The suspension has prevented the company from selling or renewing motor insurance policies. “The company can, however, conduct other businesses,” a reliable source at the Insurance Board told Republica on Monday. [break]
The ban is expected to hurt the company a lot, as it generates more than 60 percent of its revenue by selling motor insurance products.
“We had to take the action as we detected severe lapses in the company during an on-site inspection conducted almost a year ago,” the source said.
During that time, the regulator had found that the company had sold insurance policies to promoters without collecting payment from them. “We also came to know the company had even settled claims based on policies which were sold on credit,” the source said.
As per the Insurance Act 1992, companies cannot insure risks without collecting payment from those buying policies.
“We also found the company had repeatedly failed to settle claims in time,” the source said. “This is because it had not properly reinsured risks it had purchased from clients with reinsurance companies.”
After detecting the careless attitude and lapses, which was causing inconvenience to customers, the Insurance Board had asked the company to make improvements immediately. “But there was no progress,” the source said. The regulator then sought clarification from the company on what was preventing it from initiating reform measures. “But since it didn’t show signs of changing its business practice, we had to ban the portfolio for some time.”
According to the source, the company will be allowed to sell and renew motor insurance policies only after it implements reform measures prescribed by the Insurance Board.
Lumbini Insurance is the second insurance company to face the action of the regulator since the beginning of 2012. A month ago, the board had suspended all transactions of Asian Life Insurance after it distributed dividend among its promoters and public shareholders by going against the directive issued by it.
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