Do you see potential conflict, as the investors and the customers of the Re-insurance company of Nepal are largely the same?

Re-insurance Company in Nepal is largely promoted by Nepal Government and Insurance companies of Nepal. As per the company act, Directors are nominated by the shareholders. Customer of re-insurance companies is the insurance company in Nepal. Do you see potential conflict, as the investors and the customers of the Re-insurance company of Nepal are largely the same.

Novice Asked on February 2, 2018 in Business & Finances.
Add Comment
  • 3 Answer(s)

    Customers basically want most efficient services at lowest price possible, whereas, investors want maximum gain from their investment. Since customers and investors of these re-insurance companies are same, there seem to be an obvious conflict of interest. There lays a question of how to maintain the balance between two. These insurance companies are definitely understand this conflicting interest situation and should be ready to face it.

    But was this re-insurance company opened for profit motive only; probably not. The major possible reason behind establishing a re-insurance company in the country could be to increase the leverage and capacity of existing insurance companies to bear larger risk. Also, even if the re-insurance companies function with profit maximization motive, the profit earned is going to pass onto the promoter insurance companies again, offsetting their loss as customers. Whatever they will pay as customers is going to return back to them only. Therefore, re-insurance companies and its promoters can function with the motive to maximize profit in a healthy way like any other organization would do.

    However, this is possible only when there is consistency and healthy corporate governance inside the organization. If some of the promoters from these insurance companies have larger influence compared to others, they may take advantage of it to act on their own interest rather than larger common interest. In that scenario, there could appear the conflict of interest. But this conflict will be largely due to the conduct of stakeholders involved in decision making rather than conflict of role as customer or investor.

    Novice Answered on February 2, 2018.
    Add Comment

    Yes, there exist a potential conflict, as the investors and the customers of Re-insurance Company of Nepal are largely the same.  Referring to data, the government of Nepal owns 43% stake in the company where, life insurance owns 18% stake and remaining 37% is held by non-life insurance. Thus, authority for controlling the company goes directly to dominant insurance companies leaving government with only involvement in board.

    On one hand, insurance companies are customers as well as major promoters of Reinsurance Company. While on the other hand, insurance companies are directing reinsurance from which we can clearly presume the manipulation of Reinsurance Company for their benefit. Considering the rules and procedures, there are certain insurance products and commitments of Nepalese insurance company that may not be re-insurable. However, as the regulators of Reinsurance Company are the same insurance company, they might take upon the re-insurance for their own benefit without any study. Which will further hinder the overall interest of re-insurance companies that leads to conflict of interest. Moreover, entire formulation of rules and regulation might go against the general objective of Reinsurance Company, which may lead to taking decisions that could go beyond interest of the Company.

    Novice Answered on February 2, 2018.
    Add Comment

    Re-insurance company in Nepal is largely promoted by Nepal Government and insurance companies of Nepal. As per the company act, Directors are nominated by the shareholders. Customers of re-insurance company are insurance companies of Nepal. Do you see the possible conflict as investors and customers of re-insurance company of Nepal are largely same. Discuss.

    Re-insurance company is actually an insurance bought by an insurer with the expectation of passing on the larger risks to reinsurers. Here, the reinsurers agree to bear a certain amount of fixed risk borne by the insurer based on the policies that has been issued. From the ceding company, the reinsurer normally gets a premium for providing the service of risk coverage along with the re-insurance service. Through the spreading of a risk, it helps the insurance company to function effectively and efficiently.

    In the context of Nepal, the Nepal Government and other insurance companies have highly been promoting the re-insurance company in the home country itself. The government of Nepal has decided to convert the insurance pool, Nepal to Nepal Re-insurance Company Ltd with equity participation of Government of Nepal, General insurance companies and others. This step has been taken on 7th August, 2014. The capital structure of re-insurance company is composed of 43.55% share of Nepal government while remaining portion from Life and non life insurance companies. The potential customers of Nepal reinsurance are the insurance companies while the investors are also insurance companies at large extent. There is prevalence of the conflict of interest as a result of same investors and customers which calls for the effective corporate governance mechanism.

    Basically, investors want considerable return on the investment while customers want the minimized premium for the insurance policies. For company to satisfy the investors, it requires huge return for the investors. For the customers, it is the other way around. The insurance companies as a part of the re-insurance company might set the policies under which the customers i.e, the insurance companies might have to pay less premium when compared with international standard premium. There lies a contradiction among these parties as they both expects separate outcomes when investing and purchasing some form of insurance. It’s different in this case. Since, customers and investors for the re-insurance companies are same, the inside information of the re-insurance company might be used for the sole benefit of the insurance companies which are participating as board members and promoters in the re-insurance company. We can considerably visualize the manipulation in favor of these insurance companies who are promoters as well as customers for the re-insurance company. Here, the control is completely under the jurisdiction of the insurance companies. Also, in case the condition or situation is unfavorable for insurance companies regarding the policies to be taken by them meeting the standards set by other international re-insurance companies, certain manipulation can occur if it has to be under the re-insurance company within the home country. We can sense the corruption and manipulation under this scenario as well.

    Novice Answered on February 2, 2018.
    Add Comment

    Your Answer

    By posting your answer, you agree to the privacy policy and terms of service.