UNIT - 7

INSURANCE INDUSTRY IN NEPAL

NEW BUSINESS AGE
Published on: 2017-06-15
Readying for the Golden Days
 Development in insurance clearly indicates that the
golden days for the Nepali insurance sector are
possibly here.
 The business of insurance is thriving and insurers
are gradually reaching out to many new parts of the
country that previously remained out of the radar of
the insurance sector.
 With the new entries, observers say that the growth
of the risk-mitigation business is likely to accelerate
over the next few years.
 Presently, there are 27 insurance companies, nine in
life and 17 in non-life areas, operating with more than
400 branches across the country. 
 The addition of the newcomers brings the total
number of insurance companies in Nepal to 42, a
number that signals a new era for market expansion of
insurers and increase in access to insurance in Nepal.
 The increasing number also shows rising investor
confidence in the domestic insurance market. 
 Among the insurers in the life insurance business,
six have investment from Nepali private sector
investors.
 National Life Insurance
 Nepal Life Insurance
 Surya Life Insurance
 Prime Life Insurance
 Asian Life Insurance
 Gurans Life Insurance
 The government-owned Rastriya Beema Sansthan
is also in the life insurance business.  
 Similarly, 13 companies in the non-life insurance
business have been operating with domestic private
investment.
 Everest Insurance
 Himalayan General Insurance
 Prudential Insurance
 Neco Insurance
 Premier Insurance
 Lumbini General Insurance
 NLG Insurance
 United Insurance
 IME Insurance (NB),
 Shikhar Insurance,
 Prabhu Insurance (Alliance)
 Siddhartha Insurance
 Nepal Insurance Company
 Two insurers have been operating as joint ventures
with one each in life and non-life areas.
 LIC Nepal is the JV company in life insurance
 LIC Nepal is a joint venture between Life Insurance
Corporation of India and Nepali conglomerate Vishal
Group
 Sagarmatha Insurance is in non-life insurance.
 Sagarmatha Insurance is a Nepal-Sri Lanka non-life
insurance JV with the leading Sri Lankan insurer
Ceylinco Insurance PLC being the joint venture partner. 
 The US-based multinational insurer Metlife
(formerly known as Metlife Alico), meanwhile, is
the only fully foreign life insurance company in
Nepal.
 In the non-life segment, India-based The Oriental
Insurance (Nepal) and National Insurance
Company Limited (NICL) have been operating as
extended arms of their respective institutions in
Nepal since 1956 and 1973 respectively. 
 There is also a reinsurance company which came
into existence in 2014 succeeding the Insurance
Pool established in 2003 during the worsening
times of the insurgency.
The Untapped Market
 The trend in insurance claim settlements after the
earthquake shows that a majority of Nepalis and their
property remain uninsured which has increased the
level of vulnerability to losses if such disasters occur
in the future.
 According to the Post Disaster Needs Assessment
(PDNA), the damage to property and infrastructure
amounted to Rs 517 billion.
 However, it is an irony that only 3 percent of the
damage was insured.
 As per IB, 16 non-life insurers have settled 16,836
claims paying Rs 12.81 billion in compensation to
the insured as of mid-February.
 A total of 17,782 non-life insurance claims worth
Rs 16.85 billion were lodged by the policy buyers
after the earthquake out of which 5,896 claims have
been declared as invalid.
 Meanwhile, the claims for life insurance totaled
even smaller at Rs 3.47 billion. 
 Insurance is considered a sector with vast potential in
Nepal as the penetration of insurance is just 1.31
percent of the GDP at present.
 According to the Financial Inclusion Roadmap 2017-
2022 prepared jointly by The Centre for Financial
Regulation and Inclusion (CENFRI), Finmark Trust
and United Nations Capital Development Fund
(UNCDF), 80 percent of the adult population of
Nepal do not have any type of insurance coverage.
 As per IB, the access to insurance in the country currently
stands at 12 percent combining both life and non-life
insurance coverage.
 Estimates put just around 5 percent of the country’s
population to be covered by life insurance policies at
present. 
 The awareness of insurance among the general people has
remained low despite the fact that the first insurance
company was established during the Rana regime in 1948 as
Nepal Mal Chalani Tatha Beema Company Limited which
was renamed Nepal Insurance Company Limited in 1961.
New Frontiers
 Agriculture Insurance
 The last few years have seen some progress in
terms of policy initiatives to expand the insurance
business in the country.
