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Kathmandu Tuesday January 01, 2002 Paush 17, 2058.
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IB announces new rules
Most minimum premium rates on fire insurance slashed
Post Report
KATHMANDU, Dec 31:The Insurance Board (IB), the
regulatory authority that oversees the insurance business in the country, today announced
the formulation of "General Rules on Fire Tariff, 2058" that will be enforced
from January 1, 2002.
"The Insurance Board has formulated a new
set of rules to guide fire insurance business in Nepal. The rules would be effective from
Tuesday," said Dr Prafulla Kumar Kafley, Chairman of the Board, talking to
journalists here today.
The minimum premium that companies can collect
from its clients would now be guided by the new rules revoking the former interim fire
tariff. The new rules have lower minimum premium rates that insurance companies can charge
its clients.
"The decision to slash the tariff was taken
since an average of only 25 per cent of the total premiums paid by clients in fire
insurance are claimed," said Kafley.
The Board has brought down the minimum premiums
on ordinary fire risks by an average of 50 per cent. Similarly, the minimum premiums on
risks associated with petro-products have been cut by around 30 per cent on average.
In addition, the minimum premium rates on the
second and third class risks associated with the insurance of paper and cardboard
factories have been sliced by 20 per cent on average. Similarly, the rates in the
insurance of tea factories were cut on an average of 30 per cent.
In addition, among other provisions, the new
rules have left the premiums on claims against damages due to earthquakes unchanged. This
was done in the light of the fact that Nepal falls in a seismic active zone.
Insurance companies would not be allowed to
bring down the rates below than that prescribed by the new rules. The rates may, however,
be higher, which depends upon the contract signed between clients and insurance companies.
The latest announcement by the Insurance Board
also comes as deterrence to unfair market practices in insurance business. "The new
rules on fire tariff that will come into force Tuesday has been formulated to ensure a
free and fair competition in the insurance business. Companies in the past have indulged
in lowering the premium rates to attract business unethically," said Kafley.
"The Board has announced the general rules
after thorough study of five to six years. The new rates are more realistic since they
have been affixed after studying the Nepali insurance market," said he.
Also accompanying the announcement of the rules
was the formation of a new inspection and supervision unit under the Insurance Board that
would periodically carry out checks and inspections to ensure that insurance companies
operate as per the new rules.
"Companies not operating as per the new
rules would be taken stringent action against," Kafley said. However, he quickly
added that the new rules were not aimed at distorting the concept of open market policy.
"Since the insurance sector in Nepal is
relatively at a very young stage, hence it is imperative that it is guided in the right
direction. When the market gets sophisticated enough, we will not fix the rates,"
Kafley said.
Fire insurance is one of the major profit-making
undertakings of insurance companies in Nepal. Fire insurance captures around 26 per cent
of the non-life insurance business that totals to over Rs 600 million in premium
collection. Over 41 per cent of the total premium come from motor insurance alone.
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