Insurance Board to strengthen corporate governance

KATHMANDU, MAR 10: 

In its bid to strengthen the corporate governance of insurance companies, the insurance regulator will introduce a directive that will specify the roles of directors and chief executives.

“Though the Insurance Act 1992 governs the working procedures of directors and chief executives of insurance companies, it lacks clear specifications,” informed spokesperson for Insurance Board Shekhar Aryal. The upcoming regulations for corporate governance will be based on guidelines fixed by the International Association of Insurance Supervisors (IAIS). 

“IAIS emphasises on uniformity of corporate governance regulations between other regulators such as the central bank, so the directive will be similar to Nepal Rastra Bank’s regulations meant for banks in general,” he said, adding that the directive will spell out the criteria and qualifications of the chief executive officers and the board of directors of insurance companies along with specifying their duties and responsibilities.

Moreover, the directive will also set licensing criteria for new companies and revise the penalties being given to insurance companies that fail to comply with the rules. It will also dictate the shareholding pattern and the majority stakeholders’ responsibilities and authority in the company. 

In the domestic financial system, banks and financial institutions are considered to be a relatively more regulated sector due to the strong control of the central bank in order to protect the deposits of the public.

“Likewise, insurance companies also mobilise money collected from the general public. So as the regulator, we need to make sure that the public’s investment in insurance polices is safe, and ensuring better and transparent corporate governance is one of the important measures,” said chairman of the board Prof Dr Fatta Bahadur KC. In recent times, the board has started strictly supervising and regulating insurance companies. 

It even suspended the activities of Asian Life Insurance Company for its negligence in following regulations. The regulator has refrained from suspending the company but only after penalising it with a fine of Rs 25,000 and its managing director Ramesh Kumar Bhattarai with a fine of Rs 10,000 for distributing cash dividends despite regulator’s prohibition. 

Likewise, it is also preparing a framework to dictate management expenses of insurance companies along with incentives being provided to insurance agents. Policies have become expensive as companies are spending 30 per cent of their income for management along with giving large sums of money as incentives to retain insurance agents.

Source: THT