 The government, for example, has come up with
policies in agriculture and micro insurance in a bid
to increase the access of insurance in rural areas.
 IB in January 2013 implemented the Crops and
Livestock Insurance Directives and six types of
insurance policies have been issued in this regard.
 The policies cover various types of crops, vegetables,
cereals, fruits, poultry, fish, cattle and farm animals.
 Despite a lukewarm response after the
implementation of the policy due to lack of awareness
among the farmers, there has been a significant jump
in sales of agricultural insurance products in recent
years. 
 Activities in agricultural insurance are likely to
expand in Nepal in the next few years.
 The government has been providing a 80 percent
subsidy on insurance premiums of crops, livestock
and poultry.
 Meanwhile, suggestions have been made to further
strengthen the agricultural insurance practices in
Nepal. “Given the high exposure to agriculture
across the population, agriculture insurance and
disaster risk protection products are a gap in the
market that should be further investigated,” states the
Nepal Financial Inclusion Report 2016. 
 Micro Insurance
 Micro insurance is being seen as a tool to increase
insurance in Nepal.
 The government led by former Prime Minister KP
Sharma provisioned the micro insurance programme
in the budget for FY 2016/17.
 Under this, both life and non-life insurers are
mandatorily required to provide at least 5 percent
services in micro insurance out of their total services.
 The programme sets out to minimise the financial
risks associated with agriculture, cattle/livestock and
other small rural businesses.
 IB has already introduced the Micro Insurance
Directives in 2014 which has set the insurance
policy amount at a range of Rs 100,000-Rs 200,000
with the annual premium being 0.1-5 percent. 
 Currently, the government has been working to
amend the existing Insurance Act, 1992, the draft of
which has included the mandatory provision of
micro insurance for insurers.
 Migrant Worker Insurance
 Getting migrant workers under insurance coverage
has been an area of focus for the authorities in recent
years and has also opened new doors for the Nepali
insurance sector.
 A new health insurance policy was implemented in
mid-February that enables Nepali migrant workers
who have bought term life insurance to receive
coverage for critical illnesses of 15 types against an
insurance premium for Rs 400.
 Earlier in January, the government announced it
would increase the insurance coverage to Rs 2
million from Rs 1.5 million for migrant workers
who work in 110 countries.
 Under the programme, the government will bear
half the premium amount while the remaining has
to be paid by the workers themselves.  
 Reinsurance
Reinsurance is a new area of insurance business in the
context of Nepal.
 Reinsurance basically is a risk management practice where
insurance companies transfer a portion of their risks to other
insurers (reinsurers).
 Insurance companies in Nepal mostly rely on reinsurers in
India, Singapore, Japan and Hong Kong and Africa for
reinsurance. However, the prospect of reinsurance has risen
with the establishment of Nepal Reinsurance Company
Limited (NRCL) in December 2014.
 The company is currently engaged with both domestic
and foreign clients. According to NRCL CEO Chirayu
Bhandari, the company’s reinsurance portfolio of
domestic clients has reached Rs 2 billion as of the end
of the 3rd quarter.
 He informs that NRCL has been working with 17
Nepali non-life and four life insurance companies at
present. Likewise, the reinsurance transaction amount
from its foreign clients has totaled Rs 30 million
during the period.
 The company has been providing reinsurance services
to 26 insurers from 15 countries.
 There have also been some policy level initiatives to
stop the outflow of funds from the country in
reinsurance.
 The government in the budget for FY 2017/18 has
announced that a mandatory arrangement will be
made for Nepali life and non-life insurance companies
to reinsure a major share of their insurance policies to
Nepal Reinsurance Company.
 It is estimated that Rs 10-12 billion goes out from the
country for reinsurance annually. 
 Insurance of Government/ Public Property and
Infrastructure
 Government and public-owned property and
infrastructure sustained heavy damage from the
earthquake of 2015.
 The government now seems to have realised the
importance of insuring such property and
infrastructure to minimise losses in case of
disasters in the future.
 Though no specific plans have been laid out, the
concerned authorities are said to be thinking of
formulating mandatory provisions for insurance in
this regard.
 Such a provision can be largely beneficial to the
insurers as the number of government and publicly-
owned property and infrastructure is substantially
high in the country. 
