KATHMANDU, June 28: The government is introducing a provision to license micro insurance companies in a new law that it is drafting to replace the existing Insurance Act, 1992.
According to a draft of the new insurance bill, the insurance regulating body can issue separate license to an insurer to work as a micro insurance company.
While micro insurance has been a part of services offered by existing life and non-life insurance companies, the government is preparing to provide license to companies that want to provide micro insurance services with a view to bringing a vast majority of people under insurance coverage.
'A special provision about micro insurance company has been included in the draft bill. Once the law is enacted, license could be issued to interested company for this purpose,' Surya Prasad Acharya, joint secretary of Ministry of Finance, told Republica.
Acharya, however, said that the provision was still under consultation.
The draft bill will be sent to the law ministry for approval after the bill is okayed by the finance ministry. After that, it will be tabled in the parliament for endorsement.
Officials of MoF say that the provision aims to bring more people under the insurance coverage. It is estimated that only 8 percent of the total population have got insurance service. Though Beema Samiti -- the insurance market regulator -- has been encouraging insurance companies to provide micro insurance services to general people, insurers are not much attracted toward the micro insurance service thanks to low profit margin on the business.
Micro insurance is an insurance product with low premium. It generates small financial transactions. While most of other insurance policies are largely intended to provide financial security to various risks, micro insurance services are generally targeted for a cluster.
'Most of the people have been deprived of the insurance services because there are no insurers to provide them services. Insurance companies in Nepal either do not see lucrative business since they cannot generate large premium, or reaching to them increase their operating cost,' Rabindra Ghimire, an insurance expert, told Republica.
'Licensing of micro insurance company will help to bring many poor people under insurance coverage and provide them financial security from various types of risks,' Ghimire, who is also an assistant professor at the School of Business, Pokhara University, added.
The government has also been trying to nudge insurance companies to provide micro insurance services as part of their business. In his budget speech for Fiscal Year 2016/17, Minister for Finance Bishnu Prasad Paudel said that insurance companies will be encouraged to expand their presence in rural sector. Through the budget speech, the government has said that it will make insurance companies to generate a minimum of 5 percent of their total premium from micro insurance services.