Kathmandu, July 7

Only four insurers — one life and three non-life — have raised their paid-up capital to the required level, even as the given deadline for insurance companies to increase their paid-up capital is a little over a month away.

According to the Insurance Board (IB) — the insurance sector regulator — Nepal Life Insurance Company is the only firm among 18 life insurers in operation to have raised the paid-up capital as required till date. Similarly, Himalayan General Insurance, Shikhar Insurance and Neco Insurance have met the regulatory capital requirement out of 20 non-life insurers in the market, as per the IB.

As per the directive titled ‘Insurer registration and operation of insurance business’ issued by the Insurance Board some two years back, the insurance companies have to raise their paid-up capital to Rs one billion from the earlier requirement of Rs 250 million for non-life insurers and to Rs two billion from Rs 500 million earlier for life insurers within mid-July, 2018.

The directive, however, has a provision whereby insurers can request extension to fulfil the criteria with the Insurance Board a week before the 2017-18 fiscal year ends. The IB can then provide additional three months for the insurance firms to meet the paid-up capital requirement if it finds the requests to be genuine and convincing.

However, Chiranjibi Chapagain, chairman of IB, said that the regulatory body will force the insurance companies to opt for merger if they are unable to raise their paid-up capital to the required level within the given time.

The IB has barred the promoters to chip in investment by obtaining loan from financial institutions. “If the firms cannot meet the paid-up capital requirement within the given time, we will encourage them to merge based on cross-holdings of promoters and other tools that were adopted during merger of banks and financial institutions by Nepal Rastra Bank,” said Chapagain.

The IB had granted licence to new insurers after issuance of the ‘Insurers registration and operation of insurance business directive’. There were nine life insurers and 17 non-life insurance companies in operation before the board granted licence to nine new life insurance companies and three non-life insurance firms.

Along with the entry of new players in the market, the Insurance Board expects the insurance penetration to increase, as it is merely 11 per cent till date. The penetration is, nonetheless, an improvement compared to two years ago, when insurance penetration rate was witnessed at just seven per cent of the total population.

“Including the insurance policies purchased from migrant workers, insurance outreach has expanded to around 14 per cent of the total population,” according to Chapagain. He further said that the lapse ratio in the insurance sector is high at 28 per cent, which is another concern of the insurance sector regulator.

The lapse ratio measures the amount of insurance policy renewals with respect to the total number of insurance policies at the beginning of a specified period. Often times the insured have been allowing their policy to lapse because the insurance agent did not properly explain the terms and conditions of the policy, lack of understanding, insurance policy was bought without regular income source and shocks in income source, and lack of proper follow-up, among others.