Insurance firms told to follow new method of calculating bonusAccording to the board, a total of 1,201,463 people purchased a life insurance policy in 2018-19.
Through enforcing a directive on Tuesday, the sector’s regulator has asked the insurers to implement a gross premium method to assess the insured amount while fixing the bonus rate. As of now, the insurance companies, have been calculating the policy rate on their own.
“Gross premium method is the mathematical reserve method to calculate the insured amount which is expected to simplify assessing the bonus amount by insurers,” said Raju Raman Poudel, executive director of the board.
Poudel said simplifying the calculation method is expected to attract more people to purchase life insurance. “As the new format helps minimise the process for receiving the insurance claims, it will help dispatch the insured amount to the concerned much quicker,” said Poudel.
According to the board, the gross premium value takes into account future expenses. It is the sum of the present value of future benefits and expenses, less the present value of future gross premiums arising from the policy discounted at the appropriate risk-free discount rate.
In the new format, life insurers have to consider their net earnings from premium income rather than the ones collected in the receipts from the insured. As the system also involves the expenses of the insurers along with the commission of the brokers in the gross value, it ensures a higher rate of bonus for the insured, according to the board’s officials.
In the new rule, insurers need to transfer at least 90 percent of the insured amount in the policyholders’ fund. The insurers can transfer the remaining 10 percent to the shareholders’ fund. “The amount maintained in the policyholders’ fund cannot be transferred in the shareholders’ fund,” reads the directive.
There are a total of 39 insurers in the country. Of them, 18 are life insurance companies, 20 non-life insurance companies and one reinsurance company.
In the last fiscal year, insurance companies collected premiums worth Rs95.25 billion. Of them, Rs71 billion was collected for life insurance premium while the rest were for non-life insurance.
According to the board, a total of 1,201,463 people purchased a life insurance policy in 2018-19, compared to 953,749 policies sold in 2017-18. The board claims that the life insurance scheme covers more than 5.54 million people as of now.
As per the board, insurance coverage has reached 19 percent of the country’s total population. “The board has targeted to increase the coverage to 25 percent in this fiscal year,” said Poudel.