WELCOME

TO
Insurance companies: Nepalese
perspective
- Nabaraj Adhikari, PhD
Director
Securities Board of Nepal
(SEBON)
Jawalakhel, Lalitpur
All rights reserved.
Copyright © Nabaraj Adhikari
Contents

 Incorporation
 Types of insurance companies
 Major functions
 Regulation and supervision of
insurance companies by Insurance
Board
 Governance issues and challenges

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Introduction
 Re-insurance business means re-insuring the portion
of the risk which is excess of the risk to be hold by
the Insurer.
 Insurance policy means a document mentioning the
rights and liabilities relating to the contract of the
Insurance.
 Actuary means a person having the qualification as
prescribed and is appointed by the Insurer for
assessing and calculating the liabilities of the
Insurance Business.
 Insurance agent means a person other than a
salaried employee of an Insurer who has obtained a
license to work on behalf of the Insurer on the basis
of commission.
 Broker means a person who has obtained license to
work as an intermediary between an Insurer and
Insurer relating to the Insurance Business. 3
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Introduction, contd.
 Insurance is an arrangement between an
individual (consumer) and an insurer (insurance
company) to protect the individual against risk.
 Insurance is a legal contract that transfers risk
from a policyholder to an insurance provider.
 The purpose of insurance is to help individuals
limit their financial losses when an accident
occurs.
 Insurance protects you against potential
financial losses or liability as a result of
unexpected events.
 Its primary function is to maintain your existing
level of wealth.
 Insurance is beneficial even when no payments
are received from the insurance company.
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How insurance works?
 Insurance is an agreement where, for a stipulated
payment called the premium, one party (the insurer),
agrees to pay to the other (the policyholder or his
designated beneficiary) a defined amount (the claim
payment or benefit) upon the occurrence of a specific
loss. This defined claim payment amount can be a
fixed amount or can reimburse all or a part of the loss
that occurred.
 The insurer considers the losses expected for the
insurance pool and the potential for variation in order
to charge premiums that, in total, will be sufficient to
cover all of the projected claim payments for the
insurance pool.
 The premium charged to each of the pool participants
is that participant’s share of the total premium for the
pool.
 Each premium may be adjusted to reflect any special
characteristics
Copyright © Nabaraj Adhikari
of the particular policy. 5
Incorporation
Insurance Act, 1992: Section 10 Registration of the insurer Sub-
section (1) No person shall operate or cause to operate the Insurance
Business without obtaining a certificate pursuant to this Act.
Sub-section (2) Any national or foreign corporate body desirous to
operate an Insurance Business shall submit application to the office of
the Insurance Board in the prescribed form along with the following
documents and prescribed fees for the registration of its name as an
Insurer:
a) Memorandum and articles of association of the corporate
body,
b) Insurance Business to be operated and its policies and
terms and conditions,
c) If life Insurance Business to be operated, documents
displaying calculations of the premiums to be received in
operating such business liability,
d) The documents regarding the methods of utilising the
amounts to be received from the Insurance, and
e) Other necessary documents as prescribed by the
Insurance Board.
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Incorporation, contd.
Insurance Act, 1992: Section 10 Registration of the insurer
Sub-section (3) The Insurance Board shall make necessary
investigation upon the application received pursuant to Sub-
section (2) and shall make an inquiry with the applicant, if
necessary, and shall register the name of such applicant in
the prescribed register-book by mentioning the types of the
Insurance Business to be operated by the applicant and shall
provide the registration certificate of Insurer to the applicant
in the form as prescribed. In case there is any reasonable
ground for not registering the name, the Insurance Board
shall inform the concerned applicant accordingly.

