Finance Minister urges for crop and livestock insurance

Finance minister Shankar Koirala, today, strongly asked the Insurance Board to implement crop and livestock insurance as soon as possible.
Despite the insurance regulator making agro insurance mandatory for non-life insurance companies since January 14, the plan has failed to take off hitting the commercialisation of agriculture and livestock farming.
The country is net importer of crops and livestock apart from meat and its product despite one-third of the population involved in the agriculture and huge potential for livestock farming and export.

During his visit to the Insurance Board today, the minister directed the board and employees to seriously push for the implementation of crop and livestock insurance — which are key to commercialisation of agriculture also envisioned by the incumbent government — at the earliest.

The government, in the budget for the next fiscal year, is prioritising commercialisation of agriculture also for import substitution of crops and livestock.

"The regulator must fulfil its responsibility to make these insurance schemes available nationwide," Koirala said, adding that the board needs to form a group comprising of experts so that the plan can take off without any disturbances.

According to regulation, non-life insurance companies will have to insure paddy, vegetables, fruits and potatoes, livestock and poultry. The Ministry of Agriculture Development is supposed to provide 50 per cent subsidy for the insurance.

In last six months since the regulation was introduced, only NLG Insurance has introduced livestock insurance product and some others have formed a group to test the product, its reception and the risks involved.

The regulator of the insurance companies had also determined five per cent insurance premium of the sum assured. The board had fixed the amount of insurance policy ranging from Rs 10,000 to Rs 150,000 for cattle based on their breed and age.

Koirala also warned the board for its ineffective regulatory presence.
Moreover, introduction of microinsurance that was announced in the budget of fiscal year 2010-11 has yet to become a reality. The board has not been able to even prepare a regulation for microinsurance meant for the poor and rural population.

Chief economic adviser of the finance ministry Dr Chiranjivi Nepal also expressed the need to establish an anti-fraud bureau to check fraudulent activities at insurance companies.
"Moreover, there is a need to vigilantly look into insurance companies and it is unfortunate that Rastriya Beema Sansthan has yet to conduct its audit since the last five years," he added.
The board chairman Dr Fatta Bahadur KC pointing out the need to amend a few clauses in the existing Insurance Act that are posing a hindrance to effectively regulate the sector, asked to give Insurance Board autonomy like the central bank.

Insurance poll to become reinsurance company

The government has formed a committee to finalise the capital structure, modality and operating procedure of the Insurance Pool.
The committee that will present its report in a month will also look into the possibility of the Pool's vialiability as a Reinsurer in the long run, according to the chairman of Beema Samiti (Insurance Board) Dr Phatta Bahadur KC.
After the September 11 terrotist attack in the US, the government that has been suffering from frequent strikes and bandh has envisioned the Insurance Pool.
Since the Pool has not been utilised effectively, the government has formed a committee under a joint secretary at the Finance Ministry to finalise the capital structure and its modus operandi.
The Pool established with Rs 50 million seed money from the government and Rs 50 million from the insurance agency currently has over Rs 1 billion. "However, it is under the Insurance Board," KC said, adding that it should be empowered and made an independent agency to function well.
If the Pool could be developed as a Reinsurer, the country could also attract foreign business."In the long run, Nepal could also get the business from outside, if managed properly," said Deep Prakash Pandey, president of Insurers’ Association of Nepal.
The country has no reinsurer, though there are 26 insurance companies -- nine life insurance and 16 non-life insurance companies. "Reinsurer acts as a shock absorber and shares the risk," he said, adding that insurance agencies sell risk to the Reinsurer as it absorbs the shock of any untoward incidents. "Thus Nepal could also build its capacity and venture in the sector."
The Insurance Board -- the regulatory authority of the insurance market -- has been long pushing for the establishment of a Reinsurer claiming that the country's insurance market has already matured. "The country needs Reinsurer also to support its internal market," KC said, adding that board has already incorporated the provisions Reinsurer to the establishment of the Reinsurance Company in the draft of the new Insurance Act.
The government has in the budget for the fiscal year 2008-09 had also planned to grant operating license to open a reinsurance company in the country.

