Avoiding credit card Fraud
By Harendra Thapa
Like there are good people and bad ones in the world we live in, there are good users and bad users in the world of credit card. Good users are those who have fulfilled the various formalities of the banks and have obtained credit cards issued in their names while the bad users are the fraudsters who use fake, lost or stolen cards. It is because of the fraudulent transactions of cards, people worldwide are losing their money for no good reason. This kind of fraudulent transactions can be avoided only if the card using community (i.e. card holders and card accepting merchants) are more aware about the usage and acceptance of credit/debit cards.
Alertness on the part of merchants:
When a merchant signs an agreement with a bank for obtaining card merchantship, the agreement has clearly laid down which international brands of cards the merchant can accept from the customers. Just knowing how to operate a POS machine recently installed and how to use an embossing machine to conduct a card transaction is not enough. To avoid being the victim of a fraudulent transaction, the cashier at the merchant’s end should complete the following steps while conducting a card transaction:
1) First, and the foremost, ensure that the VISA/ MasterCard presented is genuine. The genuineness of a card can be identified by quickly examining the standard security features of the credit/debit cards which are as follows:
l VISA card must have the 3-dimensional hologram of a flying dove and visa brand mark on the front and a magnetic stripe and signature panel with a 3-digit CVV2 number on the back. Similarly, MasterCard must have the hologram of the globe and the brand mark on the front and a magnetic stripe and signature panel with a 3-digit CVV2 number on the back.
l The date on the card should not have expired and there should not be any tampering on any existing features of the card.
l The small 4-digit numbers appearing just below the first four digits of the card number should be the same as the latter.
l Preprinted numbers just below the first four numbers of the card number should tally with each other.
2) For every single manual transaction, exceeding the amount as agreed with the bank, authorization must be taken from the card authorization centre of the concerned bank. Transaction should not be done if the authorization number is not received from the bank.
3) Have the card holder sign on the transaction or sales slip and compare it with the signature on the signature panel on the back of the card to ensure that they tally with each other. If the signature panel is blank, have the card holder sign and compare it with the signatures on other identification card. If the card holder resists signing, it would be prudent to stop the transaction.
4) Have the card number checked in the bulletin provided by the bank. If it does appear in the bulletin then it is sure to be a lost, stolen or stopped card. In such a situation the card has to be politely retained and submitted to the bank.
5) Merchants should not provide service or ship off goods just based on the card number provided via telephonic calls or based on written instructions from the card holder to claim a certain fixed amount from the card account. In such cases it would be prudent for the merchant to consult its bank.
Apart from the rules mentioned above, the cashier at the merchant outlet should be observant about any strange behaviors on the part of the customer. An instance where a customer dash into a departmental store, hurriedly buys a large quantity of all sorts of goods and rushes to pay with the card should trigger suspicion of a fraudulent transaction taking place. In such a case, the staff at the merchant end should mind the situation with due diligence and great vigilance.
Alertness on the part of the users:
A card holder may use the card either to withdraw money from ATM or bank counter and buy goods from a merchant outlet. While transacting through a card at the outlet, other than the ones which you visit regularly, you should be careful to prevent any one at a merchant outlet from taking undue advantage of your card to conduct a fraudulent transaction. For this, you should follow the following guidelines:
i. Ensure that the card is swiped in a POS machine or embossed in an embossing machine in front of you and is not carried out of your sight for a significant length of time.
ii. Sign on the sales slip only after ensuring that the amount mentioned is correct.
iii. Keep a copy of the sales slip and the invoice and regularly check your statement to ensure that unknown transactions are not recorded. If any strange transaction is noticed, notify your bank in writing immediately.
iv. Do not keep the PIN code in the purse with the card because if the purse is lost or stolen then the card account can be easily accessed by a third person who can then easily withdraw cash from ATM by using your card.
v. Immediately notify your bank upon loss or theft of your card so that the bank blocks the usage of the card at that very instant thereby reducing any chance of misuse of the card.
(Thapa retired recently from banking service where he was mostly involved in the credit card business)
Nepali Banking & Lack of Standardized products
By Bipin Hada and Santosh Pandey
Bank customers are losing a lot due to information asymmetry in the banking service products.