Sub-section (4) Notwithstanding anything contained

elsewhere in this Section, in the case of the Life Insurance,
the Insurance Board shall, with the approval of the Nepal
Government, issue a certificate to operate the Business,
based on the fulfilment of the criteria which it has fixed,
from time to time, in respect of the operation of the
Insurance Business. 7
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Incorporation, contd.
In exercise of the power conferred by Section 10 (2) (e) of the Insurance Act, 1992, Beema
Samiti has prescribed the following documents in order to include with the application for the
registration as an Insurer.
1. Any organized institution applying to establish a insurance company should
submit following documents except the documents mentioned in Insurance
Act, 1992, Section 10 and Insurance Regulation, 1992, Rule 7:
 Feasibility Study Report - 2 Copies,
  If any agreement is there among promoters about the registration of insurer,
copy of that agreement paper,
  Income source and proof of ability of promoters to invest in proposed insurance
company,
 Personal Details of promoters,
  Authorized letter proving promoters not being in blacklist,
  Tax clearance certificate of last fiscal year of promoters
  Citizenship certificate of promoters,
  If promoters have any financial interest in any institution, description showing
document of that institution,
  Following Documents of proposed insurer;
o Employees' bylaw and Financial administration bylaw,
 o Documents showing the bases of determining the premium rate,
o Underwriting, customer service, claim payment and business promotion
directives,
 If proposed insurer has any agreement to take service from foreign insurer or
person, that agreement paper.
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Incorporation, contd.
2 Insurance Act, 1992, Section 10 and Insurance
Regulation, 1992, Rule 7: If promoter(s) is an organized
institution, following documents including the
documents mentioned in 1 should be submitted;
 Registration certificate and copy of operating license(if
any),
 Copy of decision of board of director about proportion
of share investment and determination of
person/organization representing the proposed insurer,
 Memorandum and article of association,
 Name list of directors and detail of institutions having
financial interest of them,
 Tax clearance certificate of last fiscal year,
 Annual report showing investing capacity and positive
growth in net worth of last three years (or period of
operation whichever is less).
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 Incorporation, contd.
3 Insurance Act, 1992, Section 10 and Insurance Regulation,
1992, Rule 7: If the proposed insurer is a foreign joint venture
then that should submit following documents including
mentioned in 1 about the foreign promoter;
(a) Including following details, the approval from supervisor of
respective country:
– Proof of termination or cancellation of ban, if operation
had been banned,
– Proof of foreign promoter running the respective insurance
business in home country,  
(b) Audited annual report of last three years proving positive
growth in net worth,
(c)Copy of joint venture agreement with Nepalese investors,
(d) Detail of investment in any organized institution in Nepal (if
any),
(e) Financial credibility documents proving credit worthiness,
(f) Name list and proportion of ownership of directors and detail
of organization(s) in which they have financial interest including
detail of board of directors. 10
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 Incorporation, contd.
Insurance Act, 1992, Section 10 and Insurance Regulation, 1992,
Rule 7: 4 If the proposed insurer is a foreign insurer, that should
submit following documents in Nepali language too including
mentioned in 1;
(a) Memorandum and article of association - 2 copies,
(b) Name list and proportion of ownership of directors and detail of
organization(s) in which they have financial interest including
detail of board of directors,
(c) Copy of the decision of board of directors to establish insurance
company in Nepal,
(d) Copy of tax clearance certificate of last fiscal year (if available) or
proof of being updated in related tax office.
(e) Approval of home supervisor disclosing following details:
-Proof of termination or cancellation of ban, if operation had been
banned,
-Proof of foreign promoter running the respective insurance business in
home country,
(e) Audited annual report of last three years proving positive growth in
net worth,
(f) Detail of investment in any organized institution or detail of
representative in Nepal (if any). 11
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Categories of insurance business
Insurance Regulation, 1993 Rule 3 Categories of
insurance business, Sub-rule (1) Subject to the
provision made in the Act and this Regulation, the
Insurance Business to be operated by an Insurer
shall be divided into the following categories:
a) Life insurance business,
b) Non-life insurance business,
c) Re-insurance business.
Rule 4 Life insurance business, Sub-rule (1) The Insurer
may operate the following Insurance Business under
the Life insurance business:
d) Whole life insurance,
e) Endowment life insurance,
f) Term life insurance.

