Question No. 10: Ms.
Nisha is an insurance agent of XYZ Insurance Ltd with a well-
established portfolio. Due to her strength for rapid growth of business, the insurance
company is planning to offer her a consultant role to help shape its risk and market
management strategies. Despite her involvement as an agent, she will be performing the
assigned role simultaneously. Analyze if this dual role violates the legal provisions under
Insurance Act, 2079.
Answer to Question No. 10:
Section 97 of the Insurance Act, 2079 has provided provisions regarding the prohibition on
employment in insurance services as follows:
(1) Prohibition on Employment Without License: No individual or entity shall employ any
person or institution that does not possess a valid license or has not renewed their license
under this Act, to work as an insurance intermediary or provide other insurance-related
services.
(2) Liability for Employing Unlicensed Persons: If an insurer employs an unlicensed
insurance intermediary or other insurance service provider in violation of sub-section (1),
the insurer shall bear full responsibility and liability for any consequences arising from such
employment.
(3) Liability for Activities Conducted Before License Revocation: If an insurance
intermediary or other insurance service provider has their license revoked, the insurer shall
be liable for any obligations or liabilities arising from activities conducted by the
intermediary or service provider during the period their license was valid.
(4) Restriction on Employment by Insurance Intermediaries: No insurance intermediary
shall serve as a director, chief executive officer, employee, or consultant of any insurer.
As per Sec 2(u) of the Act, the term "Insurance Intermediary" refers to any entity licensed by
the authority to act as an insurance agent, insurance surveyor, insurance broker, third-party
facilitator, or any other intermediary involved in insurance services as specified by the
relevant regulations.
In the given case, Ms. Nisha is an insurance agent of XYZ Insurance Ltd, and the insurance
company is planning to offer her additional role as a consultant to help shape its risk and
market management strategies.
Hence, as per section 97 read together with sec 2 of the Act, Ms. Nisha working as an
insurance agent of the insurer cannot be assigned with additional simultaneous role of
consultant.
Question No. 11 Mr. Surprise got information from a newspaper that Insurance Board
established under Insurance Act, 2049 has been converted into Nepal Insurance Authority
with the enactment of Insurance Act, 2079. So, he is so curious to know about the power,
functions and duties of this new regulatory body Nepal Insurance Authority. Enumerate
him the power, functions and duties of Nepal Insurance Authority pursuant to Insurance
Act, 2079.
Answer to Question No. 11
In the given case, Mr. Surprise got information from a newspaper that Insurance Board
established under Insurance Act, 2049 has been converted into Nepal Insurance Authority
with the enactment of Insurance Act, 2079. He is so curious to know about the power,
functions and duties of this new regulatory body Nepal Insurance Authority. So, I will
enumerate him the following provisions prescribed pursuant to section 5 of Insurance Act
2079.
(a) To act as an advisor of the Government of Nepal regarding Insurance,
(b) To draft the National Policy on Insurance and make recommendation to Government of
Nepal,
(c) To grant prior approval for the establishment of Insurance company, issue license or
revoke such license,
(d) To formulate necessary bylaws, directives, guidelines or orders for the Insurance
Business, (e) To issues licenses to Insurance Intermediaries, renew and revoke such licenses,
(f) To determine the capital and capital fund,
(g) To prepare and implement the necessary programs to make the insurance business
systematic, regular, competitive and credible,
(h) To conduct or cause to conduct the study, research, trainings, orientation or outreach
programs for the development and expansion of Insurance Business,
(i) To provide the decision on the complaints filed by insured against insurer regarding the
determination of insurance liability,
(j) To settle the disputes concerning various parties of insurance,
(k) To take necessary actions for minimization of risk in insurance business,
(l) To prepare and implement the programs for the development of human resources and for
the promotion of insurance education for the development of insurance business,
(m)To prepare and implement the insurance promotion programs to increase the access to
insurance by all the people,
(n) To promote micro insurance business to ensure the access to insurance of the people
with low income, 108
(o) To cooperate, coordinate and exchange information with other governmental, or
nongovernmental organizations for the regulation, inspection, supervision and development
of insurance business,
(p) To cooperate with the foreign Insurance Regulatory Agency, international organization
and other organizations that conduct study, research and trainings in insurance,
(q) To represent the Government of Nepal or Authority in international organizations
relating Insurance Regulation and to obtain membership of such organizations,
(r) To operate Fund for protection of policy holder’s interest and carry out or cause to carry
out other necessary activities,
(s) To coordinate with provinces regarding insurance,
(t) To carry out other necessary activities relating insurance as a regulatory agency.
Question No. 10: ABC Life Insurance Company Ltd could not meet the minimum paid up
capital of NPR 5 arab within Asadh end 2080 as mandated by the regulatory body. So, the
Chairperson of the insurer worryingly asked you if the Nepal Insurance Authority may
declare it as a problematic insurer in failure to meet such minimum paid up capital and
other conditions. Explain him entire grounds and procedure for declaring an insurer as a
problematic under the Insurance Act, 2079.