The Banking industry has evolved substantially. There was a time when financial institutions in Nepal were known merely as deposit holding and loan disbursing institutions. With time, the Banking industry has however expanded to a large extent–thanks to the joint venture setups. Joint venture setups brought technical expertise in the form of technical assistance. They also brought about an increasing competition and rising demands for banking services amongst the customers. Considering the risks associated with the banking sector, it is essential that this industry is highly regulated. And Nepal Rastra Bank has done a good job to this affect. The central bank made it mandatory for all financial institutions to make their operations as transparent as possible. For instance, all financial institutions are compulsorily required to publish interest rates applicable to the customers. The central bank also restricts deviations in interest rates on deposits to 50 basis points from the published rates. This discourages discrimination of customers on the part of the financial institutions. Financial institutions have to publish quarterly performance reports in national dailies. The central bank carries out on-site and off-site audits of all financial institutions on a periodic basis ensuring compliance with the prudential banking norms as defined by the central bank. Non-compliance with any such central bank norms attract penalties which are stiff enough to deter the financial institutions from not complying. The monitoring of financial institutions by the central bank is strict enough to identify loopholes and take timely corrective actions. But since the central bank is also evolving and maturing, there have been instances where even the central bank has been lashed for its oversight from time to time–the most recent one being the recklessness reflected through the run on Nepal Bangladesh Bank. There is one more aspect where the central bank seems to have been ignorant or negligent. The central bank has focused very much on the governance side completely ignoring the customer side of banking and financial institutions seem to have capitalized on this.
Nepal ’s banking sector lacks standardization when it comes to products and services. Most of the products and services floating in the market are similar in nature-their objective being the same. But the question is: Are the prices being paid by the customers the same? With the central bank least concerned about the quality of products and services and corresponding prices, aren’t commercial financial institutions capitalizing on this? The answers are obvious. The customers are unable to have complete information about products/services being offered in the market because financial institutions are not required to publish any information on fees and charges. Due to this, the customers have been in a way or other deceived by financial institutions in the forms of additional fees and commissions that they have to pay in order to avail of any particular product and/or service. For instance, the interest cost to a particular loan is just a part of the overall cost the customer needs to pay. There are other costs, popularly known as hidden costs such as loan processing fees, valuation fees, mortgage fees, prepayment fees, renewal fees that the customer need to bear while availing of loan facility. Similarly, in deposits, the only cost that gets published as per the requirement of the central bank norm is the interest rate on various types of deposits. However, in case of checking accounts, one would not expect to have a checking account without a cheque book and one would certainly expect statements of accounts from the bank from time to time. There are however financial institutions that charge customers extra for issuance of cheque books and printing of account statements. There are innumerable such charges that are levied on customers and in some cases customers are not even informed of these charges till the time of actual payment. There are two ways in which customers seem to have suffered due to this. Firstly, the customers are not aware of the options available to them based on actual cost to a particular product or service and secondly, they are not informed well in advance of all the terms and conditions and charges thereon before any customer-bank contract actually comes into effect. The central bank seems to have completely ignored this fact assuming the published interest rates to be the only costs charged on the customers, thus encouraging and allowing financial institutions to take undue advantage of the uninformed customers. Besides, the calculation of the spread too seems to have been largely misunderstood by the central bank. Interest on loans and advances are calculated on a quarterly basis while the interest on deposits is calculated on a half-yearly basis. Therefore, the spread that the financial institutions claim to maintain gets underestimated which results in incorrect reflection of income. The central bank would certainly like to look into this issue and address it appropriately.
Specific parameters on the basis of which customers can compare financial institutions’ products/ services and corresponding prices therefore becomes imperative. This would help customers not only to making their choices but also to avoid discrimination. Isn’t this food for thought for the central bank??
E-Governance Much needed to be done
There have been some commendable efforts made towards introducing IT in the government workplace. This has proved a major factor in breaking down some key hurdles in the proper functioning of bureaucracy like hierarchies and rigidity of rules. But the process has been very slow, agree the authorities. The latest situation is that a master plan is being prepared with the help of Korean consultants.
The District Developmnet Committee of Kanchanpur, the Bharatpur Municipality, The Department of Tourism and the Supreme Court are some of the examples where e-governance has been started successfully with tangible results. Still the overall situation of the country regarding e-governance is at the first phase. Bimal Pratap Shah, e-governance strategist for National Information Technology Centre (NITC), confesses that Nepal stands at the very first phase of the four stages of e-governance development identified by Gartner (see box for Gartner's stages).
