1. How has the regulatory landscape for the insurance sector evolved in Nepal during the last few years?
The regulatory landscape for the insurance sector in Nepal has undergone significant evolution in recent years, reflecting the commitment to robust governance and enhanced oversight. The journey began with the establishment of BeemaSamiti(Insurance Board) as a separate regulator for the insurance sector in May, 1969, according to the Insurance Act of the same year. It was repealed by Insurance Act, 1992 (December, 1992).
However, a remarkable milestone occurred with the enactment of the new Insurance Act in November, 2022. This marked the transformation of BeemaSamiti(Insurance Board) into the Nepal Insurance Authority (NIA), signifying a comprehensive shift in the regulatory framework. The new Act introduces clear provisions outlining the establishment, functions, duties, and powers of the Authority, while also addressing licensing, regulation, supervision, and monitoring of insurance business, insurance intermediaries and other insurance service providers.
A notable aspect of this evolution is the empowerment of the NIA. The new Act grants increased power and autonomy to the Authority, reinforcing its role as a key regulatory body in shaping the insurance landscape. Provisions pertaining to problematic insurers, insurance claims, complaints, as well as actions, offenses, and punishments in case of violation of the Act and/or regulations are now clearly articulated.
In essence, the regulatory framework has matured, providing the NIA with the tools and authority necessary to foster a sound, transparent, and dynamic insurance sector in Nepal from a new perspective.
2. In your view, what are the current challenges and opportunities facing the insurance sector in Nepal?
The insurance sector in Nepal is currently navigating a dynamic landscape characterized by a blend of challenges and opportunities.One of the noteworthy challenges in the Nepalese context revolves around adhering to regulatory requirements and adapting to changes in the regulatory environment. As such, striking the right balance between compliance-based supervision and risk-based approaches requires a thoughtful and strategic approach. Another prominent challenge is technological integration since the insurance industry is grappling with the integration of new technologies. While there is immense potential for efficiency gains through technologies and real-time software, the adoption process has been quite challenging for the regulator as well as traditional insurance companies.Insurance fraud and moral hazard also pose significant challenges to the Nepalese insurance sector, aggravated by the absence of a robust mechanism for detection and prevention. The lack of effective tools to identify fraudulent activities, such as falsified information and staged accidents, threatens the industry’s integrity and financial health.
In this context, the ongoing digital transformation presents a significant opportunity. Embracing digital channels, including online platforms and mobile applications, can enhance customer experiences and accessibility to insurance products.
A particularly promising opportunity is the development of Microinsurance. In a recent stride, we have issued licenses to seven microinsurance companies. This development opens up a noteworthy prospect for tailoring microinsurance products to meet the specific needs of low-income individuals and rural communities, thereby contributing to a tangible increase in overall insurance penetration.
Additionally, there is a ray of hope with the introduction of the new Insurance Act 2022, which includes provisions for the establishment of an Insurance Information Centreto collect, integrate, and organize information within the insurance sector. While not a remedy, it offers a potential avenue to control fraudulent and falsified claims by enhancing data analysis and risk management capabilities within the industry.
In summary, while challenges persist, the insurance sector in Nepal has substantial opportunities for growth through strategic innovation, digitalization, and collaboration. Successful navigation of these dynamics will be crucial for the sector’s sustainable development and resilience.
3. The insurance penetration in Nepal has declined in comparison to the ratio in 2021/22. Any specific reasons for the decline? Is the Authority taking any measures to increase the penetration, promote financial inclusion and reach out to the last mile?
Yes, indeed, the decline in insurance penetration has decreased from 3.60% in FY 2021/22 to 3.40% in FY 2022/23, which is a notable trend. Two primary factors contribute to this shift.
Firstly, the ongoing global economic crisis has exerted pressures on various sectors, including insurance. Economic uncertainties often lead to reduced consumer spending, impacting the overall gross premium to GDP ratio, which is the insurance penetration in this context.
Secondly, the ongoing mergers among insurers have played a role in this decline. As insurers are actively engaged in data migration, system integration, workforce management and regulatory compliance among others, due to mergers, their focus has been redirected, impacting business activities. The transitional phase of mergers has temporarily affected the momentum of new business generation.
In response, the Nepal Insurance Authority is actively addressing this situation. We are exploring strategic measures to counteract the decline and stimulate growth. Initiatives include enhancing consumer awareness campaigns across different local levels, audio-video advertisements as well as radio programs, promoting innovation in insurance products and exploring opportunities for microinsurance to reach underserved communities.
Moreover, as the mergers conclude and insurers settle into their newly integrated structures, we anticipate a positive impact on the industry’s growth trajectory. Our commitment to fostering financial inclusion and reaching the last mile remains persistent, and we will continue to implement measures to strengthen insurance penetration and contribute to the overall economic resilience.
