Regulatory deadlock stalls foreign employment insurance pool implementation

KATHMANDU, APRIL 13: In an effort to eliminate unhealthy competition, the Nepal Insurance Authority has decided to reintroduce foreign employment term life insurance through a pooling mechanism. Although the Authority issued operational guidelines for the pool nine months ago, the system has yet to be implemented.

According to the directive, all insurance companies will share premium income and claim payments from foreign employment term life insurance on a proportional basis. The Authority has also allocated market shares to each insurer based on their respective business volume.

Two reinsurance companies have been tasked with managing the pool in alternating four-year terms. The premiums collected from insurance policy sales are to be deposited in an account managed by the designated pool manager, who will then distribute the funds to insurers based on their allocated shares.

Uncertainty over pool manager appointment

Despite the directive taking effect from mid-July, the pool is still not operational. A representative from one of the reinsurance companies stated that the delay was due to the Authority’s indecision in appointing the initial pool manager. Although the revised guideline stipulates that the two reinsurance companies will alternate pool management responsibilities, the Authority has yet to determine which company will assume the role first.

As a result, insurance companies have continued to hold the premiums collected from policyholders, instead of depositing them into the pool. Initially, the directive required both reinsurers to jointly manage the pool, but it was amended in Falgun to allow for rotational management. However, even this revised provision has not been implemented.

The directive also mentions that reinsurance companies will be allocated a fixed percentage of the fund for operational costs. However, the reinsurance companies have requested a higher percentage for the company serving as pool manager—a matter still pending a decision by the Authority. Due to this regulatory uncertainty, insurers have shown little interest in participating in the pool.

Sushil Dev Subedi, Executive Director and spokesperson for the Nepal Insurance Authority, acknowledged that several factors have contributed to the delay, but declined to provide specific reasons.

Understanding insurance pool system

An insurance pool is a mechanism where all income and liabilities—such as premiums and claims—are aggregated and equitably distributed among participating insurers. The Authority had previously operated a foreign employment insurance pool, but it was discontinued in Ashad in 2079 B.S (mid-June to mid-July, 2022) citing operational inefficiencies.

In Shrawan (mid-July to mid-August) of the following year, the Authority introduced a new directive to reinstate the pool system.

Under the directive, policies must be issued collectively, and all revenue must be deposited into a common insurance fund. A majority of the fund will be distributed equally among insurers, while a smaller portion will be allocated based on each company’s share of the business.

In the first year, 69% of the fund will be distributed equally, giving each insurer approximately 4.60%. The remaining 31% will be allocated based on market share. In the second year (FY 2025/26), 85.50% will be distributed equally, with each company receiving around 5.70%, and the remaining 14.50% will be distributed proportionally. From the third year onward, the entire fund will be distributed equally among all participating insurers.

Market share allocation

The directive calculates each insurer’s average market share based on the past two years. San Nepal holds the largest share at 30.32%, followed by Nepal Life (17.27%), IME Life (12.44%), Surya Jyoti (10.09%), Sanima Life (7.24%), Citizens Life (4.70%), Asian Life (5.07%), and National Life (6.57%). Mahalaxmi Life and Reliable Life hold smaller shares at 0.48% and 5.81%, respectively. Several companies—including Liberty Micro, Crest Micro, Guardian Micro, Himalayan, MetLife, LIC Nepal, and Rastriya Beema Sansthan—have yet to conduct business in this category.

Establishment of a collective insurance fund

To manage the premiums and claims under the foreign employment insurance scheme, a collective insurance fund will be established. Only insurers listed with the Department of Foreign Employment will be eligible to participate.

The fund will be jointly managed by Himalayan Reinsurance and Nepal Reinsurance Company. Participating insurers will receive 1% of the collected premium as a management fee for services related to policy issuance and claim settlement.