Kathmandu, July 6

The government is planning to introduce micro-insurance companies in the country soon to expand penetration of insurance services to the rural and deprived population as the draft of the Insurance Bill has provisioned licensing for micro-insurance companies.

The concept of micro-insurance has not been developed institutionally in the country due to lack of a law to develop such institutions, even as there is a huge requirement of the service to protect the low-income group. As a large number of people in the country fall under the bracket of low-income group, micro-insurance schemes are necessary to protect them against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of risks involved.

The bill, which is in the drafting phase, has envisioned micro-insurance to address the country’s specific need for making insurance service accessible to a larger number of the population. Currently, only 12 per cent of the total population has benefited from insurance services, according to the Insurance Board.

Micro-insurance is not a new concept for the insurance sector. Microfinance institutions, village-based cooperatives and non-governmental organisations have been practising micro-insurance since long. They are providing livestock, crop and health insurance to rural people at the grassroots level.

Raju Raman Poudel, director of Insurance Board, said the existing act does not bar insurance companies from selling micro-insurance policies as insurance products, but the firms in operation at present have not introduced such schemes because their administrative costs will rise. However, there is no provision for separate micro-insurance institution.

After the new law, which is in the drafting phase, comes into force, there would be a provision of licensing for micro-insurance companies. Thereafter, the microfinance companies, village-based cooperatives and non-governmental organisations providing micro-insurance services could also convert to micro-insurance companies.

An official of the Ministry of Finance, privy to the drafting process, said that micro-insurance policies will be launched extensively after the law opens licensing for dedicated institutions to design and sell innovative micro-insurance schemes.

The capital requirement of the micro-insurance firms will be provisioned in the Insurance Regulation after the law is enacted.

The draft bill has also proposed to increase the capital base of the insurance companies in operation in the country. There are 17 non-life insurance companies and nine life insurance companies in operation in the country. The draft bill has provisioned to increase capital base of the life insurance companies to Rs five billion from Rs 500 million. Similarly, it has provisioned to increase capital base of non-life insurance firms to Rs four billion from Rs 250 million at present, respectively.