4. Nepal is the 11th most earthquake prone country in the world. Frequent earthquake poses risk of huge loss of life and property. Risk management and safety awareness among all the stakeholders including consumers will be a key to reduce impact of disaster, help to safeguard business loss and compensate loss of life. Is the Authority making any concerted efforts to increase awareness with the help of Insurers’ Association and other stakeholders?
Absolutely, recognizing the seismic risks faced by Nepal, the Nepal Insurance Authority is actively engaged in concerted efforts to enhance risk management and safety awareness. We understand the importance of collaborative initiatives in this endeavor and are working closely with the Insurers’ Association and various stakeholders.
For this, we have issued a new Property Insurance Directive in October 2023 for protection against diversified risks including earthquake.Our focus extends beyond traditional insurance functions and we are committed to fostering a culture of proactive risk mitigation. Through joint efforts with insurers, we are implementing awareness campaigns that educate both businesses and consumers on fundamental aspects of insurance in the face of earthquakes. This includes promoting measures to enhance structural resilience, emergency preparedness, and the importance of comprehensive insurance coverage.
Moreover, we are leveraging various communication channels to disseminate vital information on safety protocols and risk reduction practices. Collaborative workshops, seminars, and community engagement programs are integral to our strategy in building a resilient society that is well-informed and prepared to mitigate the impact of seismic events.
By working hand in hand with insurers’ associations and other stakeholders, we aim to not only raise awareness but also empower individuals and businesses to proactively manage risks, ultimately contributing to the overall safety and resilience of our communities in the face of seismic challenges.
5. Trust of policyholders play an important role in the insurance business. We see trust deficit as one of the major challenges before the insurers. Does the Authority plan to engage with the Insurance companies and other stakeholders to reduce the trust deficit and ensure that mis-selling does not take place and claims are paid in time bound manner?
Absolutely, building and maintaining trust within the insurance sector is of paramount importance for the sustainable growth of the industry. The Nepal Insurance Authority recognizes the significance of addressing the perceived trust deficit and is actively committed to fostering transparent and accountable practices within the sector. To address these concerns, we have implemented robust Complaint Redressal mechanisms through a dedicated Complaint Handling Unit. Additionally, we work closely with insurance companies, directing them to consider various factors prior to policy issuance to minimize mis-selling.
Acknowledging that the trust deficit is often worsened by delays in claim payments, we have issued comprehensive Claim Payment Guidelines to facilitate quicker settlements. However, we acknowledge the challenge of preventing fraudulent claims, and we are continuously refining our strategies to ensure that legitimate claims are honored promptly while safeguarding against fraudulent activities. Through these proactive measures, we aim not only to mitigate the trust deficit but also establish an environment where policyholders can have confidence in the fairness and efficiency of the insurance process, contributing to the overall credibility of the insurance sector in Nepal.
6. What mechanism is currently in place for the Redressal of consumer complaints?
In our commitment to ensuring a transparent and consumer-centric insurance environment, NIAhas implemented an effective mechanism for the redressal of consumer complaints. At present, we operate a dedicated Complaint Handling Unit tasked with overseeing and addressing complaints filed at the NIA. This unit plays a critical role in managing and resolving complaints involving insurers, agents, surveyors, and other relevant parties.Moreover, the Complaint Handling Unit not only addresses individual complaints but also processes them for a final decision from the Board of Directors, particularly in cases related to claims.This ensures that each complaint undergoes a thorough review and is adjudicated at the highest level, contributing to a fair and impartial resolution process.
7. How do you see the role of digital transformation in shaping the future of the insurance industry in Nepal?
The role of digital transformation is pivotal in shaping the future of Nepal’s insurance industry. We are currently experiencing a transformative shift where digital technologies enhance customer experiences through accessible online platforms, which has been adopted by many of our industry players. This not only fosters personalized services but also addresses challenges related to market penetration, particularly in remote areas.
Furthermore, the NIA is actively working on the implementation of Insurance Regulatory Management Information System (IRMIS), a software designed for the integration of overall data and information received from insurers on a daily, monthly, quarterly, and annual basis. This initiative aims to streamline and enhance data management processes, fostering efficiency and accuracy within the industry.
In addition to IRMIS, the NIA has introduced e-services, including online agent registration and surveyor license registration. These digital advancements not only simplify administrative processes but also contribute to the modernization of the insurance sector, aligning it with global industry standards.
In essence, digital transformation, coupled with initiatives like IRMIS and e-services, is instrumental in refining processes, reaching untapped markets, and ensuring the industry’s relevance in Nepal’s evolving landscape. Looking ahead, NIA is committed to a future characterized by more technology-driven, automated, and paperless services to ensure seamless integration, further enhancing the industry’s efficiency and responsiveness to the evolving needs of stakeholders.