Answer to Question No. 10:
Provisions regarding the conditions and procedures for declaring an insurer as problematic
have been prescribed under Section 101 of the Insurance Act 2079 which are as follows:
(1) Notwithstanding anything contained elsewhere in the prevailing laws, the Authority may
declare an insurer as problematic for the sake of interest of the insured if the following
conditions exist:
(a) In case the insurer fails to maintain the minimum paid-up capital and capital fund to be
maintained.
(b) In case the ratio of total assets and liabilities (solvency margin) is not maintained.
(c) In case it is proved that the promoter shareholders of the insurer have established the
insurance company with earnings through fraud or embezzlement, money laundering,
corruption, financial investment in terrorist activities, human trafficking.
(d) In case it is proved that the insurance company was established or license was received by
the insurer by deceiving, forgery, or providing false statements or preparing or submitting
fake documents.
(e) In case acts are performed against the interest of insured, shareholders, creditors of
insurers, or the general public repeatedly.
(f) In case the insurer did not follow the instruction provided by the Authority to be merged
in another insurer.
(g) Violating repeatedly this Act or Rules and By-laws framed under this Act, existing laws,
terms and conditions mentioned at the time of issuing license or the instructions and orders
issued by the Authority.
(h) In case insurance fraud is conducted by the insurer.
(i) If the regulation, inspection, monitoring performed by the Authority or audit report or
actuary report discloses the inability of the insurer to fulfill its liabilities or being impossible
the same.
(j) In case information of situation pursuant to Section 105(3) is provided.
(k) If it is observed that the insurance business may not be operated continuously due to
disputes between the directors regarding the operation and management of the insurer.
(l) Being failure to submit the evidence of improvement within prescribed time period as per
the instruction provided by the Authority while imposing full or partial ban to the insurance
business being operated by the insurer.
(m) Insurer being failure to fulfill its liability repeatedly.
(2) Before declaring an insurer as problematic, the Authority shall provide notice of 15 days
to the insurer to submit clarification with evidences to prove that if there is any reason for not
declaring so.
(3) In case the insurer fails to submit the clarification within the given time period or the
clarification provided by the insurer is not deemed satisfactory and reliable, the Authority
shall declare such insurer as problematic insurer and publish the information about the same
through at least 2 national daily newspapers and Authority’s own website.
(4) Any insurer which has become insolvent or there is possibility of such situation as per the
prevailing laws, being failure to make payment of the liability to the insured which is to be
paid or net assets being decreased to half or less of the paid-up capital, shall inform
immediately to the Authority.
In the given case, ABC Life Insurance Company Ltd could not meet the minimum paid-up
capital of NPR 5 arab within Asadh end 2080 as mandated by the regulatory body. Hence, the
Nepal Insurance Authority may declare it as a problematic insurer in failure to meet such
minimum paid-up capital under Sec 101 of the Act.
Question No. 10: XYZ Life Insurance Company Ltd has been imposed a partial ban from
performing its insurance business by the Nepal Insurance Authority due to its failure to
maintain the minimum paid-up capital. Nine months have passed since the ban was
imposed, but there has been no significant improvement in the company’s capital status.
So, the company has not yet applied for the release of the ban to resume its insurance
business. Analyze whether the Nepal Insurance Authority has the grounds to revoke the
license of XYZ Life Insurance Company Ltd under the Insurance Act, 2079, given the current
condition of the Company.
Answer to Question No. 10:
Provision regarding the revocation of license by the Nepal Insurance Authority has been
provided under Section 137 of the Act as follows: (1) The Authority may revoke the
license of the insurer in the following conditions:
(a) Being failure to release the ban to perform the insurance business or the
suspension of the license pursuant to Section 136 up to 1 year,
(b) In case it deems to cause serious detriment (loss) to the insured if allowed the
insurer to operate the insurance business,
(c) In case the insolvency proceedings is commenced by the court as per the
prevailing laws against the insurer,
(d) In case an application is submitted by the insurer for the dissolution and the
process of dissolution is completed.
(2) The Authority shall provide reasonable opportunity by allowing appropriate time
period as prescribed to the insurer for submitting clarification before revoking the
license of the insurer except the conditions of clauses (c) or (d) of Sub-section (1).
(3) Notwithstanding anything contained in this section, in case the condition as
mentioned in clauses
(a) or (b) of Sub-section (1) is created and the insurer has committed to improve the
condition
and not to repeat the weaknesses, the Authority may provide reasonable time
period for once to the concerned insurer to improve its condition or for correcting
weaknesses.
(4) In case the license of any insurer is revoked pursuant to this Section, the liabilities
taken by the insurer before revocation of the license shall be settled as prescribed.
(5) In case the license is revoked as per this Section, the Authority shall publish the name
of concerned insurer in at least two national level daily newspapers and through the
website of the Authority as well for the information of general public.
In the given case, XYZ Life Insurance Company Ltd has been imposed a partial ban from
performing its insurance business by the Nepal Insurance Authority due to its failure to
maintain the minimum paid-up capital, 9 months ago. However, it has not yet applied for
the release of the ban to resume its insurance business.
Hence, if the insurance company fails to release the ban to perform the insurance
business up to 1 year, the Authority may revoke the license of the insurer pursuant to
Section 137 of the Act.