KATHMANDU, SEP 13 - 2012
Insurance Board (IB) and insurers are at odds over Corporate Governance Regulation 2012 aimed at depriving board directors from doing business with their own company and controlling the salary structure of chief executives.
Although such provision has already been introduced by the Nepal Rastra Bank (NRB) in the banking sector, it is new to the insurance sector.
Promoters of insurance companies argue the IB’s latest move will hit the entire business as the regulation was brought without prior consultation with them. After the IB prevented Khetan Group-promoted Everest Insurance from covering fire insurance, the highest premium earning sector in non-life business, it has stopped issuing new polices in all areas and limited its operation to just settlement of claims starting from Tuesday.
The IB had taken action against company, slapping its CEO Kewal Krishna Shrestha a fine of Rs 10,000 for making payment “illegally” to claims of Himalayan Snax, the manufacturer of Mayos noodles. The regulation prohibits insurers from giving coverage to the companies promoted by the same group. The insurers, however, maintain that Everest’s action is a manifestation of the reservations the insurers have to the recent decisions of the board.
A member of Nepal Insurers Association (NIA) said that the insurers have raised serious reservation over some of the provisions of the regulation while supporting the Everest Insurance’s move. “Some clauses of the regulation conflict with the Insurance Act. The rift will grow further if they are not amended,” said an insurer, adding that more companies might follow the Everest suit—not to issue new policy.
According to them, one of the provisions that contradicts with the Act is the one that prohibits doing business with companies related to the directors of the insurance companies. Clause 15 of the Act says, “If the Insurer has made any dealing regarding the Insurance Business with its Director or his/her family or any corporate body where he/she is a Managing Agent or partner he/she shall provide a notice to the Board within thirty-five days.” Their claim the regulation cannot negate the provision of the Act. However, an IB official said that the regulator has the authority to impose such regulation under Clause 8 of the Act, which entitles the board to bring out policies to regulate the companies.
Insurance companies have also complained that regulation was brought without consulting the insurance companies. “The IB took decision on such an important issue without even a single consultation with us,” said a CEO of an insurance company, arguing that “the central bank had consulted with the bankers before bringing such regulation.”
The IB, however dismissed argument that they needed to consult with the insurers before introducing the regulation. “The regulation was not brought on ad hoc basis. We brought those policies only after adequate research and homework,” he said.
Likewise, the insurance companies have reservation over the provision whereby the family member of board members or one having financial interest with the company is not allowed to be employed. The board, however, said that such provision was brought to avoid conflict of interest. “In order to ensure corporate governance, ownership and management of the company must be segregated,” said the IB source.
The insurance companies are also against the provision of limiting the salary and perks of CEO to 15 times the salary and perk of the employee at the bottom of the company hierarchy. “This provision will force some companies to cut the salary and benefit of their CEOs,” argued a member of NIA.
Also, the regulation has mentioned about the minimum academic qualification of the employees at different positions. “Making such provision falls under the jurisdiction of the company registrar office,” said a CEO of an insurance company.
Source: The Kathmandu Post
Insurance Board (IB) and insurers are at odds over Corporate Governance Regulation 2012 aimed at depriving board directors from doing business with their own company and controlling the salary structure of chief executives.
Although such provision has already been introduced by the Nepal Rastra Bank (NRB) in the banking sector, it is new to the insurance sector.
Promoters of insurance companies argue the IB’s latest move will hit the entire business as the regulation was brought without prior consultation with them. After the IB prevented Khetan Group-promoted Everest Insurance from covering fire insurance, the highest premium earning sector in non-life business, it has stopped issuing new polices in all areas and limited its operation to just settlement of claims starting from Tuesday.
The IB had taken action against company, slapping its CEO Kewal Krishna Shrestha a fine of Rs 10,000 for making payment “illegally” to claims of Himalayan Snax, the manufacturer of Mayos noodles. The regulation prohibits insurers from giving coverage to the companies promoted by the same group. The insurers, however, maintain that Everest’s action is a manifestation of the reservations the insurers have to the recent decisions of the board.
A member of Nepal Insurers Association (NIA) said that the insurers have raised serious reservation over some of the provisions of the regulation while supporting the Everest Insurance’s move. “Some clauses of the regulation conflict with the Insurance Act. The rift will grow further if they are not amended,” said an insurer, adding that more companies might follow the Everest suit—not to issue new policy.
According to them, one of the provisions that contradicts with the Act is the one that prohibits doing business with companies related to the directors of the insurance companies. Clause 15 of the Act says, “If the Insurer has made any dealing regarding the Insurance Business with its Director or his/her family or any corporate body where he/she is a Managing Agent or partner he/she shall provide a notice to the Board within thirty-five days.” Their claim the regulation cannot negate the provision of the Act. However, an IB official said that the regulator has the authority to impose such regulation under Clause 8 of the Act, which entitles the board to bring out policies to regulate the companies.
Insurance companies have also complained that regulation was brought without consulting the insurance companies. “The IB took decision on such an important issue without even a single consultation with us,” said a CEO of an insurance company, arguing that “the central bank had consulted with the bankers before bringing such regulation.”
The IB, however dismissed argument that they needed to consult with the insurers before introducing the regulation. “The regulation was not brought on ad hoc basis. We brought those policies only after adequate research and homework,” he said.
Likewise, the insurance companies have reservation over the provision whereby the family member of board members or one having financial interest with the company is not allowed to be employed. The board, however, said that such provision was brought to avoid conflict of interest. “In order to ensure corporate governance, ownership and management of the company must be segregated,” said the IB source.
The insurance companies are also against the provision of limiting the salary and perks of CEO to 15 times the salary and perk of the employee at the bottom of the company hierarchy. “This provision will force some companies to cut the salary and benefit of their CEOs,” argued a member of NIA.
Also, the regulation has mentioned about the minimum academic qualification of the employees at different positions. “Making such provision falls under the jurisdiction of the company registrar office,” said a CEO of an insurance company.
Source: The Kathmandu Post