Old records that used to be tightly wrapped up in big pieces of cloth and piled up in dusty corners in the government offices of Kanchanpur district have been placed in hard disks. Putting abundant socio-economic data inside computers has brought a dramatic revolution in the planning processes and in providing information services for all the agencies in the district, says a report prepared in 2001. The development district committee can produce colorful computer generated maps depicting road networks, health clinics, educational centers, communication centers and other infrastructures. As the report says, these transformations have made the committee a useful resource of information to activists, planners and students who seek them. The committee is providing computer training to officials of village development committees. Links have been established between the computers of the village committees and those of the district committee.
Similarly, e-governance has been implemented in Bharatpur municipality with the help of the Rural Urban Partnership Program (RUPP) and now RUPP is supporting other partner municipalities to replicate the Bharatpur model. According to information from RUPP, Municipalities in which Internet Service is available at present have shown interest in implementing e-governance. RUPP has supported all its 12 partner municipalities to establish an Urban Information Center with well-trained permanent staff in the center. (Poudel 2004).
Another notable example has been that of Department of Tourism which has created a comprehensive website, providing information for selection of transportation to and within Nepal as well as accommodations and guides. The site provides links to competing companies, thereby necessitating participation by representatives of several service providers. Systems for international travel, visa and immigration matters, local transportation and housing are also integrated.
Yet another noteworthy example has been that of the Supreme Court where the clients (the parties to the case filed in Supreme Court) can track the information regarding their case online by the help of the user name and password provided to them while registering their case. (New Business Age, September 2006).
But these developments are not sufficient to say that e-governance is in full swing. E-governance in holistic term means much more. In simple words, it is the application of electronic means for: a) establishing interaction between the government and citizens, the government and business, and between different levels of government, and b) implementing internal government operations to simplify and improve democratic governance and business aspects of governance. The main mission of e-governance is good governance by bringing national, regional and local administrations closer to the common people and providing efficient and effective services. The above mentioned examples are far from fulfilling the requirements of this definition
The government only gave official recognition to the importance of e-governance in 2002, by forming the NITC. Currently NITC is working with a Korean company named KOICA for the formulation of the e-governance master plan.
Earlier, a master plan was formulated by an NGO named ITPF (Information Technology Professional Forum). But that plan lacked major elements like an institutional framework, a legislation, legal recognition and infrastructural aspects. Moreover, it was only application based and was not comprehensive. Hence the Korean company was hired to improve upon the master plan. "KOICA has sent an expert who has worked for IBM and Japan and has a solid track record in this field," says Shah.
An MoU was signed in the first week of December 2005 between KOICA and the Nepali government. An e-governance consulting report was prepared on August 2006. What followed after that has really been a boon to Nepal. ADB has extended a grant of about $600,000 as technical assistance. The World Bank has also been keen in investing in the project, informs Shah.
According to Shah, the technical expertise is not the only thing lacking in e-governance. There is a budget constraint as well.
"Moreover, the institutional framework of our government has delayed the effective implementation of e-governance," says he. For instance, NITC used to be the policy making body earlier. But in 2003, the government formed the High Level Commission for Information and Technology (HLCIT) for formulating policy and strategies. Since then, NITC functions as a secretariat of HLCIT and this has limited NITC's roles and responsibilities to implementing the policies of HLCIT. But the HLCIT too has an implementation department of its own.
Gartner’s E-governance Model
Gartner, an international e-business research consultancy firm, has formulated a four-phase e-governance model which may serve as a reference for governments in the overall evolution of an e-governance strategy. However, it is not necessary for all the countries to pass through all these phases.
Phase I: Information
In this phase relevant government information will be available on the web, thus providing service to the public (G2C-government to citizen and G2B-government to private sector). These sites would convey the government’s plan; information such as official addresses, working hours, forms and applications for public use; economic reviews; corporate regulations for businesses; and budgetary allocations and expenditures.
Phase II: Interaction
In the second phase, the government will interact with the public (G2C and G2B). People can ask questions via e-mail, use search engines for information, and download all sorts of forms and documents. G2G, government organizations use Local Area Networks (LAN), intranets and e-mail to communicate and exchange data.
Phase III: Transaction
This phase uses some complex technology and would signify direct interaction of the government and relevant entities such as online services, filing income taxes, payment of property taxes, extension/renewal of licenses, visa and passports and online voting. Phase three is complex because of security and privacy issues - e.g., digital (electronic) signatures are necessary to enable legal transfer of services. On the business side, the government begins with e-procurement applications.
