KATHMANDU, Aug 23: The government has proposed to put insurance policyholders at the fourth position in payment priority order if any insurance company goes into liquidation, increasing the risk of losses for policyholders.
The new bill to amend and integrate Insurance Act has placed policyholders on the priority list even behind the government and the insurance regulators. According to the bill, the policyholders, or those who have bought any insurance policy by paying premium, will be fourth on the priority list to get their money back.
Out of the 10 payment priorities, the expenses incurred in the process of liquidation and resolution of insurance company will be settled first. The government has kept itself in the second in the sequence for receiving any dues for tax, fees or charges. Then comes the proposed Nepal Insurance Authority -- the insurance market regulator that will replace the Beema Samiti—to receive any regulatory fee dues from the insurance company. Next on the list are policyholders. Insurance brokers’ commissions, other insurers’ dues, employees’ salary and compensation, other liabilities that insurer need to bear, other liabilities that insurance company should make payment and payment to shareholders are in the sequence of payment of liabilities, according to the bill.
Payment of COVID-19 insurance claims halted
Many insurance experts find the provision deeply problematic reasoning that policyholders should be given topmost priority while making payment of liability of an insurance company in case the company goes bust. They argue that policyholders are equivalent to what depositors are for any bank and financial institution.
The Nepal Rastra Bank Act, 2002, which was amended in 2016, puts depositors immediately after the expenses incurred in the process of resolution in the sequence of priority of payment should any bank or financial institution go bust.
Fatta Bahadur KC, immediate past chairperson of the Beema Samiti, told Republica that policyholders of insurance company should be in the second priority of receiving the payment if any insurance company is taken to liquidation process.
“Since the insurance company gets operated upon the trust of policyholders, it would be very unfair not to keep them in second priority,” said KC.
Minister for Finance Yuba Raj Khatiwada has indicated his willingness to amend the proposed provision in parliament. “The bill has been tabled in parliament; we will see if it can be amended,” said Khatiwada in response to a question about the sequence of priority of payment in the bill during a press meet held at the Ministry of Finance last week.
