With the temporary ban, the non-life insurer company cannot conduct any commercial activities related to insurance, including sale of new policies and renewal of old ones. It can, however, settle claims, but only after acquiring permission from the Board, the insurance sector regulator.[break]
“We were forced to take the harsh measure after the company failed to rectify its mistakes despite repeated calls,” Binod Aryal, executive director of the Board, told Republica. “We won´t allow it to resume normal operations unless we are convinced it can protect the public´s funds and is willing to do business in an ethical manner.”
A call made to NB Insurance Director Laxmi Bahadur Shrestha went unanswered. He also did not reply to a text message sent by Republica.
NB Insurance, which generates revenue by selling motor, fire and marine insurance policies, among others, was found guilty of four counts of willful misdeed.
In one instance, the company was found misappropriating a staggering Rs 59 million -- more than half the company´s capital of Rs 100 million -- on the pretext of paying rental installments for a building which it claimed it had hired for 15 years. Republica first reported on this controversial matter in April.
At the time, the case had raised eyebrows among insurance sector regulators as insurance companies are not allowed to incur expenses of over Rs 2 million without prior approval from the Insurance Board.
“Besides, payment of such a huge amount in advance for property whose monthly rent was said to be around Rs 230,000 did not make sense,” an official at the Board said on condition of anonymity.
The Board then issued a first warning to the company, instructing it to immediately return the money. As per the directive, the company said a sum of Rs 58.4 million was retrieved but was then deposited in a finance company.
This again created a controversy as insurance companies cannot park in one finance company more than three percent of the gross amount allocated for investment.
In case the finance company in question has not completed five years of operations, only one percent of the investment amount can be deposited with it. Insurance companies can, however, park money in different finance companies but the amount should not exceed 15 percent of the gross amount allocated for investment.
“We asked the company countless times to transfer the amount to commercial banks, but it never complied,” Aryal said.
Even as these unethical practices were coming to the fore, the Insurance Board unearthed another case of embezzlement at NB Insurance. This was related to misuse of the ´earmarked fund´ -- which comprises the amounts parked in reserve funds, insurance funds, unexpired risk reserves and outstanding claim reserves.
As at the end of fiscal year 2010/11, NB Insurance had around Rs 140 million in ´earmarked funds´. Although the law bars insurance companies from using even a penny from this fund, the regulator detected the flight of around Rs 70 million from the reserves.
“We again instructed the company to return the money but as with other instructions this was also disregarded,” Aryal said. Making matters worse, NB Insurance also failed to reimburse Rs 7.5 million issued as credit to board members.
The Insurance Board now suspects the company may have even misappropriated around US$108,000 that it was supposed to forward to reinsurance companies. The latter provide cover for risks borne by local insurance companies.
If this turns out to be true, people who have bought policies from the company may not be able to get any compensation, as all domestic insurance companies only collect money from clients here but insure goods and assets for customers with reinsurance companies based abroad.
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