The call from the insurance sector regulator comes a few weeks after the government directed it to identify 10 rural districts where microinsurance program could be launched.[break]
Microinsurance program intends to expand insurance services in far-flung areas of the country so that low-income groups could purchase policies of a few hundred rupees and get coverage of up to Rs 100,000.
The government has currently identified six microinsurance products that can be launched immediately in rural markets. Livestock insurance is one such products under which only dairy cattle would be insured in the initial phase. Health insurance is another product identified by the IB, which covers hospital bills of policyholders, whereas personal accident insurance policy provides compensation in case the policyholder dies or becomes disabled because of accidents.
The government has also floated self-employment insurance scheme which provides compensation in case the source of livelihood of policyholders, such as tea shops, are destroyed by fire, floods or earthquake. Other products include endowment and term-life insurance policies that provide a lump sum in case of policyholders´ death or after maturity of the policy.
“We want insurance companies to voluntary start selling these policies. We don´t want to be pushed to issue directives that bind insurers to invest certain portion of amount in this business,” Binod Aryal, a board member of the IB, told an interaction organized in Kathmandu on Sunday.
Although a few insurance companies have voluntary started selling microinsurance products, others have expressed reluctance largely because of problems such as credibility of target groups and lack of authentic data.
For instance, the country has never conducted livestock census, meaning there is no authentic data on the number of dairy cattle or cattle raised for meat producion, their breeds or mortality rate and kind of diseases that they might suffer from.
Without this information, re-insurance companies deny to provide coverage to risks that insurance companies have agreed to insulate.
“To overcome this problem, we have decided to create a pool of fund where premium amount collected from policyholders will be kept,” Aryal told Republica. This amount can be used in providing compensation to policyholders, according to Aryal.
“This fund can be dissolved once the livestock census is conducted and re-insurance companies agree on insuring products sold by insurance companies,” Aryal said referring to the government´s announcement to conduct the country´s first livestock census this fiscal year.
Apart from the problem of lack of statistics, many insurance companies are also worried about credibility of rural population who want to purchase insurance products.
Krishna Bahadur Basnyat, executive director of Sagarmatha Insurance, questioned: “What if they file fake claims? Who will look into these fraudulent practices?”
But representatives of other companies did not seem to be worried about such malpractices as they said fake claims usually comprise of only few percent of the total application for compensation.
Meanwhile, groups such as Central Dairy Cooperative Association and microinsurance banks such as Nirdhan Utthan Bank have also agreed to cooperate with insurance companies in verifying fraud practices.
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