8. How is the Nepal Insurance Authority fostering innovation in insurance products and services to meet the evolving needs of customers?
At the Nepal Insurance Authority, fostering innovation is a core priority to ensure that insurance products and services align with the dynamic needs of our customers. We have undertaken several initiatives to promote innovative offerings, including recently developed micro insurance products that cater to the specific needs of low-income individuals and rural communities. Moreover, recognizing the unique challenges in agriculture, we have introduced index-based agriculture insurance products to provide farmers with more reliable and efficient coverage.
In line with our commitment to addressing diverse agricultural practices, we’ve expanded our portfolio to include specialized agriculture insurance products for herbs such as Sichuan pepper and mint. Furthermore, our endeavor extends to supporting farmers engaged in cultivating exotic fruits like dragon fruit and kiwi, offering tailored insurance solutions that consider the specific risks associated with these crops.
9. Any plans to introduce new channels of distribution like insurance brokers, third party administrators for claims settlement or any other distribution network in near future?
At the Nepal Insurance Authority, we are actively exploring avenues to enhance the distribution channels within the insurance sector. Recognizing the evolving landscape and the need for diversified options, we have already taken substantial steps in this direction.
We have recently licensed 14 insurance brokers, marking a significant move towards broadening the distribution network. The introduction of brokers serves to provide a valuable intermediary role, connecting insurers with a broader range of consumers and facilitating a more personalized approach to insurance solutions.
Additionally, we are exploring the possibility of involving third-party administrators for claims settlement in order to streamline and expedite the claims process, ensuring a smoother experience for policyholders during critical moments.
Furthermore, we remain open to evaluating and potentially introducing other innovative distribution networks that align with the industry’s growth and evolving consumer needs. Our goal is to create a robust and inclusive framework that not only meets regulatory standards but also fosters healthy competition and customer-centric practices within the insurance sector.
10. What is your vision for the future of the insurance sector in Nepal and how do you see the role of the Nepal Insurance Authority in achieving that vision?
Our vision for the future of Nepal’s insurance sector revolves around creating a dynamic, inclusive, and technologically advanced industry that meets evolving societal needs.
In the pursuit of this vision, we are currently overseeing mergers among insurers to maintain a healthy market structure. Beyond increasing companies’ overall net worth, this initiative enhances their risk-bearing capacity. Insurers are actively working towards meeting the increased paid-up capital requirements, set at Rs. 5 billion for life insurers and Rs. 2.5 billion for non-life insurers. This initiative is pivotal in establishing a stronger capital base, fostering a more robust industry, and enabling a smoother transition to risk-based approaches of capital and supervision. At present, the number of life insurers has been streamlined to 14 from the previous 19, while the number of non-life insurers has undergone a similar consolidation, reducing to 14 from the earlier 20.Additionally, the sector includes 2 reinsurers and 7microinsurers.
Integral to our vision is the strengthening of consumer protection, exploration of microinsurance for underserved communities, and the promotion of fair industry practices. In essence, the Nepal Insurance Authority is persistent in driving positive change, collaborating with stakeholders, and leveraging technology through a comprehensive full-scale digital transformation, exemplified by the ongoing implementation of IRMIS, ensuring operational efficiency, thereby implementing progressive regulations to realize a resilient, customer-centric, and innovative insurance sector in Nepal.
11. Is there any message or insight/ new initiative of the Authority, you would like to share with the readers of “The Insurance Times”?
Certainly, and I appreciate the opportunity to share some insights with the readers of “The Insurance Times.” At the Nepal Insurance Authority, we are committed to driving positive change and fostering innovation within the insurance sector.
One notable initiative involves overseeing mergers among insurers to ensure a healthy market structure. Moreover, we are focused on strengthening consumer protection mechanisms, exploring microinsurance opportunities for underserved communities, and ensuring fair industry practices as well as adopting international best practices such as Risk Based Capital (RBS) and Risk Based Supervision (RBS). Embracing technology is at the forefront of our efforts.
In addition, I am pleased to share that the Nepal Insurance Authority hosted the ‘Asian Insurance Meet 2023,’ a three-day conference held in cooperation with IAIS, ADB, and A2ii from 8th to 10th June, 2023, in Kathmandu, Nepal. The conference centered around the theme ‘Building Resilience of Insurance towards Emerging Risks.’
Looking ahead, in October 2024, the Authority is set to host the International Conference on Inclusive Insurance in cooperation with Munich Re Foundation and the Microinsurance Network. These conferences provide valuable platforms for collaboration, knowledge exchange, and shaping the future of insurance on a global scale.
In essence, the Nepal Insurance Authority is dedicated to steering the industry toward resilience, innovation and customer-centric practices. We invite readers to stay tuned for updates on these initiatives through our official website and participate in the ongoing transformation of Nepal’s insurance landscape.