Phase IV: Transformation
The final phase achieves the true vision of e-governance. Here all information systems are integrated and the public can get G2C and G2B services virtually at any counter. One single point of contact for all services is the ultimate goal. |
Challenges ahead
One of the major challenges for implementing e-governance has been about initiating payment through internet or payment through digital signature. When asked about its feasibility, Shah replies that developing digital signature payment at government level is a distant dream. With such low levels of computer literacy and low density of internet users, it may take more than 10 years to actually make it happen.
Moreover, there have also been the cases of fraud involved in it in India where taxes and royalties paid by citizens and companies were swindled by government officials. Hence, in order to implement e-governance properly, the right to information of the citizen has to be effectively put into practice so that if someone from the government side commits a fraud, citizens should be secured regarding their payment.
Another important challenge is to implement the e-governance plan in a balanced way so that it not only caters the needs of the people in urban hubs but also in rural areas. In this case, the objective of e-governance may sound overambitious given the low infrastructural level, low capital base and inadequate knowledge of computer among rural communities.
Similar challenge is in training human resource. There is a lack of awareness among the government officials regarding e-governance. Hence, trainings, workshops, seminars and presentations should be carried out to create awareness of e-governance. But these should not be carried out in isolation. There should be incentives like promotion and other perks for people who take the trainings. "Without such incentives the attitudes of government officials cannot be changed," says Shah.
But government officials are generally reluctant to change. Also the reason why e-governance has not been implemented till now is explained by the fact that government officials feel they might lose their illegal kickbacks if payments and other governmental formalities are operated without direct interactions between the civil servant and the citizen.
By Manish Bikram Shah
Piracy rewarded
By Abhaya Panday
After a never-ending wait the 4th Crity Advertising Awards ceremony was finally held amidst pomp and fanfare. The night’s ceremony proceeded like business as usual until the moment the winner of the Best TVC was announced. What followed for a minute was gaping and speechless faces of the audience. The Award, formally instituted to honor creative excellence, was handed to a material which has been publicly attested as a true copy of an Indian advertisement in the same product category. Whether our Nepali edition is equally eye pleasing or not is another issue of less significance at this juncture.
Resigning to what happened that night, I imagined myself going to an advertising congress in India where the god of Indian advertising, Piyush Pandey asks me, “Do you make good TV commercials in Nepal?”. I reply “We try”. His next question, “Which is the best in your country this year ?” I say in a subdued voice, “Officially it is the one that is a true copy of an advertisement from your country and as far as I can recall, it has not been nominated in any category or award festival in your country”. Piyush responds “I cant believe it. You disappoint me”. He gives a wry smile and walks away and I am left feeling like a real dwarf.
Indignation: For me and a majority of the advertising professionals the basic concern is not about who wins? The basic concern is what wins? In the contest between creativity and piracy, the latter has emerged a victor in this category. The ‘who’ factor has never been a subject of discussion beyond the closed doors of agencies and advertisers. But, what has been awarded is a domain of public scrutiny which creates a public opinion. This time round even the advertising fraternity has chosen to step out of the closed doors to voice their concern over an issue that has perhaps brought disrepute to Nepali advertising.
Mediocre: Every country gets the advertising that it deserves. Just look around in our society and there is mediocrity everywhere. In politics, in media, in business management, in service delivery. Just name it. With mediocrity so pervasive, it would be futile to expect that we will have ads that sound and look like god-made. Yet, I look at our best TVC and wonder if this is the kind of advertising we deserve to boast as the best. Despite having a great passion for advertising, I somehow feel intellectually and creatively quite bankrupt.
Frankly speaking, I don’t blame the agency for making this commercial or receiving the award. If clients demand a copy of a foreign advertisement, the agency can hardly refuse to supply it. And I sincerely believe that the agency did not make any effort towards influencing the judges in their favor. For that matter, I don’t doubt the integrity of the judges either. It is the judgment that is the bone of contention and it cannot be simply written off as a case of personal choice. It is a fundamental blunder. Judges are humans with ingrained contexts within which they act, react or operate. So, an undeserved extra point here or a minus point there while judging is acceptable. Awards evoke great interest in people primarily because they are judged by humans. If machines were judges the verdicts would not be as interesting because there would not be anything left to judge. It would simply be a matter of calculations.
