Kathmandu: Nepal’s insurance regulator has uncovered clear evidence that many non-life insurance companies are routinely handing out illegal “cash-back” kickbacks to customers. However, five months after a damning on-site inspection no company has faced punishment and the shady practice appears to be growing bolder.
Cashback, essentially secret commissions paid directly to policyholders or brokers to lure business, is strictly prohibited under Nepali insurance law. Companies are only allowed to pay regulated commissions to licensed agents. Anything beyond that is considered fraud.
During a five-week targeted inspection in June and July this year, the Nepal Insurance Authority (NIA) examined 14 non-life insurers and found rampant violations in at least half a dozen. Investigators discovered companies were disguising cash-backs as fake invoices, inflated entertainment and management expenses, fictitious employees, bloated surveyor fees, and even back-dated bills issued in bulk on the same day to make the paper trail look legitimate.
In one glaring example, bills dated seven days apart carried consecutive serial numbers. It was a proof they were printed at the same time to fabricate expenses. Red and yellow internal vouchers, hotel receipts for extravagant amounts and payments to non-existent vendors were commonplace.
Despite compiling a detailed report that names the worst offenders, the regulator has remained strangely silent. Sources inside the Authority say a proposal to punish the five most heavily involved companies finally reached the board a few weeks ago, but board meetings have repeatedly been postponed, leaving the matter in limbo.
“We completed the inspection because complaints about cashbacks were pouring in,” a senior NIA official told Clickmandu on condition of anonymity. “We found extreme irregularities, yet no action has been taken. Instead of shrinking, the problem is only getting worse because the companies know they can get away with it.”
NIA spokesperson and executive director Sushil Dev Subedi confirmed that recommendations are ready but insisted nothing can move forward until the board meets and decides.
Industry insiders admit the root cause is cut-throat competition in a market with too many players chasing limited business. Cashbacks ranging from 6 percent to as high as 15 percent of the premium have become an open secret to win corporate and high-value clients.
Chanki Kshetri, CEO of Sagarmatha Lumbini Insurance and a former president of the insurers’ association, blames “unhealthy competition” and warns that fully deregulating premiums (de-tariffication) could clean up the market by letting strong companies thrive and weak ones close but says Nepal’s regulator is too scared to take that risk.
Rena Rijal, Deputy CEO of United Ajod Insurance, argues the only real solution is wider market growth and stricter enforcement. “First, companies must discipline themselves. Second, the regulator has to be tough and proactive. If the Authority cracks down hard, practices like cash-back will disappear,” she said.
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