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Categories of insurance business
Rule 5 Non-life insurance Sub-rule (1) The Insurer
may operate the following Insurance Business under
the Non-life insurance business:
a) Fire insurance,
b) Motor insurance,
c) Marine insurance,
d) Engineering and contractor’s risk insurance,
e) Aviation insurance,
f) Miscellaneous insurance.

Rule 6. Re-insurance business, Sub-rule (1) The

Insurance may re-insure the risks which in excess
from the risks assumed by it.

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General information on insurance of Nepal
 Number of insurance companies is 26
 Number of life insurance companies is 9
 Number of non-line insurance companies is 17
 Minimum paid up capital to be maintained by Life insurance
companies is Rs.500,000,000
 Minimum paid up capital to be maintained by Non-life
insurance companies is Rs.250,000,000
 Insurance regulator is Insurance Board
 Proposed minimum paid up capital to be maintained by Life
insurance companies is Rs.5,000,000,000
 Proposed minimum paid up capital to be maintained by Non-
life insurance companies is Rs.4,000,000,000
 Only approx. 6 percent of total population has taken
insurance policy. Contributing approx. 2 % in the GDP
 Insurance claim made from April 25, 2015 (Devastating Earth
Quake Day) to June 12, 2015 is 14458 in number, 13,839
million in amount, settlement made 1105 in number and
Rs.286.68 million in amount (Source: Economic Daily July 10,
2015) 14
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Insurance companies in Nepal
Life Insurance Companies

S.N. Company Estd. Year Branches

1 Rastriya Beema Sansthan 1968 11
2 National Life Insurance Co Ltd.* 1986 99
3 Nepal Life Insurance Co. Ltd. 2001 23
4 Life Insurance Corporation (Nepal) Ltd. 2001 25
5 Met Life ALICO 2001 15
6 Asian Life Insurance Co. Ltd. 2008 114
7 Surya Life Insurance Co. Ltd. 2008 35
8 Guras Life Insurance Co. Ltd. 2008 23
9 Prime Life Insurance Co. Ltd. 2008 97
*Former National Life and General Insurance Company Limited

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Insurance companies in Nepal, contd.
Non-life insurance companies and their branches
Number of  

S.N. Company Estd. Year

Branches
 

       

1 Nepal Insurance Co. Ltd. 1947 15  

         

2 The Oriental Insurance Co. Ltd (India) 1967 10  

         

3 Rastriya Beema Sansthan 1968 13  

         

4 National Insurance Co. (India) 1973 9  

         

5 Himalayan General Insurance Co. Ltd. 1993 7  

         

6 United Insurance Co. (Nepal) Ltd. 1993 7  

         

7 Premier Insurance Co. (Nepal) Ltd. 1994 8  

         

8 Everest Insurance Co. Ltd. 1994 12  

         

9 Neco Insurance Ltd. 1996 15  

         

10 Sagarmatha Insurance Co. Ltd. 1996 18  

         

11 Alliance Insurance Co. Ltd. 1996 11  

         

12 N.B. Insurance Co. Ltd. 2000 13  

         

13 Prudential Insurance Co. Ltd. 2002 7  

         

14 Shikhar Insurance Co. Ltd. 2004 11  

         

15 Lumbini Insurance Co. Ltd. 2005 10  

         

16 Siddhartha Insurance Ltd. 2005 13  

         

