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Insurance Board at loggerheads with insurance companies

KATHMANDU, NOV 13 - All is not well between insurance companies and their regulator, the Insurance Board (IB). The regulator, of late, has been trying to be assertive citing rampant irregularities in the industry. On the other hand, insurance companies think that the board is into micro management, and they complain that they have been losing a lot of business because of it.

In a recent instance of a standoff between the IB and insurance companies, the regulator sought clarification from the CEO of Prime Life Insurance regarding its decision to procure goods for interior decoration for its 20 branches and 81 contact offices.

The IB said it acted after the Commission for the Investigation of Abuse of Authority (CIAA) asked it to do so. An anonymous complaint filed at the CIAA 14 months ago asked it to take action against the insurance company.

“In its letter to Jha, the IB has asked why the regulator should not take action against him,” said Binod Aryal, executive director at the IB. “We have given him a time frame of a week to reply and further action will be decided after getting it.”

Jha, however, said that he had carried out the procurement after getting the board’s approval, and that the anonymous complaint against him was intended to tarnish his and the company’s image.

Prime Life is not the only company where the IB has been making its presence felt. Over the last 10 months, the regulator has taken action against eight insurance companies for various irregularities and bad corporate governance. Many say the IB’s new assertiveness coincides with the entry of Aryal. He joined the IB in February 2012, and since then disagreements between the board and insurance companies have surfaced time and again.

Two months ago, the IB introduced the Good Governance Guideline that has prohibited directors and promoters with large stakes in insurance companies from getting insurance coverage from their own companies for their businesses and property. The guideline has also capped the salary of chief executive officers of insurance companies, keeping a certain range between the salary of the lowest ranking employees and the CEO.

In January, the IB barred Asian Life Insurance Company from selling new policies and also made a provision whereby the company had to seek the regulator’s approval before settling claims.

The regulator took action against the company after it issued cash dividends amounting to an estimated Rs 105 million without the IB’s okay. The board had issued a directive asking all life insurance companies to halt distribution of dividends until they increase their paid-up capital to Rs 500 million from the existing Rs 250 million.

One month later, the regulator suspended the automobile insurance policy of Lumbini General Insurance and fined it Rs 10,000 after it was found selling such policies to its promoters without receiving payment and settling claims in an ad hoc manner.

Likewise, in August, the CEO and all the board members of Shikhar Insurance Company were fined Rs 10,000 each after they were found to have overvalued claims of an insured vehicle. Aryal said that the insurance company had paid compensation of Rs 4.4 million for the vehicle which could have been maintained for Rs 1.2 million. “In fact, the Central Investigation Bureau (CIB) had asked us to take action against Shikhar,” said Aryal.

In other cases of irregularities, NB Insurance, Everest Insurance, Rastriya Beema Sansthan and NLG Insurance have also faced action from the regulator recently. Aryal said that the IB had to be assertive after it found financial irregularities and bad corporate governance to be rampant among insurance companies. The board of Everest Insurance even decided to stop issuing new policies after the regulator banned it from issuing fire insurance policies.   

“Insurance companies even tried to retaliate against the regulator when we issued a regulation regarding corporate governance in mid-August,” said Aryal. “They went to the Supreme Court seeking a stay order, but they did not get it.”

The regulation has prevented board directors from doing business with their own company and controlling the salary structure of chief executives. The Nepal Insurers Association (NIA) and insurers have raised serious reservations over some of the provisions in the regulation.

Posted on: 2012-11-14 10:00

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