Unit 6
1. Concept of Insurance Regulation
2. Historical Development of Insurance Regulations in Nepal
3. Reasons for Insurance Regulations
4. Beema Samiti (Insurance Board)
5. Roles, Function & Responsibility of Beema Samiti
6. Objectives of Beema Samiti (Insurance Board)
7. Insurance Act and Regulations
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Concept of Insurance Regulation
Insurance regulation refers to the government overseeing the insurance market to ensure fairness and professionalism among those working for the insurance industry, to prevent the market from collapsing, and to democratize insurance.
Laws are created for the industry and an agency is put up to make sure these laws are observed. Regulations are a form of government regulation which subject insurance companies to certain requirements, restrictions and guidelines. Insurance regulations are formulated and implemented by Insurance Board on the behalf of the government.
Historical Development of Insurance Regulations in Nepal
The history of financial system began in 1937 AD with NBL's establishment. Before, foreign (mostly Indian) insurance companies met the insurance need of Nepal. First insurance company 'Nepal Mal Chalani Tatha Beema Company (Nepal transport and insurance Company Limited) as a subsidiary of NBL was established in 1947(2004 BS) as per the company act 1936. Till 1968, there was no insurance regulatory authority or committee had formed. Insurance companies were registered under government authority and did their business without any regulation and special supervision.
At that period, only two non-life (general) insurance companies: Nepal insurance and oriental insurance companies were established. In 1968 AD Rastriya Beema Sansthan (RBS) was established under Company Act, 2024 and was converted into corporation in the following year under Rastriya Beema Sansthan Act, 1969.
This is a government owned organization even now, and has been operating both life and non-life insurance business. Under the Insurance Act, 1968, Beema Samiti (Insurance Board) was formulated as the insurance supervisory authority. In 1986, a new experiment was done in Nepalese insurance scenario by licensing a joint venture insurance company to operate both life and non-life business. But the real expansion of insurance industry took place during the 1990s following the financial sector reform and liberalization or the economy by government. The new policy gave emphasis to the involvement and growth of insurance business in private sector. The insurance business in Nepal now is regulated insurance Act, 1992, insurance regulation, 1993 and different guidelines adopted by the insurance board. Besides, these insurance regulations other law also may be applicable in insurance business sector like contract Act, 2000, companies Act, 2006 etc.
Reasons for Insurance Regulations
Insurance industry is regulated by the regulatory agency for several reasons, including the following:
1. Maintain insurer solvency
2. Compensate for inadequate consumer knowledge
3. Ensure reasonable rates
4. Make insurance available
1.Maintain insurer solvency:
Insurer solvency means the capacity of the insurer to pay the claim in time. Insurance regulation is necessary to maintain the solvency of insurers.
2. Compensate for inadequate consumer knowledge:
Insurance regulations is necessary to increase the awareness about importance of the insurance. Insurance contract contains complex clauses and provisions. Such clauses and provisions are out of knowledge of common people. The regulation is needed to simplify the clauses and terms of contract for the protection of common consumer.
3. Insure reasonable rate:
The rate of insurance premium should be affordable by the customers. It neither should be so high that consumer are being charged excessive prices nor should be so low that the insurer has to pay hight amount of compensation at low premium. So regulation is necessary to ensure reasonable rates.
4. Make insurance available:
Another reason for insurance regulations is to make insurance available to all persons who need it.
Beema Samiti (Insurance Board)
Beema Samiti (Insurance Board) is the Insurance Regulatory Authority of Nepal which is under Ministry of Finance, Government of Nepal. The word ‘Beema’ means ‘Insurance’ and ‘Samiti’ denotes ‘Board’. Hence, the Word ‘Beema Samiti’ is synonymous to Insurance Board which is constituted to systematize, regularize, develop and regulate the insurance business within the country under Insurance Act, 1992. This Samiti (Board) looks after all the insurance related activities in the Federal Democratic Republic of Nepal. As a regulatory body, the Board’s main concern is to create a professional, healthy and developed insurance market in Nepal. Further more, after the restoration of democracy in 1990 AD, insurance environment began to change simultaneously along with other factors. Thus to meet the requirements of the changing situation, Insurance Act, 1968 was repelled by new Insurance Act, 1992 (Beema Ain, 2049). The preamble of the Act clearly states the purpose of the Act, thus “to establish an Insurance Board to systematize, regularize, develop and regulate the insurance business”. To achieve the goal of the preamble, Beema Samiti (Insurance Board) is formed as an autonomous body as per the Insurance Act of 1992.
VISION: Our Vision is to “Transform Beema Samiti (Insurance Board) into a highly prestigious and leading Institution of Nepal.”
