Board to regulate expenses of insurance firms

KATHMANDU, FEB 21:

The insurance regulator is introducing a regulation to bring down the expenses of insurance companies which are making policies expensive for the people.

Insurance Board is preparing a framework to dictate the expenses of the management along with incentives being provided to insurance agents. 

“We hope to discourage the unhealthy competition prevalent at the moment as companies are spending more on management expenses and paying insurance agents instead of providing more returns to the policy buyers,” said spokesperson for the insurance regulator Shekhar Aryal. 

The insurance companies are spending about 30 per cent of their income under the heading of management expenses which is not viable in the long run, so it needs to be regulated immediately, he added. To minimise unhealthy competition among insurance companies, the regulator and the government are encouraging mergers among them.

Likewise, the insurance companies are distributing large sums of money as incentives to retain their insurance agents. “They are paying agents more as incentives than as commissions which has increased their cost of operation,” he pointed out. Insurance Board has already fixed the commission rate that agents are supposed to be paid based on the maturity period and type of policies but it allows the companies to provide agents incentives in cash or in kind. As the number of insurance companies has grown in the last few years, there has been fierce competition among the companies to retain their agents and in turn the agents’ clients, and companies have been distributing higher amounts as incentives. 

“It will soon prepare a framework and set out the criteria and ceiling for both management expenses and incentives for agents,” he informed. As a regulator, our responsibility lies in safeguarding the interests of the insured. Such practices contract the returns on the insurance and put a burden on the insured with indirect charges, he said, citing the example of revised foreign employment insurance regulations. 

Recently, IB directed insurance companies to raise the compensation to up to Rs 685,000 without increasing the premium for foreign employment policies. In addition, IB has also removed the necessity of insurance agents for third party vehicle insurance so that the insured will not be burdened by unnecessary charges. There are 25 insurance companies in Nepal, with 16 non life and 8 life insurance companies while Rastriya Beema Sansthan -the government owned insurance company can sell both life and non life policies.

Source: THT