory Activities: a. Suggest the government on formulation of insurance policy, b. Draft insurance Acts & Regulations as per best practice, c. Develop and amend the Insurance related directives, d. Develop and amend investment Guidelines for insurers, e. Approve the terms and conditions of new products, f. Issue and renew the license of Insurers, Surveyors, Insurance Agents and Brokers. ii) iii) iv) Supervisory Activities: a. Off-site inspection, b. On-site inspection (full scope and focused), c. Formulation of supervisory frame works, d. Legal action against Insurers, Surveyors, Insurance Agents and Brokers. Development Activities: a. Public awareness activities, b. Human resource development activities (training, workshop, seminar talk programs etc) c. International relations in insurance through IAIS, ICDC, SAIRF, etc. Semi-judiciary activities: a. To arbitrate in the dispute which arises between the Insurer and the Insured, b. To make decision on the complaints filed by the Insured against the Insurer regarding to the settlement of liability of the Insurance. c) Human Resources The Board is working with 13 officers without actuary and permanent chartered accountant. Most of them are yet to be trained with professional expertise in regard to insurance supervision; basically, implementation of Insurance Core Principles (ICPs). d) Financial Resources The Board is financed by the insurance industry. Insurer has to pay one percent of gross premium as service charge to the Board. This source is sufficient only for day to day functions of the Board; however there is necessity of financial resources to outsource technical experts from aboard. The Board is empowered to have foreign assistance and grants. Till now, the board has not received any grants and technical 8

9 assistance from any source except technical support in the area of self assessment on IAIS core Principles by Asian Insurance Training and Research Institute. e) Information Technology in the Board The Board has recently introduced some software in its operational departments and it has developed its own website with limited information. It is a dire need to develop and introduce modern Information Technology (IT) in Insurance Board to perform its functions in more effective and efficient manner to regulate the industry properly. f) International Relationship Insurance Board, Nepal is a chartered member of International Association of Insurance Supervisors' (IAIS); likewise it is a member of Insurance Congress of Developing Countries (ICDC), South Asian Insurance Regulators Forum (SAIRF), and Asian Insurance Regulator Forum, IAIS-CGAP Joint Working Group on Micro insurance etc. It has played an active role in the international organizations and trying to develop the standards as IAIS aim. 3. Issues And Challenges There is no doubt that operation of Nepalese insurance industry needs to be more professional, transparent, competitive, innovative and efficient in order to provide effective services to the public in general and policyholders in particular. It is the primary concern of the Insurance Board. In this connection, following main issues and challenges are perceived. Insurance Board must go together with the criteria fixed by IAIS Insurance Core Principles (ICP). It has carried out the self-assessment of Insurance Core Principles, taking into account the domestic context, industry, structure and stage of development of the financial system and overall macroeconomic conditions. The result of the assessment has pointed out various areas for improvement. Some of high priority areas are as follows; a. To finalize new Insurance Act drafted as per ICPs. b. To draft Insurance Contract Law. c. To issue updated insurance accounting standard based upon international best practices. d. Develop standard long-form audit report. e. Develop Actuarial standards for non- life insurers. f. To develop standards for liability valuation of non-life insurer and asset valuation of all insurers. g. To formulate the solvency regime. h. To formulate Micro Insurance Regulation. Insurance supervision of Nepal is undergoing mainly on traditional way without considering some of the most essential framework in place. Ultimately it may hamper the policyholders' interest and the market. For the purpose, development of professional human resources is the major concern of Insurance Board. 9

10 Government owned insurer (RBS) is established under special Act (Rastriya Beema Sansthan Act, 1969) other than general Company Act. It is hindering supervisory environment and is also suffering from internal problems which is considered as one of the major issues. 10

11 Nepalese Insurance Scenario Fiscal Year Gross Premium Investment Life Nonlife Total Growth Life Nonlife Total In % (NRs.10m) (NRs.10m) (NRs.10m) (NRs.10m) (NRs.10m) (NRs.10m) Contribution to GDP Employment Surveyors Agents Employees 2004/ , , / , , ,124 1, / , , ,778 1, / , , ,575 1, / , , , ,936 2, / , , , ,799 2, /11 1, , , , ,084 2, /12* 1, , , , , Branch office * Projected 1