Insurance subsidy payment row, NIA recommends payment via local govt

 Kathmandu, June 1

To resolve the issues of the subsidy on the premium of agriculture and livestock insurance for the long term, the Nepal Insurance Authority (NIA) has recommended distributing the subsidy through the local government.

Responding to the current problem invited by the complexities and inability to verify the data of agricultural and livestock insurance which has not only delayed the premium payment on the part of the government but also the halt of service by the insurance companies, the NIA said the premium should first be sent to the local governments, and they will distribute it and verify when needed.

All insurance companies have stopped selling agricultural and livestock products since May 21 on the pretext of the government's failure to pay a large amount of insurance premium under agriculture insurance.

According to Raju Raman Poudel, Executive Director of the NIA, the payments were obstructed or delayed due to incomplete statistics and the lack of verification of the data submitted to the government by the insurance companies. Since the local governments are stable and near to the people as well as their issues, this method will help avert the problems that the insurance industry is facing now. It will help insurance grow, he said.

Nepal Insurers Association issued a statement to inform their inability to continue with the service that is subsidised by 80 per cent by the government.

"The government has not paid premiums worth about Rs. 3 billion to insurance companies. We don't have enough funds to settle the claims for payment," said Chunky Chhetry, President of the Association.

According to the insurance sector regulator, in the 10 months of the current Fiscal Year 2022/23, the government has a liability of Rs. 1.48 billion (80 per cent of total premium of Rs. 1.85 billion) subsidy on insurance premium of 143,811 policies which includes 7,777 of agriculture and 136,034 livestock policies.

The total insurance claim amount has reached Rs. 1.21 billion by 2021/22 which is an increase of 88.86 per cent from 2020/21.

Stating that insurance is not a business to be done in credit but since it was the policy of the government to facilitate agricultural development, Chhetry said that they cooperated in it.

The insurance companies settled the payments from their funds but they are now facing problems. According to Chhetry, they are losing in this business as the 10 per cent interest of the Rs. 3 billion would be Rs. 300 million in a year.

It has been more than one and a half years since the payment of subsidy on the premium of livestock insurance had been stopped. Similarly, payment of subsidy on fishery insurance premiums has not been paid since 2020.

"Until the government pays the total dues of subsidy no company is in the position to clear the claim and issue a new insurance policy," said Chhetry.  Meanwhile, the Department has objected to the insurance amount which has created confusion over the authentic amount. Without confirming the insurance amount, payment on claims couldn't be made.

In its statement issued a couple of weeks ago, the Insurers' Association said that although it had requested the Ministry of Agriculture and Livestock Development (MoALD), Department of Agriculture (DoA), and NIA multiple times, no progress has been made in terms of paying the subsidy amount.

But Deputy Director General of the DoA, Dr. Shanta Karki, said that the payments were stalled due to the delay in data submission and verification. According to her, the NIA took time to collect and redirect the statistics to her department as well as to the Department of Livestock Services.

Stating that the departments had no intention to make delay in settling the subsidies but they needed authentic and verified data.

However, she doubted the effectiveness of distributing the grant via the local governments indicating to the lack of technical expertise in them.

The government had begun providing subsidies on agricultural insurance premiums since January 2013. Insurance companies have been issuing insurance policies as per the directives of the NIA but getting the subsidy amount after a year of issuing the policies.

In other countries, there is a practice of clearing the claims only after receiving the grants on the premium. The Insurance Act of Nepal also bars insurance on credit.

The NIA said that it was only facilitating the policy formulated by the MoALD and its secretary leads a committee on the issue.

Meanwhile, it informed the problem would be resolved within a week. The ministry is in the process to pay about Rs. 720 million to the insurance companies. It also said that the process of data verification should be shortened with the use of information technology and database system.

However, insurance companies said that the partial amount would not completely address their problems.

The current mechanism is lousy as all the process is being handled manually. NIA is in the process of developing software. 

Published in The Rising Nepal daily on 2 June 2023.