The non-life insurer had stopped issuing new policies from Tuesday in a sign of protest against introduction of a corporate governance directive by the insurance sector regulator.[break]
Following this, the Insurance Board on Thursday sought clarification from the insurance company asking it to justify its action by Sunday.
It is not known whether the insurance company complied with the instruction as nobody at the Board could confirm delivery of the documents by 5 pm Sunday.
However, a high-ranking official of Everest Insurance told Republica that the clarification was sent to the Insurance Board by fax Sunday evening. But the official wasn´t sure whether the documents were sent prior to the office closing hour of 5 pm. “The clarification is two to three page long and we are planning to send the original copy tomorrow (Monday),” the official said.
The Board has, however, said submission of clarification does not insulate the company from regulatory action.
“We had sought clarification just to give the company an opportunity to explain itself. Since it has already violated the norms of the insurance business by stopping to issue new policies, it has to face action for the mistake it committed,” a high-ranking official of the Insurance Board told Republica on condition of anonymity.
The Board is determined to take action against the insurer as it is a public company and not private property of some individuals. “If we let the company go loose, we´d be doing injustice to public shareholders who have 30 percent stake in it,” the Insurance Board official said, expressing dissatisfaction over the company´s decision to halt business by taking consent of mere nine members of the board of directors.
The Board is also annoyed with Everest Insurance as the company has strongly criticized a new set of directives on corporate governance it had recently launched.
The directive, among others, bars insurance companies from generating business from its promoters, prevents one person from assuming the position of board director in multiple insurance companies and restricts more than one member of a family from assuming post of board director in the same company.
Everest has said these and other provisions in the directive that restrict board members to be part of various internal committees has made it difficult for the company´s directors to do business.
The Insurance Board has, however, argued the directive, which has not created problems to other companies, affect one company.
“This also shows their intentions are malicious, which demands action,” the Board official said.
Although action against the beleaguered insurance company now looks inevitable, the question raised by many is “of what extent” as the Insurance Act is not as comprehensive and stringent as the law that governs the banking sector.
For instance, the offence committed by Everest Insurance attracts a fine of only up to Rs 10,000.
As seen in the case of Asian Life Insurance, whose business was temporarily halted for distributing dividend without taking consent of the regulator, the Insurance Board can go to the extent of asking the existing board of directors to dissolve it immediately and elect a new one.
But insurance sector experts said this does not mean it can dissolve the board on its own and take over the management - a measure which can be taken by the banking sector regulator. “This calls for the need for extensive revision of the existing Insurance Act, which, at the moment, is almost impossible due to lack of parliament,” the expert said on condition of anonymity.
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