Aviation Reinsurance
KATHMANDU: Nepal has received around $9 million in aviation reinsurance recently. The latest aviation accidents have generated the huge amount as the insurance claims. "There is no alternative to reinsure abroad at the current stage as the domestic insurance market has not been strong enoguh to pay the insurance claims of aviation accidents and natural calamity," said Deep Prakash Pandey, president of Insurers’ Association of Nepal (IAN).

Gurans Life ordinary shares oversubscribed by four times

Guras Life Insurance's primary issue has been oversubscribed by four times to Rs 427.49 million.
The insurance company had floated Rs 108 million worth 10,80,000-unit of ordinary shares at the face value of Rs 100 per unit for the public from November 19 to 23. The issue manager NMB Capital closed the issue on Tuesday after it was oversubscribed.
"Some 49,534 people -- excluding the staff -- applied for 4.27 million-unit of shares," said Sunil Devkota, chief executive office of the life insurance company that is promoted by 17 promoters including Sunrise Bank, T M Dugar Group and a group of diverse businessmen, industrialist and legal professionals.
Despite the poor performance of the secondary market at present, the four fold subscription of the ordinary shares makes it clear that the public still hs faith in the primary issue.
With this primary issue worth Rs 108 million, Guras Life Insurance has now paid up capital of Rs 360 million.
However, life insurance companies have to raise their paid up capital to Rs 500 million by July 15, 2013, according to the Beema Samiti (Insurance Board) directive.
"We are going to increase our paid up capital to Rs 500 in next two year by issuing rights and bonus shares," he said.
There are nine life insurance companies and 16 non-life insurance companies making it to a total of 25 insurance companies in the domestic insurance sector. However, Rastriya Beema Sansthan is life-and non-life both facility.
The 34,092,725-unit shares of 20 insurance companies with a paid up value of Rs 3,409,272,500 are listed in the Nepse under the insurance sub-group that is one of the key players in the secondary market.
Though the insurance market is huge, there is a shortage of technical manpower, besides lack of awareness and education about the insurance in the domestic market.

Guras Life Insurance to go public

Guras Life Insurance is floating Rs 108 million worth 10,80,000-unit of ordinary shares at the face value of Rs 100 per unit for the public on November 19-23.

The life insurance company promoted by 17 promoters including Sunrise Bank, T M Dugar Group and a group of diverse businessmen, industrialist and legal professionals has the authorised capital of Rs 500 million and issued capital of Rs 360 million.

The promoters have the 70 per cent of the authorised capital at Rs 252 million and the remaining of 30 per cent amounting to Rs 108 million is floated for the public.

According to the Securities Board of Nepal (Sebon), a company must float 30 per cent shares to the public.

An investor can apply minimum 50-unit to a maximum of 20,000-unit, according to the Issue manager for the Initial Public Offering (IPO) NMB Capital Ltd – a subsidiary of NMB Bank Ltd.

There are nine life insurance companies and 16 non-life insurance companies in Nepal making it to a total of 25 insurance companies in the domestic insurance sector. However, Rastriya Beema Sansthan is life-and non-life both facility.

The 34,092,725-unit shares of 20 insurance companies with a paid up value of Rs 3,409,272,500 are listed in the Nepse under the insurance sub-group that is one of the key players in the secondary market.

Today the insurance sub-group gained 12.86 points to close at 489.46 points as Life Insurance Co Nepal gained Rs 58, National Life Insurance gained Rs 30 and Prime Life Insurance gained Rs 20 per unit share in a day's trading.

Though the insurance market is huge, there is a shortage of technical manpower, besides lack of awareness and education about the insurance in the domestic market.

"Rate undercutting is the biggest problem in the insurance sector, according to an insurance expert. "The intention should not be to form a cartel and charge clients more but bring new products and price it accordingly,” he said, adding that insurance is a fund management. "It is a financial security in the event of death or on the inability to earn due to physical disabilities.”

