Thursday, October 11, 2012

A REPORT ON INSURANCE INDUSTRY OF NEPAL



Chapter-1
Overview of Nepalese Insurance Business

1.1                 Conceptualization of Insurance
Insurance is becoming the most prominent measures to secure the value of life, indemnify the losses in business and property and to achieve economic development of the nation. Insurance is the pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify insured for such losses, to provide other pecuniary benefits on their occurrence. The insurance policy is a contract between the insurer and the insured, known as the policyholder, which determines that claims which the insurer is legally required to pay, in exchange for payment, known as the premium.
Insurance companies are a type of “non-bank” financial institutions that sell policies and provide protection from various kinds of risks. More specifically insurance company collect fund in the form of premium and provide indemnification if the probable loss occur in the future. But financial institutions provide both benefits and security on the fund collected from their clients. Generally risks that insurance policies cover include the loss of life, income, or possessions and the high cost of medical bills
Parties involved in Insurance Policy are:
Insured
A person whose interest is protected by an insurance policy: a person who contracts for an insurance policy that indemnifies him against loss of property or life or health etc. insured person may be individual, mortal, person, somebody, someone even soul of a human being.
Insurer
Insurer is the insurance company which takes the risk of insured person. There are two categories of insurer: life insurance and non-life insurance. One insurer cannot provide products and services of both life and non-life insurance simultaneously; means they must establish in distinct base.


1.2   Review of Insurance Industry in Nepal

Insurance in Nepal is still in the growth stage despite being 65 years old. The first insurance company was established in Nepal in 1947. Before that some insurance companies from India were operating in Nepal. The development of insurance business is closely related to the beginning of industrialization in Nepal around 1940. The first joint stock company, Biratnagar Jute Mills, was established in 1936. The first bank, Nepal Bank Limited was established in 1973. During that period many industries came up in the Terai belt. The Second World War began immediately after. Indian entrepreneurs came to Nepal to establish factories. There was a need for the factories to be backed by insurance. Indian companies took the initiative to ensure those industries. Nepal bank provided loan to entrepreneurs. To insure these loans, Nepal Bank established Nepal insurance and transport company in 1947 as its subsidiary which was truly first Nepal insurance company. Later on its name was revised and now it is operating as Nepal Insurance Company. Now 65 years after the first Nepali insurance company set up, there are 10 life insurance and 18 non-life insurance companies with more than 450 branches throughout the country. Until the fiscal year 2066/67 these insurance companies providing direct employment opportunity to 2,895 employees. In terms of number of companies, number of policies sold and revenue earned, there has been spectacular rise in the insurance business. There are still many areas that the Nepali insurance sector has not been able to cover, but there is no denying the act that the sector is witnessing accelerated growth. Beema Samiti (Insurance Board) an autonomous body, established to develop, systemize, regularize and regulate the insurance business of Nepal under Insurance Act, 1992.



1.3    Nepalese Insurance Market Segmentation by Products
There are more than 150 different types of policies that people can choose from. But the majors are classified under four categories. They are stated bellow:
1.3.1            Life Insurance
In general, life insurance is a type of coverage that pays benefits upon a person’s death or disability. In exchange for relatively small premiums paid in the present, the policyholder receives the assurance that a large amount of money will be available in the future to help his or her beneficiaries pay debts and funeral expenses. Some forms of life insurance can also be used as a tax-deferred investment to provide funds during a person’s lifetime for retirement or everyday living expenses. The life insurance includes term, endowment and whole life insurance.
1.3.2   Non-Life Insurance
Non-life Insurance is also called General insurance, which includes automobile and homeowners policies. It provides payment depending on the loss from a particular financial event. General insurance typically comprise any insurance that is not determined to be life insurance

1.3.3     Other Products
i.        Third Party Insurance: This policy ensures that third parties involved in an incident are protected. So, for example, if you were to crash into another car and the accident was deemed to be your fault, then your liability to the driver of the other car would be covered, although you would not be able to claim for damage to your own. This is particularly the case the driver is considered by the insurance company to be a high risk, or the car value is low so it is unlikely to get a pay-out through an insurance claim.
ii.      Health Insurance: One of the most important types of insurance to have is health insurance. Your good health is what allows you to work and earn money and otherwise enjoy life. If you were to come down with a sickness or have an accident without health insurance you may find yourself unable to receive treatment or even in debt to the hospital.