MISSION: Our Mission is to “Be recognized as a very professional and well-empowered insurance regulator through continuous learning, competence and integrity”
CORE VALUES: Our core values are:
A. Integrity
B. Transparency
C. Accountability
D. Team Spirit
E. Service
F. Fairness
G. Innovative
Roles, Function & Responsibility of Beema Samiti
In order to systematize, regularize, develop and regulate the insurance business in Nepal, the following functions, duties and powers are conferred on Beema Samiti:
1. To Provide suggestions to Nepal Govt. to formulate necessary policy for systematizing, regularizing, developing and regulating the insurance business,
2. Set out guidelines for insurers to invest their fund and prescribe the priority sectors for such investment,
3. Register and renew the Insurer, Insurance Agent, Surveyor or Broker and to cancel or cause to cancel such registration,
4. Solving the disputes, which arises between the insurer and insured,
5. Make decision on the complaints filed by the insurer regarding to the settlement of liability of the insurance,
6. Issue necessary directives to the insurer from time to time regarding insurance business,
7. Formulate necessary basis for the protection of interest of the insured, and
8. Do or caused to do other necessary functions regarding insurance business.
Objectives of Beema Samiti (Insurance Board)
1. To develop the policy related to insurance and implement the policy
2. To protect the rights of insured
3. To develop and promote insurance business
4. To increase the public trust in Nepal's insurance system.
Insurance Act and Regulations
It can be classified into four primary categories in which insurance act focuses on regulation.
-- Licensing and enforcement of minimum standards of financial solvency
-- Regulation of rates and expenses Agents' activities
-- Control over contractual provisions in insurance policies and their effects on the consumer.
Major areas regulated by insurance act are explained briefly below:
Registration of the Insurer:
(1) No Person shall operate or cause to operate the Insurance Business without obtaining a certificate pursuant to this Act.
(2) Any national or foreign corporate body desirous to operate an Insurance Business shall submit an application to the office of the Board in the Prescribed form along with the following documents and prescribed fees for the registration of its name as an Insurer:
(a) Memorandum and articles of associatioof the corporate body,
(b) Insurance Business to be operated and its policies and terms and conditions
(c) If life insurance Business to be operated, documents displaying calculations of the premiums to be received in operating such business and liability,
(d) The documents regarding the methods of utilizing the amounts to be received from the Insurance, and
(e)Other necessary documents as prescribed by the Board.
(3) The Board shall make necessary investigation upon the application received pursuant to Sub section (2) and shall make an inquiry with the applicant, if necessary, and shall register the name of such applicant in the prescribed register-book by mentioning the types of the Insurance Business to be operated by the applicant and shall provide the registration certificate of Insurer to the applicant in the form as prescribed.
Appointment of Liquidator:
Nepal Government may appoint a liquidator, if any Insurer has been dissolved due to the cancellation of its registration pursuant to Section 13, The functions, duties and powers of the liquidator appointed shall be equivalent to those of a government liquidator pursuant to Company Act, 2053.
Accounts and Records of the Insurer:
(1) The Insurer shall maintain its accounts and records according to Rules.
(2) The situation of actual activity of the Insurer and every item of income and expenditures of the Insurer along with the detail particulars of its assets and liabilities shall be comprehensively mentioned on the accounts and records maintained pursuant to Sub-section (1).
Separate Accounts to be maintained:
1) any Insurer operates any other business along with the Insurance Business, Such insurer shall maintain a separate accounts and records of its Insurance Business.
(2) The Insurer who deals with more than one Insurance Business shall maintain separate accounts and records for each category of insurance Business.
Insurance Fund:
(1) An Insurer shall maintain separate fund for each category of Insurance Business and the amount to be received from each Insurance Business shall be deposited in the concerned fund.
(2) The fund maintained for one category of insurance Business shall not be utilized to bear the liabilities relating to other category of Insurance Business.
Compulsory Reserve Fund:
Every Insurer shall maintain a reserve fund as specified by the Board for the liability relating to its Insurance Business inside the Nepal.
The Balance-sheet to be submitted:
(1) The Insurer shall publish the balance sheet and profit and loss account of all transactions regarding the Insurance Business of each year within six months of the expiry of the fiscal year and shall submit a copy to the Board.
(2) If any insurer submits an application to the Board for the extension of the time limit pursuant to Sub-section (1), for submitting the balance sheet and profit and loss account, stating the reasonable ground for its inability to do so within the time-limit, the Board may extend the time-limit up to one month.
Account of income to be submitted:
(1) The Insurer shall prepare separate accounts of its income generated from the Insurance Business inside Nepal in the form as specified by the Board and submit them to the Board within six months after the expiry of the fiscal year.
(2) lf any Insurer submits an application to the Board for the extension of the time-limit pursuant to Sub-section (1), for submitting the account of income stating the reasonable grounds for its inability to do so within the time limit, the Board may extend the time-limit up to one month.
Audit:
(1) The Insurer shall have the accounts and records of its Insurance Business audited by an auditor recognized in accordance with the prevailing law and submit a report thereof to the Board no later than ten months from the date expiration of each fiscal year.
(2) Comments (inconsistencies and irregularity) made while performing the audit and the clarification of the management relating to it also Shall be mentioned in the report pursuant to Sub-section (1).
Valuation to be made by an Actuary:
The Insurer, who deals with the Life insurance Business, Shall have to assess the financial position and the valuation of liabilities by an Actuary once in every three years. The Insurer shall submit a copy of the reports submitted by the Actuary.
Re-insurance to be made:
The Insurer shall have the risk exceeding the limit of risk to be held by it re-insured in manner specified by the Board.
Legal Representative to be appointed:
The Insurer shall appoint a legal representative in his head office inside Nepal.
Investment:
Insurance company investment are regulated with respect to types of investment quality and percent of total assets or surplus that can be invested in different investment. Purpose is to prevent from unsound investment and reduce threaten of Company's solvency.
Policy form:
Since insurance contracts are technical and complex, the regulatory body has the authority to approve or reject new policy forms before the contact are sold to the public.
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