Third Party Insurance comes into effect

Hopefully, highway blockades in the wake of accidents and resultant deaths will be a thing of the past.
"From September 1, third party insurance has become mandatory and thus, compensation. Now, major supply routes will be spared of disturbances," said Finance Minister Surendra Pandey. Highway and road blockades at various places have become a frequent occurrence due to accidents and ensuing protests.
Vehicle owners can now get third party insurance at a little over the usual rate they are paying for their vehicle insurance and ensure peace of mind. "Third Party Insurance is a liability cover purchased by an insured -- the first party -- from an insurer -- the second party -- for protection against the claims of another -- the third party," said Prof Dr Phatta Bahadur KC, chairman of Beema Samiti.
"Vehicle Insurance Rate Regulation-2009 will also benefit employees in transportation sector, passengers and common people," KC said adding that TPI willnot be expensive but the deceased's family members or injured's relatives can claim a substantial amount, though it differs to vehicle to vehicle. The vehicle insurance comes under the non-life insurance.
In his budget speech for the fiscal year 2009-10 on July 13, Pandey had announced that the third party insurance would be implemented from August 17. Now, it will be implemented from September 1 as the Department of Transport Management took some time to finalise the process of payment. "The insurance company must pay within 21 days in case of death caused by accident and within two months in case of injury," said Sharad Chandra Poudel, director general of Department of Transport Management. "CDOs -- as urged by transport entrepreneurs -- will see to the settlement, as in the past such incidents have caused law and order problems," he said adding that unlike earlier police will not hold the vehicle back in case of accident, if the owner shows the vehicle's TPI papers.

Central Bank to freeze NLICL's accounts

The Nepal Rastra Bank (NRB) has decided to freeze the bank accounts of the National Life Insurance Company Ltd (NLICL) following a dispute in the board of the company
“The central bank received a letter from the Beema Samiti to take action against the NLICL. Taking a cue from the missive, the NRB has written to all financial institutions to put transactions of the insurance company on hold with immediate effect. A circular will be sent out tomorrow,” said the NRB source.
“Due to the dispute in the NICL’s board, the Beema Samiti got in touch with the NRB to stop all transactions,” said a board member of the Beema Samiti. Over the past six years, the NLICL board — comprising seven members — has been engaged in inter-personal bickering.
As the internal feud spun out of control, the insurance firm’s board was forced to take the harsh decision as both the splinter groups — one led by ex-chairman Dambar Bahadur Malla and the other by the incumbent Prema Rajya Lakshami Singh — staked their majority in the management. Of the seven board members, four owe their allegiance to Singh and three have thrown their lot behind Malla.
This is yet another example of lack of corporate culture and good governance in the companies.
To make matters worse, the NICL is yet to comply with the minimum paid up capital norms that is pegged at Rs 250 million. The firm’s paid up capital stands at only Rs 130.2 million. “Despite the board’s repeated efforts, the company failed to increase its capital as per the Insurance Act,” said the source. In a bid to shore up its liquidity, the NLIC had announced 1:1 rights shares — through the Citizen Investment Trust (CIT
Though the Security Board of Nepal (Sebon) approved the move on February 9, the allotment of the rights shares is yet to see the light of the day. “We are looking into the issue of the non-allotment of rights shares," said Niraj Giri, director, Sebon
Meanwhile, sources in the troubled insurance company maintained that the rights shares — amounting to the equivalent amount of the paid up capital — had not been issued due to the growing management tussles. Both Malla and Singh’s faction had applied separately for approval from the Company Registrar Office, queering the procedural pitch. The NLIC has the following break up of stakes — promoters own 45 per cent, 10 per cent belongs to foreign joint investor, 35 per cent to the public and the rest 10 per cent is in the custody of the Raastriya Banijya Bank(RBB).
"Interestingly, the Beema Samiti has absolutely no clue who the foreign joint-investor is,” added the source.