1.4   Needs of Insurance Policy
Life is unpredictable. And insurance is the simplest way to cope with the unforeseen and the unexpected. It is the best back-up that people or people dependents can rely on when risk becomes a reality and results in loss of life or property. Plan well and start early. That’s the best way to make insurance work for people. Premiums will be low, processing will be minimal and a long term financial cover is in place to take care of later years. Insurance is a contingency plan to take care of uncertainties. It is a way of providing for people dependents and ensuring continuity of their material needs and wants in your unfortunate absence. It is a way to plan and ensure a regular income whenever people decide to retire Insurance is a responsibility. It ensures security and mitigates risk. It is an assurance to someone dependents that he/she cares. Insurance is also an investment tool and provides tax benefits too. Most of all, insurance is peace of mind. The price of getting insured is negligible compared to the value that insurance delivers. Insurance is sensible and practical. It can be said that insurance is like a raincoat which protects us from rain. Because of this reasons insurance is needed.

1.5   Insured and Insurer Inter-relation
There should be a good relationship between insured and insurer in order to prosper of insurance company. Insurance companies, along with the brokers and agents who sell life and non-life insurance, are committed to safeguarding insured’s rights when they shop for insurance and when insured submit a claim for concerned loss. Insured’s rights include the right to be informed fully, to be treated fairly, to timely complaint resolution, and to privacy. These rights are grounded in the contract between insured and insurer and the insurance laws of insured people province. With rights, however, come responsibilities including, for example, the expectation that insured person will provide complete and accurate information to their insurance company. The policy outlines other important responsibilities. Insurers, their distribution networks, and governments also have important roles to play in ensuring that insured rights are protected.


1.5.1  Rights and Interest of Insured Person
There are many interests and rights of Insured persons. Some of them are listed below:

i.     To be informed
Insured can expect to access clear information about his/her policy, coverage and the claims settlement process. Insured have the interest or right to an easy to understand explanation of how insurance works and how it will meet his/her needs. Insured also have an interest to know how insurers calculate price based on relevant facts. Under normal circumstances, insurers will advise an insurance customer of the customer’s intermediary of changes to, or the cancellation of a policy at least 30 days prior to the expiration of the policy, if the customer provides information required for determining renewal terms of the policy at least 35 days prior to the expiration of the policy. Insured have the right to ask who is providing compensation to his/her broker or agent for the sale of his/her insurance. Insured’s broker or agent will provide information detailing for he/she how he or she is paid, by whom, and in what ways. Insurance companies should disclose their compensation arrangements with their distribution networks. Brokers and agents are committed to providing information relating to ownership, financing, and other relevant facts.
ii.      Insured has interest to complaint resolution
Insurance companies, their brokers and agents are committed to high standards of customer service. If insured has a complaint about the service he/she has received, then he/she has a right to access Insurer Company’s complaint resolution process. Insurer, agent or broker can provide he/she with information about complaint is heard and promptly handled.
iii.    Professional service interest
Insured has the right to deal with insurance professional who exhibit a high ethical standard, which includes acting with honesty, integrity, fairness and skill. Brokers and agents must exhibit extensive knowledge of the product, its coverage and its limitations order to best serve insured.
iv.    Interest of privacy
Because it is important for insured to disclose any and all information required by an insurer to provide the insurance coverage that best suits them, he/she has the right or know that his/her information will be used for the purpose set out in the privacy statement made available to insured by broker, agent or insurance representative. This information will not be disclosed to anyone except as permitted by law. Insured should know that insurers are subject to country’s privacy law. 
v.      Social insurance interest
A person who is insured under social insurance scheme inside country, he/she is entitled to a pension on the basis of his contributions in a country. A person should be provided widow’s pension, orphan’s benefit, maternity allowance under social insurance scheme. 
vi.    Flexible standard
Insured person may have the interest of flexible standard in insurance scheme. One scheme should cover the many sub related area.
For example, if wok related injuries has been applied to anyone and he/ she is injured as a result of the hurricane, either while on the way to work, or during work, or on the way home from work, payments have been handed out to him/her and it should be classified as work related deaths.
vii.  Simplified procedures
The procedures of insurance company are taken as a load. In many cases, insured persons have to wait for long time to complete the unwanted procedure. People are supposed to wait long time to get payment from the insurance company. Therefore, these kinds of procedures have to be simplified.
viii.Speedy payments
Insured people always want to have speedy payments. In many cases, customers have to wait long time for payment even the claim is satisfied. The delay of payment should be supervised by the concern authority.
ix.    Health care Quality
Information People, who are insured under health insurance scheme, health care providers must measure, analyze and report data on health care quality and effectiveness. Information obtained by the insurer in the process of health care quality and effectiveness evaluation must be annually communicated to the served population through mass media to the insured people.


