Nepal Moves to Formally Prosecute Insurance Crimes Under New Legal Framework

The government has begun formal preparations to implement provisions of the Insurance Act 2079 that allow insurance-related crimes to be registered and prosecuted as separate legal offences. With this move, irregularities, fraud, and financial misconduct in the insurance sector will no longer be treated only as general “fraud” cases but will be addressed under a dedicated legal category of “insurance crimes.”

The initiative follows proposals submitted by the Nepal Insurance Authority to the Ministry of Finance Nepal, seeking procedural and institutional arrangements to enforce the new law. Officials say the aim is to strengthen regulatory oversight and bring greater accountability to a sector that handles large volumes of public funds.

For the first time, Section 140 of the Insurance Act has clearly defined various forms of insurance-related offences. To operationalize these provisions, the Ministry of Finance sought legal consultation from the Judicial Council Nepal. The Council has recommended that insurance crime cases be handled by district courts. Once the government issues a formal decision, the state will file cases as the plaintiff under Section 146 of the Act.

Until now, policyholders, surveyors, and employees who faced losses or misconduct by insurance companies could file complaints with the regulator. The Authority was empowered to issue decisions similar to those of district courts, with provisions for appeal to higher courts. However, serious criminal acts related to insurance were largely pursued under general fraud laws through the police, often failing to reflect the sector’s technical and institutional complexity.

According to regulatory officials, this approach had several limitations. The broad definition of fraud did not adequately cover complex insurance practices such as claim processing, valuation systems, risk assessment, and multi-party involvement. As a result, offenders in some cases were able to avoid accountability. The new law addresses these gaps by clearly classifying insurance fraud, forgery, misrepresentation, and embezzlement as distinct criminal offences.

The Act outlines several situations that constitute insurance crimes. Operating insurance businesses, brokerage services, or related activities without a valid license will be treated as a criminal offence. This provision targets unauthorized operators who have long been active in informal and unregulated segments of the market.

The law also criminalizes fraudulent claim settlements. If an insurer, intermediary, or any other party is found to have collaborated in producing false documents, forged records, or misleading information to process claims, they can be prosecuted. Similarly, insured individuals who submit fake documents or false statements to obtain compensation will be equally liable.

Surveyors, who play a key role in assessing damages, are also brought under strict legal scrutiny. If they deliberately overestimate, underestimate, or distort valuations for personal gain or malicious intent, resulting in financial loss to either party, such acts will be treated as criminal offences.

The Act further covers misconduct by agents, employees, and executives. Agents who embezzle premium payments, employees who manipulate policies, mismanage claim settlements, or engage in financial misuse, and officials who commit irregularities during mergers, acquisitions, audits, or restructuring processes can all be prosecuted. For foreign insurers, unauthorized transfer of assets abroad or submission of false information to obtain regulatory approval is also classified as an offence.

Section 141 of the Act specifies penalties based on the nature and scale of wrongdoing. Depending on the amount involved and the severity of the offence, punishments include confiscation of assets, fines, and imprisonment of up to 10 years. Operating without a license may result in triple fines based on the amount involved and prison terms ranging from five to ten years.

In cases involving illegal brokerage, fraudulent claims, or false documentation, offenders may face confiscation of funds, fines equal to the amount involved, or imprisonment of up to three years. For financial losses up to Rs 1 million, the maximum jail term is one year; losses between Rs 1 million and Rs 5 million can lead to three years’ imprisonment; and losses exceeding Rs 10 million may result in three to five years in prison.

Those who assist in committing insurance crimes will receive half the penalty imposed on the main offender. In institutional cases, directors, chief executives, and responsible employees will be personally liable. Until a case is resolved, accused individuals and intermediaries will be barred from participating in insurance-related activities.

The law also empowers the regulator to investigate suspicious claims and financial behavior. Individuals found guilty of fraud or non-cooperation during investigations may be blacklisted and barred from accessing insurance services for up to five years. Obstructing investigations may lead to imprisonment of up to six months, fines, or both.

Procedurally, complaints must be filed within six months of discovering an offence, and cases must be registered in court within three months of complaint registration. These time limits are intended to ensure swift legal action and reduce prolonged uncertainty.

Policy experts believe the new framework represents a major shift in Nepal’s insurance governance. By clearly defining offences and strengthening enforcement mechanisms, authorities aim to deter malpractice and restore public confidence. If implemented effectively, the system could significantly improve transparency, discipline, and ethical standards in the insurance industry.

However, analysts caution that the success of the reform will depend on institutional capacity, coordination between regulators and courts, and consistent enforcement. Without strong monitoring and timely prosecution, the legal provisions may remain symbolic. The coming months will therefore be critical in determining whether the new insurance crime framework translates into meaningful regulatory change.