17 NLG Insurance Co. Ltd. 2005 24

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Major functions
1. Cover economic risk- many economic risks, protects
entrepreneurs against the risk of damage to or loss of the goods,
offers a kind of stability to business.
2. Promote entrepreneurship and business- With the cover of
insurance on their on their assets, businessman and industrialist
are able to take hold decisions in expand their business, and take
financial risk which they cannot otherwise take.
3. Lighten the government burden of providing social welfare- it
plays the most useful role in the lives of individuals, life
insurance offers economic safety at reasonable cost to millions
of families in the country thereby lightens the govt.’s burden.
4. Promote investment and financing infrastructure- insurance
companies have at their disposal large amounts of money. This
arises from the fact that there is gap between the receipt of a
premium and payment of claim. Can invest in govt. bond,
corporate securities, insurance funds are also used for financing
the infrastructure projects with long gestation period.
5. Facilitate liquidity- If a policyholder is not in a position to pay the
premium, he can surrender the policy for a cash sum. The person
can also take a loan for a temporary period to tide over the
difficulty. Sometimes, a life insurance policy is acceptable as
security for a commercial loan. 17
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Regulation and supervision of insurance companies
 Section 36. Punishment : Sub-section (1) If any
Insurer or the Director of the Insurer, employee or
Surveyor, Broker or Insurance Agent knowingly
violates this Act or the Rules made under this Act or
order or directives or does not perform any function
to be performed or does any act not to be done, the
Board may punish to such Insurer or the Director,
employee or Surveyor, Broker or Insurance Agent
with a fine ranging from three thousand rupees to ten
thousand rupees. If such offense has been made
frequently, he will be fined at the rate of extra five
hundred rupees for each subsequent offense.
 Sub-section (2) If any Insurer or Insurance Agent or
Broker has made any Insurance Business without
following the procedures to be followed pursuant to
this Act, the Board may fine him up to ten thousand
rupees.
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Regulation and supervision of insurance companies, contd.
 Section 36. Sub-section (3) If the accounts, records,
register, details, information or any other documents to be
maintained, prepared, formed or submitted pursuant to
this Act or the Rules made under this Act has not
maintained, prepared, formed or submitted in time by
knowingly or with malafied intention or has maintained or
submitted the false details or documents by any-body, he
may be punished with a fine up to thirty thousand rupees
or imprisonment up to two years or with both.
 Section 39. Inquiry or investigation can be made: Sub-
section (1) The Board may make an inquiry or
investigation or cause to make an inquiry or investigation,
as per necessity, in the interests of the Insurance Policy
Holder or for any other reasonable cause, to any Insurer or
Insurance Agent or Surveyor or Broker or Insured as well
as including all other related persons or corporate bodies,
regarding the Insurance Business and also regarding the
other business dealt by any Insurer if it has undertaken
any other business.
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C
Regulation and supervision of insurance companies, contd.
 Section 39.Sub-section (2) Upon making an
inquiry or investigation pursuant to Sub-
section (1), it shall be the duty of an Insurer, all
employees of the Insurer whether they are in
service or retired, Insurance Agent, Surveyor
or Broker, Insured and all other related persons
or corporate bodies, to assist, by providing the
accounts, records, registers, book accounts, or
any other documents, information and replies,
to questions asked during the inquiries or
investigation.
 Sub-section (3) The expenses incurred for
conducting inquiries or investigations pursuant
to Sub-section (1) shall be borne by the
concerned Insurer.
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 Regulation and supervision of insurance companies, contd.
 Insurance Regulation, 1993, Rule 38.
Inspection and direction: Sub-rule (1) The
Board may inspect the Insurance Business
operated by an Insurer and provide
directives from time to time. It shall be the
duty of the concerned Insurer to comply
with the directives thus provided by the
Board.
 Sub-rule (2) It shall be the duty of the
Insurer and the concerned person to
provide the details, accounts and records
along with the other documents for the
inspection or to check as required by the
officer as designated by the Board.
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Regulation and supervision of insurance companies, contd.
 Suggest the government on formulation of
insurance policy,
 Draft insurance Acts & Regulations as per
best practice,
 Develop and amend the Insurance related
directives,
 Develop and amend investment
Guidelines for insurers,
 Approve the terms and conditions of new
products,
 Issue and renew the license of Insurers,
Surveyors, Insurance Agents and Brokers.
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Regulation and supervision of insurance companies, contd.
 Off-site inspection,
 On-site inspection (full scope and
focused),
 Formulation of supervisory frameworks,
 Legal action against Insurers, Surveyors,
Insurance Agents and Brokers.
 Arbitrate in the dispute which arises
between the Insurer and the Insured,
 Make decision on the complaints filed by
the Insured against the Insurer regarding
to the settlement of liability of the
Insurance.
 