1.6   Role of Insurance Supervisory Authority
The Central Government has established the Insurance Regulatory and Development Authority to regulate the insurance industry. This authority has formulated the Insurance Regulatory and Development Authority. These regulations spell the various rights of an insured and the protection of policyholders’ interests. Many insurance companies are mainly focusing on increasing sales policy. However, insured have an insurable interest in the policy, their interest were not identified in many case.
Insurers, their distribution networks, and government also have important roles to play in ensuring that insured’s rights and interests are protected. Under various laws and regulatory, ISA is supervising body (works) of insurance companies regarding the protection of insured rights and interests. The activity performed by the Insurance Supervisory Authority since its setup and until now was conducted in seven main directions:
i.        The institutional and functional construction of the Insurance Supervisory Authority.
ii.      Elaborating and applying the secondary legislation for the insurance filed.
iii.    Licensing the insurers and the Insurance brokers.
iv.    Managing the Compulsory Insurance- Motor Vehicle third party liability and solving the policyholder’s claims.
v.      Supervising and controlling the activity of the insurers and the insurance brokers.
vi.    Managing the Special Fund for the Policyholders Protection.
vii.  Nepalese Integration and International Relations.


1.7   Instrument of the Insured Interest Protection
i.        Right of the insured may be protected either through pre-court settlement procedures or through filing a law suit at court.
ii.      Cases of damage to the insured property may be decided both through pre court settlement and at court.
iii.    Decisions about compensation for health and any moral damages are filed through court only.
1.8   Objective of Supervisory Authority
Main objectives of supervision are to ensure that the undertaking’s business continues to comply with the laws, regulations and administrative provisions with which the undertaking must comply and to prevent or remedy any irregularities prejudicial to the interests of the assured persons. In Nepal, Beema Samiti is an autonomous body which regulates the insurance business of Nepal under Insurance Act, 1992. Some other are mentioned below:
i.        Supervision of Re-insurance cover.
ii.      Supervision of free assets that is used to cover unexpected losses in Insurance business.
iii.    Supervise the premium on insurance and making provisions related with.
iv.    To establish accounting standards, balance sheets, profit and loss account on the basis of uniform principles and correctly reflect the financial standing of the undertakings.
v.      Detailed information about the object and conditions of the contract in order to judge the product offered.
vi.    To monitor the undertaking of AGM of insurance company.
vii.  To determine insurance company’s assets condition to face their future risks.
viii.To determine the company’s risks from the current business and from its future business plan.


Chapter-2
Methodology, Objectives and Limitations of the study
2.1   Methodology
Methodology refers the steps that will be adopted in the study. The more systematic method gives the more actual results for the study. This report is prepared on the basis of data available not on the basis of research study. Methodology basically deals with the resource of data i.e. from which sources data has been collected. Data required for the preparation of this report were collected from mostly secondary sources..

2.2   Objectives
The analysis and finding may not be significant and accurate due to secondary data and their chances of manipulation by publisher
This report has been prepared as per the requirement of academic purpose. Beside academic purpose this report has following main objectives.
i.        To gather various data about insurance industry of Nepal and analyze them critically to have a better understanding of the industry.
ii.      To explore the major challenges of insurance industry of Nepal.

2.3   Limitations
The deep comprehensive analysis and study couldn’t be done due to time constraints. As a result it’s the secondary data based study. Beside this some other limitations are enlisted below.
i.        Lack of statistical data on several topic analyzed in this report.
ii.      Difficult in analyzing the information obtained from different secondary sources due to the qualitative nature of information.


For Data analysis and conclusion section please visit on this linkwww.sandipbeni.blogspot.com

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