Q. Can you please provide an overview of the current state of the insurance industry in Nepal and its growth potential?
A: In the current scenario of the insurance industry, the market has shown more positive growth, especially post-earthquake in Nepal in 2015, than in previous years. The public saw the devastating earthquake and the cost of rebuilding properties, so they felt the need for insurance. It was the next kickstart to this industry after the earthquake. On the other hand, after introducing the compulsory Third Party Motor Policy by the government of Nepal, a dynamic change has been seen in our industry. With these two major stances, the industry has shown promising growth. Last year, the insurance market grew to 41 billion Nepalese rupees.
The merger of existing companies has started since last year, resulting in significant synergies in operations, investments, risk absorption capacities, own retention power, etc. This synergy has also raised retention and shock-absorbing capacities, which has eventually boosted the confidence level of reinsurance companies too. It will bring more penetration and open the door to new market possibilities.
Nepal is a developing nation; the economic activities are increasing, and in the same proportion, we believe that the demand for insurance will increase. A new Insurance Act 2022 has been introduced in Nepal, which will provide many legal clarities to go ahead. Many untapped areas, especially in life and microproducts, have huge growth potential.
During and before COVID – 19, we were regularly growing by 10 to 15%. But last year, our economic activities were dull and we had a negative growth of 2% in non-life premium. Despite this data, our industry has a promising growth potential.
Q. As the president of the Nepal insurance association, what are your primary goals and priorities for the development of the insurance sector in the country?
A : For the assigned duties and responsibilities as the President of the Nepal Insurers’ Association, we have to play important roles in analyzing market trends, identifying the difficulties being faced by the industry, and creating an environment for solving issues. We do suggest ideas to the Nepali government via the Finance Ministry in the course of allocating the annual budget. We also suggest concrete ideas on the development of the insurance industry to the Nepal Insurance Authority. We are always focusing on how we can grow this industry to new heights.
We also oversee insurance risk mitigation on a national level and ensure that the collected premium is adequate enough to overcome losses, ensure healthy competition, and do day to day inter-insurance coordination through this association. We are always focused on the smooth running of our industry. We are also focused on raising awareness in collaboration with the Nepal Insurance Authority, the Government of Nepal, the Ministry of Agriculture, and the Ministry of Finance. We also engage in promoting a safety culture in government agencies through the use of insurance. If we can persuade the government to adopt a safety culture through insurance, this will set a good example, and even the general public will follow the trend of obtaining insurance.
For the subsector of Micro-insurance and Agri-insurance, we are regularly running the knowledge sharing platform by hiring different dignitaries from abroad.
Q. What challenges do you foresee in promoting insurance awareness and penetration in Nepal, and how do you plan to address them?
A : Firstly, the government and its agencies have to understand the importance of insurance for their properties to act as a role model, making the general public willing to follow them accordingly. The education sector has to incorporate more insurance education into their curricula. Citizens needs to be educated on the possible risks and risk mitigation tools through insurance from their school and college level. This will help to enhance risk culture and insurance awareness in every sector.
The federal system in Nepal has three tiers of governance: Central, Provincial, and Local Level with certain autonomy to risk resilience. The central level has a certain level of expertise in insurance. But while we are approaching the local level, they are willing to collaborate with the insurance sector for financial risk resilience, but they lack technical know-how in insurance matters. We have to join hands with local bodies to educate the general public. The central government is running a pool arrangement of medical risks by the name “SwasthyaBeema” under the government scheme. But there is confusion among the local bodies about the word “SwasthyaBeema,” and they have perceived that it is being conducted by the insurance organizations rather than the government. So, the insurance companies are facing difficulties because of this confusion. For this, we have to break the myth by collaborating with local bodies for insurance awareness.
Also, due to the tough geographical terrain of Nepal, it is not easy to access many areas. So, it is more challenging to provide agri-insurance services to every prospect, despite their willingness to avail such services. Still, we are operating in such places, and good responses are being received from them. The importance of insurance is being promoted by agriculture insurance in those areas. We can see that telecommunication services have reached every corner of this country, irrespective of geographical terrain. So, we also have the opportunity to boost insurance awareness and have the capability to boost insurance services with the support of telecommunication distribution channels.
Q. In recent years, we have witnessed the impact of climate change on various sectors. How is the insurance industry adapting to the risks associated with climate change in Nepal?
A : We are all facing the consequences of global warming and climate change. Climate change is inevitable, but we can bring it to the desired level. After the corona age, we are facing more of the impact of climate change. Being the players in risks and risk management, we have to counter the unpredicted risks and claims induced therefrom. The higher claim ratio of these climate changes has put forth stringent rules in the reinsurance market. Reinsurance pricing has risen, and ultimately it will further hike premiums, and ultimately the general public will suffer as a chain reaction. For the mitigation of the same, as we said previously, we have to identify new markets and expand the untapped areas of the insurance market to generate new business avenues, which will ultimately help us to cater to the losses we are facing during these unfavorable years.
As we know, Nepal is a mountainous country, and with its vast landscape and hilly topography, we have high potential for generating hydroelectricity. We have to look at some risk-related issues with the structures of such projects and human settlement in those embankment/ catchment areas where hydro projects are built or running. But we are taking some precautionary measures and getting those insured.
As per the Network for Greening the Financial System (NGFS), we could do a lot in pricing climate risk. Green innovations, eco-friendly office culture, low carbon footprint, e-mobility, e-governance, and automation in products are the tools to adapt to such changes and ensure the delivery of better services in the coming days.
Q, Technology is rapidly transforming in the insurance landscape globally. What role do you see technology playing in the growth and modernization of the insurance industry in Nepal?
