Insurance Board call public notice for license of micro insurance companies

KATHMANDU: Despite the strong opposition, the regulatory body Insurance Board is going to distribute the license of micro insurance companies. The Insurance Board, which has been putting pressure on the insurance companies for mergers and acquisitions due to the large number of insurance companies, has issued a public notice on Friday for the distribution of licenses in the name of micro insurance in all seven provinces.

For the purpose of opening the license, the board had issued the ‘Guidelines for the establishment and registration of small insurance companies, 2079’ last Monday. Provisions regarding life and non-life micro insurance companies have been added to the directive, which has opened the way for new companies to be licensed.

In the notification, applications have been invited for establishment of at most one (life insurance or non-life insurance) micro insurance company in each province. According to which, four non-life insurance companies and three life insurance companies will be issued new licenses to seven companies.

The minimum paid-up capital of the new company is Rs 750 million. In the notification, the proposed new company can offer either life insurance or non-life insurance business either separately or both.

However, it is also mentioned in the notice that the proposed founders cannot invest in insurance companies doing the same type of business in such a way as to have cross-holding.

Last year, the insurance board gave instructions to increase the paid-up capital of the companies. According to the instructions, within a year, life insurance companies must maintain at least 5 billion rupees and non-life insurance companies must maintain at least 2.5 billion rupees in paid-up capital. Companies are not allowed to raise capital through rights shares.

In such a situation, companies are obliged to provide directed capital within one year through bonus shares or mergers and acquisitions. This is why more than a dozen insurance companies have signed memorandums of understanding for merger in the last two months.

Himalayan and Everest Insurance have already started integrated business after the merger. Usually, the company has passed a resolution to find a suitable partner for the merger in the general meeting.

The insurance business is still in turmoil as the number of insurance companies was increased to 41 after indiscriminate licensing around four years ago. New licenses were granted to 10 life and 3 non-life insurance companies under the leadership of the then Chairman of the Insurance Committee, Chiranjeevi Chapagai. Before that, 9 life and 17 non-life insurance companies were in operation.

At present there are 41 companies in operation including 20 non-life, 19 life and 2 reinsurance companies. In the past, although licenses were issued to new companies, due to lack of effective regulation, companies are limited to urban areas. As said, they have not gone to the rural areas, nor have they been able to cover the agriculture and micro insurance sectors.

At present, there is a mandatory provision for the operating companies to have at least 5 percent of their total turnover under micro insurance. But according to the data of the committee, no company has been able to provide micro insurance. But the committee has not been able to monitor this matter.

Instead of correcting its weaknesses, the company started distributing licenses for small insurance companies in all seven provinces under this pretext.