The Insurance Board recently increased the paid-up capital requirement of insurance companies to strengthen the insurance sector. As per the recently issued directive, life insurers and non-life insurers have to raise their paid-up capital to Rs two billion and Rs one billion from Rs 500 million and Rs 250 million, respectively, by the next fiscal. Along with this initiative, the Insurance Board has taken various reform measures to build a vibrant insurance sector in the country. Pushpa Raj Acharya of The Himalayan Times caught up with Chiranjibi Chapagain, Chairman of the Insurance Board, to learn how the insurance sector regulatory authority has envisioned transformation in the sector. Excerpts:

The Insurance Board has raised the paid-up capital requirement of insurance firms through the Directives on Insurer Registration and Insurance Business Operation. What is the main reason behind this increment?

We need to change with the times. Hence, the increment in the paid-up capital requirement of insurance companies was required as the insurance business in the country has expanded substantially in recent times. We have envisioned a strong and stable insurance sector and paid-up capital increment is one of the measures to develop a strong and vibrant insurance industry in the country. The long debate on increment of paid-up capital of the insurance sector has finally come to an end.

Has any insurance company submitted their capital plan to the Insurance Board?

We recently issued the directives providing the insurance companies a three-month time period to submit their capital plan. As operators of insurance firms are happy with the decision, I believe that there will not be any hassle in executing the provisions of the directives issued by the Insurance Board. The delegation from the insurance companies operators’ association has visited the Insurance Board and during the talks they hailed our decision and made a commitment to increase the paid-up capital to the level instructed by the insurance sector regulatory authority. Insurance companies can resort to all the options — rights issue, bonus share issue or merger — to increase their paid-up capital by the end of next fiscal. Mergers I believe could be one of the better solutions for insurance companies to raise their paid-up capital.

The recently issued Directives on Insurer Registration and Insurance Business Operation has envisioned five per cent share (from total 30 per cent issued to the public) for company staffers. There has been debate that this will hamper the efficiency of the company as the employees could be engaged in manipulating share prices in secondary market. What is your take on this?

We have brought this provision to enhance the efficiency of the employees as they will develop a sense of ownership in the company. However, we have to wait and watch for the pros and cons of this provision. As a regulator we always have the option to amend the rules and if we do find that this provision is creating a negative impact then we will issue another regulation to counter it. In fact, we have envisaged providing ownership to the staffers of the company but if they misuse the facility by breaching the governance ethics they will be prevented from enjoying the facility.

The directives have also provisioned that 20 per cent of the profit made by the branches of foreign insurance companies working in Nepal must be deposited in a reserve fund. Where will this reserve fund be utilised?

This is required as a back-up fund because insurance companies have to face unforeseen situations. Not only for insurers, the Company Act has envisioned reserve funds for other companies as well. Basically, a company’s profit is distributed to its shareholders. Instead of distributing all the profit made by the company we have envisaged a reserve fund, which can come in use when there is an emergency.

What has been your observation of the insurance sector of the country after assuming the responsibility as head of the Insurance Board?

People became more aware about the insurance sector immediately after the earthquake and insurance business moved ahead in an upward trend then after. However, this trend dampened after the border blockade as people were more focused on meeting their basic needs during the supply disruptions. There was no substantial impact on the insurance business before or after the earthquake. I think we need to conduct massive campaigns across the country to increase awareness about insurance among the people. I am also discussing with Nepal Rastra Bank to introduce a provision through the monetary policy to make insurance of the structures or the businesses while obtaining loans from the banks and financial institutions (BFIs) mandatory because BFIs currently insure only the loan amount. After assuming the post of the chairman of the Insurance Board, I have given top priority to develop the insurance sector, ensuring good governance and strengthening the insurers. I have also focused on enhancing the regulatory and supervisory capacity of the Insurance Board. The most recent financial sector reform programme has also included a provision to strengthen the insurance sector. The programme being run under the assistance of the World Bank Group has three major components for insurance sector strengthening — autonomy in laws, implementation of risk based supervision of insurers and enhancing the capacity of the employees of the Insurance Board. On the other hand, the UK government’s Department for International Development has been conducting diagnostic study of the insurance companies in a bid to develop risk matrix and it will support us for risk-based supervision of the insurance companies.

Do you have any plan to provide licence to new insurance firms?

There are already a few pending applications for life and non-life insurance companies. After revising the paid-up capital requirement we are mulling over to invite them to obtain their licence as per the new paid-up capital requirement. As the applications have been pending since long without any declared policy to stop distributing licence, applicants will be invited and they can move ahead to open an insurance company as per the new rule, which requires paid-up capital of Rs two billion for life insurers and Rs one billion for non-life insurers.

There have been complaints from clients regarding delay in claim settlement. How will the Insurance Board address this problem?

The Insurance Board is proactively working on this and the claim settlement of earthquake related damages is an example of this. Reliability and reputation of an insurance company lies on how fast the company can deal with claim settlements. Surveyors are also equally responsible. We have also urged surveyors for timely and authentic survey reports.

What has the Insurance Board planned on providing licence to micro-insurance firms to expand the outreach of the insurance sector to the rural areas?

The prevailing Insurance Act does not have any provision to issue licence to micro insurance firms. The draft bill has envisioned micro insurance to expand insurance outreach. The bill needs to be approved from the Parliament first. Another major area where we are working on is to bring health insurance policy. We also need third-party administrator to run health insurance programme successfully. The third-party administrator will issue digital cards to the insured and the insured can avail medical treatment for up to the insured amount from any hospital in the network of the third-party administrator and the insurance company will settle the claim amount as per the hospital bills to the third-party administrator. However, the existing Insurance Act does not have a provision to issue licence to a third-party administrator. If we are not able to set up a reliable mechanism for health insurance there will be chances of forgery on hospital bills. This is why we are planning to develop a reliable mechanism first for the effective implementation of health insurance scheme.