Insurance is usually considered the concept of bearing risks which ultimately lead to family protection, important adjunct to trade, commerce and industry, loss prevention, contribution to national economy and mobilisation and investment of funds. The development of the insurance sector, however, depends on the growth of other economic sectors and also purchasing capacity of the people.
The trend of insuring vehicles owned by individuals and institutions is increasing by the day. People are getting more aware of the need to insure vehicles they own due to the increasingly risky environment in recent days. Auto insurance is catching up recently as people have become more conscious that insurance can really help during difficulty.
"People like to secure their property when there is involvement of big money, unsecured and small roads and more exposure to accidents due to ineffective rules," said Archana Pathak, deputy business development manager at Shikhar Insurance that insures about 450 vehicles on an average each month.
Growth in auto insurance business stands at over 30 per cent and people are gradually realising the need to insure four-wheelers as well as two-wheelers. The increased trend of buying vehicles on finance has also contributed to auto insurance as insurance is mandatory in finance schemes.
In 2006-07 alone, premium insurance companies collected Rs 834,077,295 on vehicle insurance of their total Rs 2,854,632,365 premium collection.
According to data from Beema Samiti (Insurance Board), of the total growth in insurance sector auto insurance contributed to over 30 per cent in the year 2006-07.
The market for vehicle insurance has increased due to cheaper premium also. "This is because the insurers want to minimise the premium and try to get more when they claim," said Kewal Krishna Shrestha, CEO of Everest Insurance Company.
The insurance for commercial vehicles is even cheaper than that of private ones. A total of 17 non-life insurance companies provide auto insurance to customers currently. Beema Samiti regulates them and issues directives from time to time for their proper functioning.
However, all is not hunkydory. There are problems also pulling the growth down. "Limited market, topographical conditions, insignificant growth, low capital base of insurers, problems in re-insurance, more players, stiff competition and no compulsory motor vehicle insurance are some key factors blocking the growth of auto insurance," said an industry insider.
Competition among insurance agencies has also hit the industry hard. "There is cutthroat competition due to too many players in the small market," said Pathak, adding that some of the companies were violating the market rules with extra discounts like fleet discounts, which are only to be given if more than one vehicle in the same name is insured. "As a result, the customer has to face problems while staking a claim. Low premium exploits customers as they are misguided," she added.
The growing number of vehicles and mandatory provisions from financing institutions to insure vehicles before financing have helped increase auto insurance, according to insurance agents.In comparison to commercial vehicles, fewer private vehicles are insured due to their owners' lack of awareness of benefits of vehicle insurance.
Despite the increase in number of insurance agencies people's interest in insuring private vehicles has not increased accordingly, Pathak said and added, however, that growth was steady. "Auto insurance holds tremendous potential for growth," Shrestha said.
"Insurance premium for both private and commercial vehicles is reasonable," Pathak said adding that calculating parameters are different though. Private vehicles are judged on the basis of insured amount, cubic capacity and age but commercial vehicles are either goods carrying or passenger carrying. "The commercial vehicle thus requires seat capacity/carrying capacity which determines the premium," she added.
Similarly, time period also affects vehicle premium as depreciation decreases the value of the sum insured, which directly determines the insurance premium. Also, when renewal is done the insured amount is adjusted every year with depreciation.Auto insurance rates are tariff rates. All general insurance companies follow the guidelines of the regulator. The rates vary according to the cubic capacity of the vehicle. The value to insure (sum insured of the vehicle) and the age of vehicle also affect the premium to be paid.
"For instance, the break-up with reference to cubic capacity (cc) is below 1000 from 100cc to 1600 cc and above 1600 cc will have different rates," Pathak informed.
One can insure second-hand vehicles also. "Second-hand vehicles are also insured," Pathak said adding that it was just like insuring a first-hand vehicle. "The agency needs a copy of the blue book showing the transfer of ownership. Also, the value of the vehicle might differ due to depreciation," she said.
The there is the problem of people complaining about the lengthy process of insurance claims. "While paying premium customers want to pay less but when they claim they want to get more," grumbled Shrestha.
According to statistics, contribution of the insurance business to the total GDP stands at 1.09 in the year 2005-06 and this contribution is gradually increasing. In the year 2006-07, it is expected to contribute a little above two per cent to the total GDP.

Growth trend of auto insurance in total insurance

2001-02 – 18.15 per cent

2002-03 – 20.34 per cent

2003-04 – 25.54 per cent

2004-05 – 26.61 per cent

2005-06 – 29.22 per cent

(2006-07 – more than 30 per cent expected)