A : In the context of adopting and injecting neo technology, we have not achieved as much as our neighboring countries, like India. But the banking sector has made quite good adaptations and utilizations of technology; most probably, the banking sector stands ahead in South Asian countries. In the context of banking, the techno-friendly behavior of customers has changed a lot. Almost everyone is compelled to do financial transactions through banks only. The digitalization of banking services has moved ahead.
But in the case of the insurance industry, once the minimum requirement of the Maslow hierarchy is achieved, only then someone approaches towards the insurance safety need. Also, this is a push-selling product, and in most of the cases, the insurance service provider has to approach and visit physically to materialize the business. For exploring new business avenues, we are trying to use technology to attract prospective customers, but in the case of renewals, we found better experience selling insurance products via this neo-technology. Payment service providers and Internet service providers have used these technologies and client bases to procure business.
The Nepal Insurance Authority is in the final stages of preparing new IT directives that will facilitate issuing digital insurance policies. It will make it easy for all stakeholders to access the insurance sector too. It will also help in reducing overhead costs, providing more accurate claim prediction and settlement, and creating a paperless working culture as well. For the people in Nepal, where access roads are limited and land connectivity is more sought, this digitalization will move our industry further ahead.
Q. How is the Nepal insurance association working towards enhancing customer trust and confidence in insurance products and services?
A : As I have already explained the functions and duties of association, we ensure the best services and trustworthy functioning of insurers. We create an environment for the adoption of new products and services. Nepal has a good scope for health insurance, whereas we still do not have TPA and other support functions. Insurers alone cannot provide all the services; rather, an intermediary in the claim services is most awaited in the form of a TPA. Web aggregators are not functioning in a proper way to assist customers; rather, they merely act like an agency. Broking is still in the infant stage in Nepal. We have more things to do to develop those intermediaries front.
We have the newly promulgated Insurance Act 2022, but we are still waiting for the insurance rules under this Act. Once the insurance rules become enforceable, the above-mentioned petty issues will be presumed to be solved. To enhance customer trust and confidence, the association, autonomous regulatory body, and concerned ministry of government will work together to move forward. We trust these 3 partite alliances will foster the insurance industry.
Q. What initiatives are being undertaken to promote innovation and product diversification within the insurance sector in Nepal?
A : For the answer to this question, from the side of the insurer, products are somehow the same within this South Asian region. The only thing different here is that we are under the tariff regime and File & Use. Our intercompany products, terms, and conditions are almost the same. Our company, SagarmathaLumbini Insurance, has launched and run VIP on the spot successfully. The literal meaning of VIP is just a vehicle insurance policy, but people perceive the name as a VIP service offered to them. We worked in the same spirit to provide the best on-the-spot settlement and did process innovation for small and non-complicated claims. By offering this product as a 24-hour service to the claimant, other insurers also foresee that the claim has to be tackled as fast as possible, and by settling the claims early, business will increase. It ultimately raised the trust of customers with insurance companies. As a result, claim settlement has improved and has been better than a few years ago.
After Corona, there is a demand for new health products from the public. To overcome this, SagarmathaLumbini Insurance Company launched a budget policy, SalicoAarogya Health Insurance, a small package with maximum benefit. This product also has a good response from the market. It has covered the risk of a personal accident, hospitalization expenses, and named critical illness.
Electric vehicles are growing nowadays in Nepal. For the comprehensive insurance need and to overcome the depreciation in the batteries, we have made an add-on product named VIP Plus. It is the writebackaddon product of the applicable depreciation expenses on a regular motor vehicle policy.
With the support of advanced technology, indexing the weather parameters, and satellite imagery, we are now experiencing some pilot projects on parametric insurance. Cost-based products will now be converted to index-based markets after obtaining good parametric and loss exposure. It will be a good paradigm shift in the Nepal market.
By taking the example above, other insurers will also have to launch new and innovative products as per the needs of the market. This will eventually lead to innovation and product diversification.
Q. What steps are being taken to enhance collaboration and cooperation between insurance companies, regulatory bodies and other stakeholders to ensure the growth and stability of the industry?
A : Association and Authority are always in synchronic activity. Authority is in the role of our guardians, and we, as players in this arena, have a good interconnectivity to the ultimate goal of this sector. The authority is always in support of this association. Whenever we face any technical difficulties, legal confusion, or need to develop a new product, we sit together and solve them with harmony. Our both entities motto are development and enhancement of the insurance sector, so all steps are taken in a very coordinated way. Our regulatory body, the Nepal Insurance Authority, is always in the role of facilitator rather than authoritative. We are more thankful for the immense support we receive from the Nepal Insurance Authority. We are always in coordination on how we can serve people through innovation, innovative products, and process simplification.
This forum always advocates for a collective voice for insurers. The association had initiated the agriculture insurance pool to meet the needs of the market at that time, we did not get reinsurance support. It is successfully operating third party motor insurance pool & micro insurance pool. This also became a successful model. This has not only taken care of risk; rather, it has supported the general public to issue policies when there was not enough loss-related data and reinsurers were reluctant to operate in these portfolios. Our intercompany collaborative model also dates back to the 9/11 event, when the international reinsurers were unwilling to cover terrorism risks. Nepal had faced armed conflict from 1998 to 2008, where the terrorism risk had to be covered but no reinsurer was willing to underwrite. At that time, insurance companies in Nepal joined hands and formed the RSDMDST pool, which later on converted into a renowned national reinsurer, Nepal Re. Each insurer operating in Nepal has its respective stake in the national reinsurer and is very successfully operating in the Nepal market.
