Insurers for voluntary merger, not forceful one

Kathmandu, May 22:

Stakeholders have recommended for voluntary merger of insurance companies rather than the forceful marriage between the two insurers.

Chairman of the Insurance Board (IB) Chiranjibi Chapagain said that the insurance sector regulator had given priority to the voluntary merger of insurance companies.

"However, there will not be a forceful merger between the insurers. IB aims at bringing down the number of insurance companies to improve the business and regulatory regime, but we want the companies taking it up voluntarily," he said while speaking at an interaction on 'Necessity and challenges of merger of insurance companies'.

According the directives for the merger of insurance companies, a life insurance company should have Rs. 2 billion paid up capital and a non-life insurance company Rs. 1 billion.

Earlier, the requirement was Rs. 200 million and Rs. 100 million respectively.

However, insurers raised the question about the back to back policy change in issuing licenses to about a dozen companies a couple of years ago and announcing merger policies now.

"We have just cleared the pending applications for the insurance companies. The IB is not confused about its policies, it’s the demand of the time," said Chapagain. "Licenses can be opened at times and closed for a certain period. Insurance penetration has increased due to the entry of new companies."

Insurance Expert, Dr. Rabindra Ghimire said that the insurance market in the country had demanded merger due to the difficulty in monitoring the large number of companies and shortage of human resources.

He suggested for horizontal merger – between the companies of same size and nature and maintained that such merger should be value-based not profit-based.

According to him, the government should create insurance-friendly legal environment, provide technical support, incentives and benefits, and help in the settlement of the grievances of the employees.

He pointed towards the policy gap about the companies that meet the target of paid-up capital requirement. "What option remains about decreasing the number of companies if all the companies increase the paid-up capital?" he asked.

He also suggested that both the regulator and market must be sure about the number of companies that the country needs currently and for the foreseeable future.

Saying that the increased number of insurance companies had contributed to the higher penetration of insurance, Dr. Ghimire said that the market achieved significant growth after 2001 and 2015 and the third would be 2019.

Vice-President of Nepal Insurers' Association (NIA) NP Pradhan said that merger was a timely call but there was a need of a solid strategy to make it happen and motivate the companies to go for the merger.

"Along with the merger and market strengthening, service quality must be improved. There is a challenge to make the sector disciplined," he said.

Former Secretary Bimal Wagle said that the companies should be motivated for the voluntary merger, but they should be provided with a cooling period of a couple of years.

Former president of NIA Bijaya Shah recommended to allow the companies that do not want to grow or operate service at limited geographical areas, to work with their small size.

The event was organised by IBN Media and Research with the support from the IB.

Published in The Rising Nepal daily on 23 May 2019.