Insurance: Handle the golden goose with care

Why insure:
Insurance is the process of sharing financial losses of the 'few' from a common fund created by the contribution of 'many' equally exposed to the same risk. In general, it is a contract in which one party agrees to pay for another party’s financial loss, resulting from a specified and insured event.

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Born in the early 1950s, the Nepali insurance sector has shown a tremendous growth in recent times, especially after the enactment of the new Insurance Act-1992 and Insurance Regulation-1993. Today, there are 21 insurance companies, comprising of four life and 17 non-life companies.Considering the present market size, some industry insiders think that the Nepali insurance market is nearly saturated. The government should now either encourage mergers or introduce deterrent factors to stop further proliferation of similar companies, like increasing the amount of paid-up capital, they suggest.
However, S K Gorkhali, general manager of the latest entrant in this field, Siddhartha Insurance, does not agree. He says that there is many a vista that Nepali insurance sector is yet to discover. "The market is not yet saturated. The insurance market can be expanded, as there are more sectors to be explored like house-hold insurance sector, agriculture insurance, cattle insurance and many more,” he adds.
Rajendra Khetan, former president, of the Nepal Insurers' Association agrees with him. “Nepali insurance market is still virgin,” he says. Available data supports his logic. In Nepal, below one per cent of the household savings find their way into life insurance, compared to 30 per cent in Japan, the largest life insurance market in the world.Insurance is the foundation on which the entire superstructure of industry grows and economy stands. For Nepali economy, which is considered vulnerable most of the times, it is the last refuge.
Considering the small capital investment, it is worth the insurers while to insure one's personal or commercial property or assets.“The most important thing for the growth of the insurance sector in Nepal is awareness,” says Murari Raj Sharma, chairman and CEO of the Rastriya Beema Sansthan, the highest contributor to the government bond. “The hindrance has been the low per capita income of Nepalis,” he adds. For making the insurance sector robust, awareness needs to be propped up by a rise in the per capita income, he feels.This sector not only contributes towards the national economy by generating revenue for the government, but it can provide a vast, long-term source of funds that can be used for infrastructure development.
Despite the insurance market in Nepal growing at a rate of around seven per cent to 11 per cent, the share of insurance premium in the Gross Domestic Product (GDP) remains negligible. It could contribute to the GDP more significantly in the long-term, if the government extends supportive measures. Little changes here and there would achieve nothing, feel industry players. It requires a radical departure in terms of policies to change the fortunes of the insurance sector.
In sharp contrast to the need of this fledgling industry to ensure consumer confidence, some insurance agencies are already being accused of a high degree of unethical practices like insurance on credit, poor claim settlements and financial anomalies within the insurance companies themselves. Although, the government has set up an Insurance Board (IB) as the insurance regulatory authority to oversee the operations of insurance companies and safeguard public investments, the charges of malpractice continue to mushroom.
“We have been continuously monitoring the insurance companies. When we find some wrongdoings, we penalise the agency to safeguard customers’ interests,” said Madhav Prasad Upadhayay, chairman of the Insurance Board. The board is also working on standardising accounting practices to raise capacity, effectiveness and credibility of companies, especially in the context of World Trade Organisation (WTO), wherein Nepal has already committed to open up the sector to foreign investors from 2009.
The board has taken initiatives following its findings that the pattern of bookkeeping in insurance companies varied widely and their way of maintaining records was below par. It is more than a responsibility of the board as the total accumulated investment in insurance sector has grown to five billion rupees at present and is increasing.Industry players seem supportive to the Insurance Board’s actions to make the insurance sector more responsible and respectable. They suggest that the board should come up with a strict circular for making additional provisions on uncollected premium.
The sector is marred with many other problems like VAT, from which only the government can relieve it. Industry insiders have also suggested the establishment of a re-insurer within the country. Currently all the 21 companies are venturing out of Nepal for reinsurance. The establishment of a reinsurer can help stop the outflow of foreign exchange and spread a healthy risk within the local market.
In today’s world, to visualise commercial, trading or industrial investment without the backing of insurance protection is impossible, as any entrepreneur first seeks protection for his investment.
Insurance protection is required at each and every step to insulate the investment against any unforeseen perils — natural, accidental or man-made. Nepal cannot remain aloof to the shield of insurance. For the sake of ordinary citizen, business ventures and economy at large, honest attempts need to be made to encourage the insurance sector.