Clone vs original: However, in this case the judgment has violated the fundamental objective of Crity Awards, which is to honor creative excellence in Nepali advertising. Of course one could argue about the definition of creativity, as one advertising guru has argued that “life is the only creation, rest is all imitation”. Agreed that we may differ on the issue of creativity, but we do commonly understand piracy. If I were to rewrite the laws of motion in a language completely different from that of Newton, can I claim to have formulated the theory and win Nobel Prize for physics? The moment I suggest that every action has an equal and opposite reaction - no matter in which language or in which manner- and claim it as a work of my creativity, I will be damned. A photocopy machine can replicate the best literature ever written but it cannot claim to be the author and be rewarded for literary contribution.
Cannes & ideas: Advertisements are about ideas more than anything else. No wonder 99 percent of the medals in Cannes festivals go to advertisements with outstanding ideas. The language can vary for the same advertisement. An idea can be expressed in different languages or in different styles even in any one language. However, when an idea - which constitutes the core of any advertising - is copied, it is pure piracy. Full stop. Moreover, even if we were to assume, as some would like to believe, that all other advisements made in Nepal are copies of advertisements from Timbuktu, it still poses this important question: Is this commercial the best amongst the copies?
Paramount question: This episode of Crity Awards has left another question unanswered for aspiring creative professionals. Are they expected to think original or copy, because this precedence has already been set by rewarding pirated material.
(Panday is an advertising professional )
Kids Banking: grooming future customers
By Pramod Pandeya
To build a strong customer base for the future, banks should try to attract kids or children, a relatively untapped market segment.
In this hyper-competitive era, banks are desperate to attract new customers as well as retain the existing ones with a variety of banking products like saving accounts to retail loans, personal banking to corporate banking, internet banking to SMS banking and gifts to bonanzas. But customers are some-how confused with these developments. New is not so new and the so-called innovative products are not so innovative or attractive to them. With more number of the players entering the market (to be precise, overheated/ highly concentrated market) the competition is bound to intensify further. To survive in this already overheated and highly concentrated market, banks are compelled to explore the relatively unbanked masses like kids, and the poor and rural populace with user friendly and cost effective products. For this, they need to be innovative in the real sense.
Kids Banking
In the developed countries like USA, UK and European Union, banks design products for kids to teach them the basics of banking, ensuring that in the future they need not spend much to educate customers. By this mode of banking, banks can instill good saving habits and teach the importance of managing money effectively. This enables the banks to win the confidence of the future generation of the nation and groom them into loyal customers. The nation also gets financially responsible citizens in the long run.
However, in the Nepali banking industry, this innovative way of grooming future customers is yet to be practiced with some exceptions like KIST’s “Khutruke”, SCB’s student account and BOK’s Kopila.
Global Scenario
At present it is estimated that there are more than 2 billion people under the age of 20 in the world, thus, forming almost one-third of the total world population. Among them, more than 1.5 billion are in the age group of 5-20. So the banking industry can’t simply afford to ignore them. Further, today’s kids are the future pillars of the country so they have to have basic ideas of banking. By realizing this very fact and the importance of the kids banking, the governments in the developed nations have started many programs to educate kids about banking and the importance of managing money. In USA, ED Anhalt initiated the program called “The Banking on Kids” in 1995. This program is designed to teach the students of elementary and middle school about the banking and money management. The Fed is a partner in the program. In the European continent, banking conglomerates like HSBC, LYODS TSB, BARCLAYS-ABN AMRO are in the forefront in kids or children banking. Because of these initiatives, in these economies, the awareness about the banking and financial services is very high.
Domestic Scenario
Almost 50 % of Nepal’s population is under the age of 20, according to population census 2001. Further, 39.3% is under the age of 14. To bring these unbanked masses into the formal banking system, awareness programs should be designed to educate people especially kids or children, about the banking products.
Today’s urban kids are dynamic, educated and they are growing up in the age of consumerism. They certainly have a say in the purchasing decision of the family. They influence approximately Rs. 45,000 crores worth of purchases. But in Nepal most kids hardly know how to fill up a cheque book or use the ATM. This is a danger sign for the future of the banking industry. So, banks should work proactively to bring the future customers in mainstream banking. For this, they require to develop the banking products and schemes best suited for kids.
