The insurance industry in Nepal is on the verge of a major transformation with the Nepal Insurance Authority issuing licences to 10 companies to conduct reinsurance brokerage.
This marks a significant shift in the way that Nepali insurance companies purchase reinsurance policies from now onwards as they are being done through India-based brokers until now. But, with the growing need for local brokers, the insurance regulator has taken the necessary steps to bring this vital component of the insurance industry in-house.
So, how will it change the industry? Let’s elaborate.
What is reinsurance?
Reinsurance, in simple terms, is a form of insurance that insurance companies purchase to protect themselves from the financial consequences of paying out large claims.
It is a crucial component of the insurance industry as it helps insurance companies manage their risk and ensure that they are able to pay out claims to policyholders.
As Nepal currently has only two domestic reinsurance companies, Nepal Reinsurance Company and Himalayan Reinsurance Company, the need for local reinsurance brokers is becoming increasingly important.
Local reinsurance brokers can also help Nepali reinsurance companies expand their reach globally and bring in more foreign reinsurance premiums.
The change hoped for
The move to license local reinsurance brokers is a step in the right direction for Nepal’s insurance industry. It will not only bring more business and revenue to the country but also provide an opportunity for Nepali reinsurance companies to grow and expand their reach.
Local reinsurance brokers, with their in-depth knowledge of the local market, are better equipped to understand the needs of Nepali insurance companies and find the best reinsurance products to suit those needs.
It is also worth noting that local reinsurance brokers have been backed by professional indemnity cover and regulated by the Nepal Insurance Authority. This ensures that they are able to provide high-quality services to their clients and that any disputes that may arise can be resolved in a fair and impartial manner.
Regulators should also consider widening the scope of reinsurance brokers in Nepal.
Learning from India
In India, the regulator has also been proactive in fostering the growth of the insurance broker industry. The Insurance Regulatory and Development Authority of India (IRDAI) has allowed insurance brokers to work as composite brokers, providing both direct and reinsurance broker services.
This has led to an increase in the number of insurance brokers in India, which in turn has led to increased competition and better services for policyholders. The IRDAI has also made it mandatory for insurance companies to appoint reinsurance brokers to manage their reinsurance programme. This has helped to create a stable and professional reinsurance broker industry in India, which has ultimately helped to foster the growth of the insurance industry as a whole.
Nepal should look to follow in India’s footsteps and take similar measures to foster the growth of its own reinsurance broker industry. This can be done by allowing insurance brokers to work as composite brokers, making it mandatory for insurance companies to appoint reinsurance brokers, and creating a favourable regulatory environment for reinsurance brokers. By doing so, the government and the regulator can play a vital role in the stability and growth of the insurance industry in Nepal.
In conclusion, the licensing of local reinsurance brokers is a positive development for Nepal’s insurance industry. This will not only help to bring inward reinsurance premiums to Nepal but also support the growth of domestic reinsurance companies and the insurance industry as a whole.
By fostering the development of local reinsurance brokers, the government and the regulator can play a vital role in the stability and growth of the insurance industry in Nepal. By learning from examples such as India, Nepal can create a professional and stable reinsurance broker industry that will ultimately help to foster the growth of the insurance industry in Nepal.
