Following shocking revelations that the country’s two largest banks, Nepal Bank Limited and Rastriya Banijya Bank, were on the verge of bankruptcy due to accumulation of huge chunk of bad loans, the government initiated a massive financial sector reform in 2004. We, being a firm supporter of reforms, have no hesitation in stating that the reform initiatives have brought many good things to the ailing banking system, and we believe that the fundamental indicators of the banking industry at present is much stronger than eight years ago, even though the much-touted efforts to compel the big willful defaulters to pay back their loans have been less fruitful. In short, Nepal did much to repair its tattered banking system. By contrast, another important player of the financial sector, the insurance sector, continued to remain in sorry mess.
Even more disturbing is the fact that the government and the Insurance Board, the insurance sector regulator, seem to have turned deaf ears toward the problems that have perpetrated injustices to clients and limited healthy competition, which is the essence of a free market economy. This newspaper in the past has raised a number of issues on the insurance sector. One of them is the delay in claim settlement processes. As per the provision in the Insurance Act, insurance companies must settle insurance claims within 50 days of first reporting the incident. But the regulator itself says only 10 percent of the cases are settled within this timeframe, a glaring example of how the regulator itself is unable to enforce the law it created.
Another issue that has put customers at the losing end is the regulator’s provision of fixing floor tariff rates on insurance products. This rule allows insurance companies to raise tariff rates on certain policies if they think they are going to incur losses. But the law does not have provisions to reduce the rates, which is again against the basic spirit of an open economy. The Insurance Board says these restrictions are necessary to check possible price wars that can hurt the industry. We don’t buy this nonsense, as we have not seen banks plunging into trouble just because they reduced lending rates. More than that experience of various countries shows that customers can get access to better and cheaper services when companies get freedom to fix tariff rates on their own.
These problems are just the tip of the iceberg that are causing inconvenience to policyholders and crippling competition in a free market economy. And no other body than the regulator itself should be blamed for muddying the waters. We recommend the Insurance Board to do a self assessment of its past performances, create new and bold plans for at least five-year term and, most importantly, develop some teeth so it can properly implement its own decisions and better protect the interest of policyholders.
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