An initial draft of the new Insurance Act prepared by the Finance Ministry has made it mandatory for both life and non-life insurance companies to launch micro-insurance schemes.

The Insurance Board (IB) has also introduced a directive on micro-insurance schemes.  Micro-insurance has been defined as targeted insurance of life and properties of economically, geographically and socially backward people. Under the current IB directive, the policy amount has been fixed from Rs100,000 to Rs200,000 and annual premium has been fixed at 0.1-5 percent.

IB Director Sriman Karki said the insurance sector regulator had advised the government put in place a provision of micro-insurance in the Act so that it could license insurers focused only at micro-insurance. The draft law has also envisioned converting the Insurance Board into “Insurance Authority”. “The authority will be given operational autonomy,” said a senior ministry official involved in drafting the Act.

The new Act will scrap the Rastriya Beema Sansthan (RBS) Act. With the Insurance Act also in place, the state-owned RBS has long been operating under dual legal provisions.

The IB has lately been influential as under its directive, the RBS was divided into two companies—one looking into life insurance and another non-life businesses.

According to  the proposed Act, insurers  failing to meet the minimum paid-up capital requirement will not be able to distribute dividends. Declaring insurers crisis ridden and taking over their management are other rights reserved for the regulator. The draft also envisages formation of an insurance tribunal to settle claims-related disputes.

Currently, the IB itself looks after such disputes. “The provision of a tribunal was envisioned so that the regulator could focus only on regulating and supervising the insurers,” said Karki.