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Insurance business development issues
 Enacting new Insurance Act drafted as per Insurance
Core Principles(ICPs).
 Drafting Insurance Contract Law.
 Issuing updated insurance accounting standard based
upon international best practices.
 Developing standard long-form audit report.
 Developing Actuarial standards for non- life insurers.
 Developing standards for liability valuation of non-life
insurer and asset valuation of all insurers.
 Formulating the solvency regime.
 Formulating Micro Insurance Regulation.
 Insurance supervision of Nepal is undergoing mainly on
traditional way without considering some of the most
essential framework in place. Ultimately it may hamper
the policyholders' interest and the market. For the
purpose, development of professional human resources
is the major concern of Insurance Regulator. 24
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 Insurance business development issues, contd.
 Qualitative improvement of insurance business-
increase in paid up capital, bringing new
products and developing the expertise of
surveyor and actuary,
 Creating public awareness in insurance service,
 Discouraging tendency of producing fake
evidence for making insurance claim,
 Facilitating re-insurance business in the country,
 Making efficient and transparent claim
settlements,
 Setting up premium as per the nature and
severity of risk,
 Establishing insurance institute to train human
resources and develop insurance expertise in the
country. 25
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Governance issues and challenges
 Level of awareness that insurance is a risk
management tool, is very low among retail consumers.
Insurance is bought almost only when it is mandatory,
e.g., to fulfill a condition of borrowing from a BFI, to
own a motor vehicle, to avail of income tax
deductibility. Moreover, range of retail insurance
products on offer is narrow. The fact that health
insurance is only a small portion of overall insurance
business is an indicator of how rudimentary the industry
is. As such, the insurance market remains small with
tremendous growth potential and provides ample
opportunities for innovation.
 Many small businesses can benefit from micro
insurance, which is very relevant to our context, is just
beginning to evolve. Farm insurance offerings are
limited to livestock; no crop insurance is available yet
posing as a major hurdle for formal finance to channel
into agriculture sector.
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Governance issues and challenges,contd.
 Robust legal framework is essential for the smooth
functioning of the institutions. Insurance Act 1992
that guides IB is inadequate to cope with the
emerging challenges of the sector. It is necessary
to raise the regulatory standards, adopt
international best practices to the extent relevant
to local context.
 Small market with many players gives rise to
unhealthy competition and systemic risk.
Consolidation in terms of number of players is
desirable.
 IB still follows compliance based supervision
instead of risk based.
 Lack of real autonomy in functioning of IB is a root
cause of its ineffectiveness and numerous
shortcomings in the industry. 27
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Governance issues and challenges,contd.
 Nepalese insurance industry has inadequacies in
accounting system. The accounting and auditing
system should be upgraded to meet international
standards.
 There are no functioning of reinsurance companies in
Nepal. The budgetary initiatives are desired.
 Government owned insurer (RBS) was established under
special Act (Rastriya Beema Sansthan Act, 1969) other
than general Company Act. It was hindering supervisory
environment and was also suffering from internal
problems which was considered as one of the major
governance issues. However, GoN decided to establish
Nepal Beema Company (NBC)-a separate public ltd.
Company to handle RBS’s non-life insurance business as
on 07/05/2014.
 Codes of conducts for insurance business and also
employees of regulatory body are lacking so needs to
be formulated and implemented.
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Assignments
1.What are the major legal provisions for incorporating
insurance companies in Nepal? Find the minimum
infrastructure requirements for establishing insurance
companies in Nepal.
2.What are the general functions of insurance companies?
3.What is the categorization of insurance companies in Nepal?
4.Differentiate between life insurance companies and non-life
insurance companies in terms of their services.
5. How do you think insurance companies are regulated
and supervised in Nepal? Explain in detail the major
legal provisions for regulating and supervising insurance
companies in Nepal.
6. Explain briefly the insurance business development
issues in Nepal.
7. Explain in detail the governance issues and challenges
of insurance business in Nepal.
Thanking you.
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