To streamline the kids banking program, banks can either form strategic alliances with schools /college or can form their own “kids club”. By doing so, they not only lock in their future customers but also discharge their social responsibility to some extent. However, only the initiatives taken by banks can’t generate the desired result. Banks have already initiated some programs to tap this relatively unbanked market segment. It is now the government and the NRB’s turn to take necessary steps to initiate a program in line with “The Kids on Banking” in the US to groom the future pillars of the country as better money managers. Especially, the apex bank should encourage such programs by banks and schools/ colleges with the right incentives. Kids Banking ensures financially responsible future citizens. Therefore, like in USA and West, Kids Banking should be a national agenda.
Understanding Life of Non-life Insurance
In view of the globally shifting trends and the political transformation taking place in the country, the existing insurance products not only deserve critical re-examinations but also close attention of the regulatory authority in order to devise social insurance schemes as social safety nets designed for cushioning the vast underprivileged village dwellers against production and consumption shocks.
Nepal lives in Villages
Agriculture is Nepal's predominant economic activity. Over 80 % of the total population still depend upon agriculture for living. In Nepal about 14 percent of the population live in urban areas. Out of them 10 percent live below the poverty line. The remaining 86 percent dwell in rural areas, and 35 percent of them survive below the poverty line.
Based on the available information on land use, about 21 per cent of the total land in the country is cultivated. About 1.7 million ha. of agriculture land is rainfed, which accounts for almost 65 per cent of the total cultivated land. On an average, the Terai (plains) comprises about 43 per cent of the total cultivated land, while the remaining land lies in other physiographic zones. The distribution of agricultural land is highly skewed, with 16.1 per cent of the farmers owning 62.8 per cent of the land. Half of the farm holdings are below 0.5 ha., averaging a mere 0.15 ha. Small farmers clearly dominate Nepali agriculture.
The capacity of the agriculture sector to hedge itself from the vagaries and aberrations of nature is considered critical to its development and growth. Many factors, including disasters, can slow down the development process by reducing domestic food supplies in the short term. Natural disasters are a major source of risk in agriculture. Our experiences of the past few decades have proved that practically no place is immune to natural calamities, whatever the state of preparedness there might be. The insurance need for Agriculture cannot be over emphasized, as it is a highly risky economic activity on account of its dependence on weather conditions. Designing and implementing an appropriate insurance program for Agriculture is very complex and a challenging task. Yet Nepal is not sitting idle. The Gyanodaya Farmer Multipurpose Cooperative in Nawalparasi has recently started Agriculture Insurance for the first time in Nepal. Nawalparasi District Committee, Ram Nagar VDC and Swathi VDC contributed to create the fund under the Agriculture Insurance.
The Grand Challenge
The Nepali Non-life Insurance market, owing to its geophysical hazards and diversity, poses unique and varied risks. To illustrate, among the catastrophies like Landslide, Earthquake, Flood and Cyclone, here floods and cyclones influence a relatively small area of the country. About 75 per cent of all landslides in Nepal are natural. This high rate of natural erosion could be due to the frequent tectonic uplifting of the major mountain ranges and consequent down cutting of the river systems, which result in unstable slopes. Mass wasting is also caused by rock failures, landslides, riverbank cutting and gullying. The instability is natural and the effect of man's activities on the erosion process is incidental.
This country is also vulnerable to Earthquakes. According to seismologists, Nepal ranks 11th among the 30 most quake-prone countries in the world. Going by the past record, Nepal has been experiencing major quakes every 70-75 years. The 1934 quake measured 8 on the Richter scale, killed nearly 11,000 people and destroyed about 20% of the buildings in the Kathmandu valley. However, were it to strike again, the damages would be far more devastating due to the burgeoning population and unplanned constructions. But the fact remains that "returns" are always linked to "risk taking". So it is necessary to understand these risks thoroughly and to manage them so as to build a business with sustainable and profitable growth.
Earthquake Pool
As in the other developing economies, insurance penetration is very low in Nepal. Insurance therefore, does not play a major role in the rehabilitation process after a disaster has struck. Thus much on the lines of the terrorist pool, an Earthquake pool will enable insurance companies to share the burden of risks in case of huge losses arising out of an earthquake or a similar peril. Ideally, the setting up of a pool should come before an eventuality takes place. Reinsurance rates are likely to harden following the incidence of earthquake, by all means.
