Insurance companies demand revision of cap on promotional expenses
KATHMANDU, MAR 02 -
Insurance Companies have asked the Insurance Board (IB) to review the cap imposed on their promotional expenses.
The IB’s new regulation has discouraged the domestic insurance business and has created capital flight risk as people might be attracted towards foreign insurance companies, according to the companies.
The regulatory body decided to impose the cap on insurance companies’ promotional expenses through agent expansion and other types of marketing activities since the beginning of the fiscal year 2012-13. The regulator has directed life insurance companies to allocate only up to 6 percent of their first premium for the purpose.
Prime Life Insurance Chief Executive Officer Resta Jha said the new regulation could discourage agents who play a vital role in expanding the insurance business. “As insurance is solely an agent-based business, the regulation could curtail the incentives being provided to the agents,” said Jha, talking at a round-table organised by the Kantipur Publications on Friday. According to Jha, the cap could affect the life insurance business which is expanding at a compound rate of 20 percent annually.
Nepal Life Insurance General Manager Vivek Jha stressed on the need for promoting the market through the joint effort of insurance companies and the IB. “The stakeholders concerned should take care of solvency, increasing bonus rate in insurance policy, potential customers and the long term sustainability for the promotion of the insurance business,” said Jha.
The IB, however, said the cap was implemented just to control the unhealthy competition in the sector. IB Chairman Fatta Bahadur KC said the new policy will discourage the practice of adding unnecessarily large number of sub agents in the name of promoting the business. “The new policy is expected to cut the operating cost of insurance companies, thereby increasing the bonus of policyholders,” he said. KC claimed the insurance business, which was down in the first quarter, due to the introduction of the measure, has regained its pace in the second quarter. “The motive of imposing the cap is not to harass the sector, but to discourage the unhealthy competition.”
According to insurance companies’ chiefs, the domestic insurance business is facing multiple constraints, including claim settlement, capital flight, limited market expansion, and reinsurance issues.
Although the life insurance business is expanding, growth in the non-life insurance business is still unsatisfactory despite many new products like animal insurance and medical insurance being launched.
The participants at the round-table said if more companies from sectors such as housing and hydropower start insuring their business, the business of non-life insurance would expand further.
Anjan Dhakal, manager at Shikhar Insurance, said they are planning to promote insurance of these sectors with joint efforts. “It could help increase the premium size of these businesses,” said Dhakal.
Source: The Kathmandu Post
