“We have already issued directives to life insurers to share this crucial information with us on an annual basis,” said Prakash Khanal, director at IB.
The board is also amending the Insurance Act to enforce the new arrangement. Clause 26 of the Act asks companies to declare their bonus rates every three years only.
Said another IB official, the IB Executive Board has endorsed the change and IB has already incorporated the annual bonus declaration provision in the new Act, which is now in the drafting stage.
The change in the bonus declaration system was made after IB decided that companies must not be allowed to keep their financial state in the dark for as long as three years.
“The existing practice is also not fair because if the performance of the company dips in the third year, it drags down returns for the previous two years as well, thereby depriving clients of returns for the good years,” said the source.
Moreover, the insurance regulator believes the new change will end the resistance and stalemate it faces every time companies announce new bonus rates, especially when the rates are cut.
For instance, the latest proposal of the American Life Insurance Company (ALICO), the Nepal branch of the American Insurance Group, to halve its bonus offer for the last three years (July 2005 to June 2008) has drawn flak and protests from clients and agents.
Clients complained that this was sheer breach of contract because the company´s agents got them to buy the policy promising a 5 percent bonus return (Rs 50 per Rs 1,000) for the period.
They also tagged the system of ´backdated deduction´ of bonus as injudicious, because had they known of the lower rate back then, they would have taken another company´s policy instead. “This system kept us in the dark and flouted our ´right to take informed decisions´,” said a client of ALICO.
On Thursday, insurance agents picketed the IB office and handed over a memorandum to IB Chairman Prof Dr Fatta Bahadur KC, demanding the regulator not allow the company to lower the bonus return.
Insurance agents and clients had organized similar protests and picketing three years ago also when the life insurer unveiled their bonus rates for the first time. "We believe such stalemate will end once the annual bonus decalaration provision comes into effect," said the source.
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