Initially, the pool will have a fund of Rs 50 million, of which Rs 25 million will be contributed by the Board. The rest will be chipped in by 17 non-life insurance companies, according to Binod Aryal, executive director of the IB -- the insurance sector regulator. [break]
If the need arises, the Board may also ask life insurance companies to make necessary contribution, says a draft of Microinsurance Promotion and Operation Directive.
As per the draft, the pool will be managed by a five-member committee led by an official of the IB. The committee will also comprise three chief executives of different insurance companies and an individual selected by the IB, who will work as the manager of the pool.
The Insurance Board last year floated the idea of operating microinsurance program for low-income groups as per the announcement made by then finance minister Bharat Mohan Adhikari during his budget speech.
This program intends to expand insurance services in rural areas of the country so that the low-income group can purchase policies of few hundred rupees and get coverage of up to Rs 100,000.
Under the program, the IB has initially asked insurers to launch six microinsurance products on livestock, health, personal accident, self-employment, endowment and term-life.
In the first year, the insurance companies will have to generate at least three percent of their total premium income through sales of these products, the directive says, adding, the figure can be revised by the Board in the following years.
The income generated through sales of these policies, however, cannot be retained by individual companies and will have to be deposited at the microinsurance pool.
“This way we can generate our own fund and settle claims on our own without relying on reinsurance companies for backstop insurance,” Aryal said. This practice is expected to be a stepping stone toward formation of a reinsurance company - firm that sells insurance policies to insurers - lack of which has forced domestic companies to depend on foreign companies.
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