Risks Awareness
Insurance is, predictably enough, confused with investment, instead of being considered purely as a risk cover.
The individual customer remains in the dark either on the risk awareness or on the benefits of the insurance bought. There is a legitimate expectation that the liberalisation of the industry would be beneficial to the customer by broadening and deepening the non-life market and introducing better service standards.
Time for Soul-searching
The present competitive zeal among insurers to fight for the removal of each other will have to yield place to the creation of new markets in personal lines, rural products and aggressive selling of newer products to existing customers.
Competitors complain that some insurance companies are buying market shares by offering unsustainably high margins to their buyers.
The insurance companies should not play on their competitor's turf, rather they should aim at to create new markets.
Motor Portfolio with Growth Limiting Factor
No doubt the automobile insurance fosters portfolio growth and it contributes a 21.69% share to the insurance pie (2059-60) but the growth of automobiles in a country like Nepal has its limitations. Nepal has the highest customs duty on the import of vehicles in South Asia, which accumulatively goes up to 180 %, making the dream to own a car well nigh impossible for most people. There is a limited road network but the number of vehicles, from a total of 354,955 registered in 2001-02, has jumped to 528,570 in the fiscal year 2005-06.
A fact to note is that, of the total vehicles registered throughout the country, over two-thirds are in the Bagmati zone and more than 52% of the vehicles are in Kathmandu valley alone. It means about 300,000 vehicles registered in Nepal are plying on 1,345 km long roads of the valley. So road accidents due to vehicular traffic are increasing at an alarming rate. Strategically, it is high time to plan for diversification of insurance business concentrating on personal line of insurance products.
Health Insurance
Health is wealth to an individual as well as to the country. An Arabian maxim goes " He who has health, has hope; and he who has hope has everything." So health of the nation is everybody's concern.
Non-communicable diseases (NCD) put an additional burden on all South East Asia Region (SEAR) countries which are already grappling with the controlling of communicable diseases coupled with other poverty-related health problems. NCD such as ischaemic heart disease and cerebrovascular disease, cancer and diabetes have emerged as major contributors to morbidity , mortality and disability. In Nepal a high prevalence of Chronic Obstructive Pulmonary disease is reported. It is estimated that 5.6% of people in the mountain, 1.5% in the hills and 5% in Terai suffer from Cardiovascular diseases and about 5-20% adults suffer from hypertension. Cardiovascular diseases are the major cause of mortality. (NCD Prevention & Management : WHO 2001)
So, Health issues are acquiring urgency due to factors like medical inflation, increasing life expectancy and an increasing load of lifestyle diseases. Paradoxically, living long and dying young are both creating new tensions in society.
Health care has become one of the primary concerns for a family. With medical expenses on the rise, it is imperative that every one in the family understands the risks involved. The idea behind this is to reduce financial shocks.
With the virtual absence of a social health security system the need for a widespread Health Insurance system is urgent and pressing. Each set of players in the game needs to play its part sincerely under a single umbrella with national health cause.
Livestock Insurance-Unforgettable
The inter-dependence among the three rural sub-sectors - farming, animal husbandry and forestry - is unique in the Nepali hill farming system.
Livestock contributes 31 per cent of the total agricultural GDP. It also provides farmyard manure/compost to farmland for maintaining soil fertility and draught power.
Off-farm employment is important in the Nepali hills. The hill economy has shifted from a land surplus to a labour surplus situation. The significance of off-farm employment can be understood in the context of the increasing labour force and the growing difficulties of conventional land-based activities to generate adequate levels of employment. The agricultural production is strictly subsistence-oriented. Livestock are an important asset. Cow dung is relied upon for natural fertilizer and the oxen are the draught animals. Furthermore, farm animals provide the household with milk, meat and wool. If sold, livestock can also function as a fallback for overcoming economic difficulties.
Ineffective livestock-identification device remained as one of the major pleas for not switching over to Livestock Insurance in the country. But now Radio Frequency Identification Device (RFID) microchip is available on the world market. The microchip is a tiny computer chip which has an identification number programmed into it and is encapsulated within a bio-compatible material. This provides a permanent positive identification which can not be lost, altered or intentionally removed. So it a most effective device to check fraudulent livestock claim.
Navigating Suitable Distribution Channels
Nepal is divided, administratively, into 75 districts and about 4000 VDCs and 58 municipalities. At present the headquarters of 66 districts are connected with the road network.
