IB for tightening grip on insurance company promoters

KATHMANDU, April 9: The Insurance Board (IB) has prepared the draft of a directive on corporate governance of insurance companies that bars insurance companies from conducting business with firms affiliated to its promoters, specifies minimum qualification required to become promoters and chief executive and prevents insurers from parking incomes or acquiring loans from financial institutions linked to its promoters.



The draft of the directive has already been submitted to the board of directors of the IB, the insurance sector regulator. If it is endorsed, all insurance companies will have to make necessary arrangements to comply with the regulator´s instructions.[break]



The draft explicitly says insurance companies should not maintain business relationship with clients whose financial interests are directly or indirectly linked to insurers´ promoters or chief executives. This provision is expected to affect at least half a dozen insurance companies such as United, Sagarmatha, Everest, Prudential, Himalayan General and Shikhar, which are generating significant chunk of businesses from firms with ties to their promoters.



The draft also says promoters and chief executives of insurance companies should not conduct business with their kin or firms in which they hold the position of managing agent. The same applies for shareholders who own more than one-percent stake in non-life insurance companies.



Among others, the draft directive prevents promoters of an insurance company from intervening in day-to-day works of the company and from holding any position in the company, including that of CEO or general manager. “They are also barred from promoting other insurance companies or surveyors´ companies, and from working as third-party mediators or insurance agents,” says the draft, which also prevents promoters from running a firm that has been appointed corporate agent of their insurance company.



To confirm whether insurers are abiding by the instructions, the draft directive has made it mandatory for all insurance companies to submit compliance reports within 15 days of conclusion of every financial year.



The draft, however, has few overriding provisions. On one hand, the directive bars promoters from conducting any works related to finance, while on the other hand it allows them to lead financial audit committee or subcommittee. But the draft clearly says board chairmen are not allowed to assume any position in any of the internal committee or subcommittee formed to investigate various matters.



The draft also says founders of insurance companies should at least hold a bachelors´ degree. With regard to chief executive, the person, among others, should at least be a college graduate with at least 15-year experience in any organized company or at least 10-year experience in the insurance sector, or should hold a masters´ degree with five-year experience in banking or insurance sector. “The department head of any insurance company, among others, should also hold a bachelors´ degree and should have worked as manager or assumed similar position in any organized company for at least 10 years or have an experience of at least five years in insurance sector,” the draft says.



The draft also bars the insurance companies from parking revenues in accounts of banks and financial institutions promoted by the promoter or kin of the promoter of the insurance company. “Insurers are also not allowed to take any form of credit from such institutions,” the draft says.

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