April 10: The Nepal Insurance Authority, tasked with regulating the insurance sector, is facing challenges in enforcing its own directives, raising concerns about its regulatory effectiveness.

Despite issuing directives aimed at improving insurance accessibility for lower-income individuals, such as mandating micro-insurance, the Authority has faced challenges in implementation. In 2014, the former insurance committee issued small insurance guidelines to enhance insurance access for the lower class. Following that, in 2018, insurance companies were directed to allocate 10 percent of their total business to micro-insurance.

However, despite the five-year period since the directive's issuance, companies have allocated only 2 percent of their total business to micro-insurance. Following non-compliance by major insurance companies, the Authority granted permission to three companies to offer small life insurance and four companies to offer small non-life insurance in November. Consequently, established companies began to withdraw from the micro-insurance sector. Despite the mandatory provision of 10% micro-insurance remaining intact, the Authority has displayed apathy towards its enforcement.

The Authority also fell short in raising the paid-up capital of insurance companies. In March 2022, the insurance committee mandated a minimum capital requirement of 5 billion rupees for life insurance companies and 2.5 billion rupees for non-life insurance companies. Despite extending the deadline to June 2023, 10 life insurance and 8 non-life insurance companies failed to meet this requirement. However, the Authority has refrained from taking any action against companies that have failed to fulfill the necessary capital requirements.

The Authority holds the authority to levy fines on insurance companies that do not adhere to the law and policy guidelines, with fines ranging from a minimum of 50,000 rupees to a maximum of 150,000 rupees per day.

Surya Prasad Silwal, chairman of the Authority, asserts that a flexible approach is adopted in implementing policy decisions. He mentioned, "We have issued written warnings to companies found violating the law and have imposed fines on them."

Moreover, the Authority faces challenges in encouraging insurance companies to diversify their investments. Despite revising investment guidelines in 2018 to permit investments in sectors like agriculture, hydropower, and infrastructure, companies have largely maintained their focus on fixed deposits and the stock market.

In response to their reluctance towards diversification, the Authority issued a circular in February 2020, mandating investments in agriculture and infrastructure. However, companies have failed to align their investment strategies accordingly. Despite the investment guidelines permitting companies to allocate up to a maximum of 10 percent in sectors such as agriculture, water resources, tourism, and energy, as of the second quarter of the current financial year, only 1.25 percent of total investments by life insurance companies are in infrastructure. Moreover, eight companies have made zero investment in infrastructure, while among non-life insurance companies, nine have no investments in the infrastructure sector, with other companies investing only 0.94 percent.

The Authority's management of corona insurance and claim disbursements has come under scrutiny. Despite pandemic insurance not being commonly offered, the insurance committee introduced corona insurance provisions and directed companies to market them for public appeal. However, common people have yet to receive over Rs 9.5 billion in claims filed by non-life insurance companies for corona insurance.

Upon the government's release of the Insurance Act 2079 in October 2022, the insurance committee transitioned into an authority. The Act bestowed enhanced powers upon the Authority and enforced stricter provisions for regulatory action. However, despite these measures, the Authority has faltered in adhering to its directives.

Silwal maintains that while the Authority has facilitated the implementation of policy arrangements, there remains unresolved issues concerning the governance of companies.

Rabindra Ghimire, an insurance expert, argues that the Authority's effectiveness in the insurance sector has diminished due to policies and directives being issued without thorough study and preparation. He stated, "Issuing directives without adequate study and preparation burdens the insurance authority beyond its capacity, hindering effective implementation." Ghimire further contends that some of the Authority's instructions lack effectiveness.