 Emerging Trends in Insurance E-insurance
 The business of insurance is all about providing
practical solutions to the clients using latest
technologies.
 While the concept of e-insurance has gained
prominence in developed and many emerging
economies, Nepal has lagged behind in terms of
expanding the insurance business through digital
means.
CATTLE AND CROP
INSURANCE
 This insurance provides insurance coverage for
various agricultural activities like Livestock,
Poultry, Fish, Paddy, Vegetables, Fruits etc.
Farming against the risks of Fire , Acts of God
(Earthquake, Flood, Landslide, Storm), Diseases,
Insects etc.

 Started from Magh 1, 2069 (Agriculture Insurance)

Cattle Insurance
 Policy indemnifies against loss sustained due to
loss of life of cattle / livestock.
 This insurance policy cover against death of
animals (Like bulls, buffaloes, cows etc) within the
geographical area specified in the policy arising
from any desease or accident including fire and
lightning occuring during the period of the policy.
 The indemnity payable under the policy is the loss
which the insured suffers by the death of the animal
but not exceeding the sum insured by the policy.
 Insurance of livestock at the place of permanent
location
 Insurance of livestock during transportation.
 Cattle
 Small cattle (sheep and goats),
 Pig stock bred by industrial method (pig farm),
 Poultry stock bred by industrial method (poultry
factory),
 Deer, horses, mules, camels and other types of animals
bred for production of milk, meat, fleece and also used
for cartage.
Coverage
 Death/plague of animals as result of diseases,
traumas, accidents, delivery, natural disasters
 Forced slaughter on orders from veterinary service
in connection with incurable animal diseases.
 Insurers will provide 90 percent compensation of
actual loss and 10 percent should bear by customer
 In case the insured plant, animal or fowl has a life
span of less than a year, then the premium amount
will be calculated based on production cycle.
 Claim settlement process should be wrapped up
within 30 days of first reporting the event.
Exclusions
 Malicious or wilful injury or neglect, over loading,
unskillful treatment or the use of animal for purpose
other than stated in the Policy without the consent of
the Company in writing.
 Intentional killing of the animals except in cases
where it is necessary to terminate incurable suffering
on humane consideration on the basis of the
certificate issued by qualified Veterinary Surgeon or
in cases where killing is resorted to by the order of
lawfully constituted authority.
 War, invasion, Civli war
 Surgical operations other than those required due to
accident or disease occuring during the period of
the cover
 Disease contracted prior to commencement of risk
or within 15 days from the date of
commencementof risk
 Transport by air and sea
 Disease like Plueropeurmonia, Rinderpest (The
term Rinderpest is taken from German, and means
"cattle-plague“)
Crop Insurance
 Crop insurance is purchased by agricultural
producers, including farmers, ranchers, and others
to protect themselves against either the loss of their
crops due to natural disasters, such as hail, drought,
and floods, or the loss of revenue due to declines
in the prices of agricultural commodities
Subsidy on premium
 Government of Nepal provides 80 % subsidy on
agricultural insurance premium paid by farmers
Problemsin the Insurance
Industry
 Despite the promising prospects, the Nepali
insurance industry has some challenges to overcome.
 There are issues related to policies that hinder the
growth of the business.
 The rigidity in the Investment Guidelines for
insurance companies can be taken as an example in
this regard. The investment restrictions in the
guidelines have obstructed the growth of Nepali
insurance companies.
 The existing insurance law has become outdated and
does not comply with best international practices.
 There is no insurance contract law in place to address
issues related to misinterpretation of the insurance
policies.
 Similarly, the country lack actuaries for actuarial
evaluations, an insurance appraisal based on
economic and demographic assumptions for
estimating future assets and liabilities, for non-life
insurers. Foreign actuaries are hired for this at
present.
 Issues related to moral hazards are also a problem in the
Nepali insurance business.
 Such issues are said to particularly persist in agricultural
insurance.
 Problems arise when farmers supply wrong information,
intentionally or unintentionally, during the settlement of
claims.
 The insurance sector regulator has not been able to create an
effective framework to reduce the moral hazards. It is quite
difficult for the insurers to determine the reason for the
losses.
 Nepali insurers do not have an adequate workforce
to evaluate and assess the damages and claims.
 It needs a team of experts composing of actuary,
underwriters, statisticians, risk analysts and loss
assessors and specialists in the respective fields to
get an actual picture of the damages incurred.