There are 15,000 NGO's registered with the Ministry of Social Welfare. Also registered are the 17 commercial Banks and Other Banking Institutions (OBI) which include all deposit taking financial institutions other than commercial banks, viz.; 20 Development Banks, 5 Regional Development Banks, 59 Finance Companies, 21 Financial Co-operatives, 44 Financial Non-governmental organizations and 116 Postal Saving Banks.
Distribution and servicing are two key areas in developing the rural insurance business. And the twin objectives will be accomplished by forging a relationship with banking sector.
Bancassurance - an Effective Distribution Channel
Bancassurance is the additional business of Banks done by selling insurance products. The scope of growth for Bancassurance is immense and it has no restrictive effect on the traditional insurance market, on the contrary it will boost the development of new insurance market. Economically it is the most cost efficient medium of distribution of insurance products. In order to expand the marketing base throughout the country, strategic alliances and tie-up arrangements with Banks and non-banking financial institutions will help to increase the insurance fold.
Role of Insurance Regulatory Authority
The Insurance industry is in an opportune position to have a Regulatory team who are coping with the challenges in the sector arising out of opening up to the private sector, changes in Tariff, policy holders' interest, investment and competition with great maturity. The definite direction for rural sector insurance will certainly redefine the role of Regulatory Authority with social responsibility.
One believes that the proper business conduct and collaboration in the areas of databases, fraud and such mutual interest things are monitored by the Authority. This will yield immense professional benefits to all the participants.
To popularize and develop insurance habit among the masses Beema Samiti may examine whether personal line insurance ( Household goods, Health, Personal Accident etc) could allow for a return of certain percentage of the premium (alike profit commission) on claim free years of 3 continuous renewals with the same insurer. Also it is time to think about long term personal line of insurance instead of only the yearly policy.
The Future of future dealers
The key to growth lies in distribution with agents providing the cutting edge to operation and also quest of effective intermediary -like Bancassurance. For the industry's long term growth, it is important that insurance companies themselves behave in a reasonable manner by being open and transparent while dealing with customers.
The future of Non-life insurance has two challenges that are equally important : to harness mass protection, and to do it at such an affordable cost that it envisages a new Nepal.
(Dr Ghosh is CEO of National Insurance Company Limited)
Insurance Biz: Situation Now
In 2062-63 BS, the country garnered premium amounting to Rs. 274.10 Crores. The 17 insurers marketed 203,822 number of policies among approximately 23.2 million (2001) people. Though the premium collection growth was a negative 4.61 percent, this nevertheless indicates that the scope for exploring the market is immense. Here is how:
Table :1
Insurance Market Structure
|
Ownership |
|
Nature of Company |
|
General Life |
Composite |
Total |
Govt. |
- |
- |
1 |
1 |
Pvt. Sector |
13 |
1 |
- |
14 |
Foreign |
2 |
1 |
- |
3 |
Jt. Venture |
1 |
2 |
- |
3 |
Total |
16 |
4 |
1 |
21 |
|
Table: 2 Portfolio wise Insurance Premium Growth |
Rs in 10 million |
|
RISKS |
Premium |
Premium |
Growth |
|
2061-62* |
2062-63** |
Rate % |
|
Rs. |
Rs. |
|
FIRE |
69.60 |
67.75 |
-2.66 |
MARINE |
25.99 |
24.26 |
-6.65 |
AVIATION |
48.60 |
47.58 |
-2.09 |
MOTOR |
79.17 |
77.80 |
-1.73 |
ENGG. |
19.74 |
12.28 |
-37.79 |
MISC. |
44.25 |
44.40 |
0..34 |
Total |
287.35 |
274.10 |
-4.61 |
|
* Insurance News &Views:Vol-7 Apr 2005-Nov 06
**Insurance News &Views:Vol-7 Dec 2005-Aug 06
Table:3 Year wise Premium &
Growth (%) Trend in Last 8 Years
|
Rs in 10 million |
|
Year |
Premium |
Growth |
2055-56 |
116.63 |
8.73 |
2056-57 |
133.72 |
14.65 |
2057-58 |
153.79 |
15.01 |
2058-59 |
215.11 |
39.87 |
2059-60 |
231.58 |
7.66 |
2060-61 |
238.12 |
2.82 |
2061-62 |
287.35 |
20.67 |
2062-63 |
274.10 |
-4.61 |
|
