With the large section of the commoners still left beyond the handful of indemnified households, there are several other fireballs of risk yet uncovered within the available insurance policies and practices. Despite insurance market in Nepal dates back to more than six decades, it has been moving forward in clumsy slow pace being unable to widen out its reach at the mass level of middle class segment. Apart from those couples burning in love, tens of millions of Nepalese middle class families are yet not insured for the possible loss prevention and risk mitigation. Since investors are often reluctant to get the insurance policies considering as sowing pound to reap penny, it seems somewhat difficult for insurance to turn out to be ‘favourite charms’ at once, even as infrastructure bottlenecks and public awareness at the lower limit are impeding the sector to be cherished.
Race in the Snail’s Pace

Stakeholders are undoubtedly upset with the growth indicators, just creeping like snail since the first birth of insurance company prior to 64 years in Nepal. Insurance companies hardly ever emerge as a grown-up industry with any other standpoints beside their quantitative presence – 25 companies in the small sized economy including 8 life, 16 non-life and a twofold service provider. The industry is though pressing forward well ahead of its puberty, it seems occupying the nursery grade so far in terms of  coverage and business volume.

According to the Beema Samiti (Insurance Board), insurance regulatory authority of Nepal, the life insurance companies, on part of their insurance premium, have earned a sum of 5.82 billion rupees in the first six months of the current fiscal year 2011/12. They have received such premium selling 4 hundred 21 thousand numbers of policies in various range of products like endowment, advance payment endowment, modified endowment, whole life insurance, term life insurance, special term insurance and others.  Likewise on the part of non-life insurance, total 3 hundred 39 thousand policies are issued in the same period attaining the sum of 4 billion rupees. Major five kinds of policies on fire, marine, aviation, motors and engineering are widely popular in the non-life segment. Taking the business volume of last fiscal year 2010/11 into consideration, data shows – of the total 1.34 million policies issued up to last fiscal year 2010/11, figures of life and non-life insurance policies have scored at 7 hundred 68 thousand and 5 hundred 70 thousand correspondingly.  Life insurance companies have earned a sum of 10.45 billion rupees as premium while non-life insurance companies have made the amount of 7.17 billion rupees.

Neither authorities nor the service providers are satisfied with the prevailing market size of entire insurance business which is even less than total deposit mobilisation of a singular ‘A’ class commercial bank. ‘Insurance sector has not come across sufficient development hitherto and State policy looks as if remained focus out to cover risks of people on the breadline’, said Dr. Phatta Bahdur KC, chairperson, Beema Samiti. He has noticed the urgency of introducing packages on various social security schemes and health insurance. Seconding his views, industrialist Rajendra Kumar Khetan who is simultaneously chairing both life and non-life leading insurance companies precisely Prime Life Insurance Ltd. and Everest Insurance Ltd. said, ‘The growth in volume of total insurance premium that stood at some 18 billion rupees in last 6 decades cannot be taken as an organic growth.  Sensitising insurance can lessen the government liabilities on social security like health, education, senior citizens arrangements etcetera.’

Observation of the contribution to the national economy, insurance industry seems quite droopy with its nominal input of merely 1.31 percent to total gross domestic product (GDP) in fiscal year 2010/11. The total 17.62 billion rupees insurance premium has occupied small proportion of the GDP amounting 1.35 trillion rupees at producers' price. Similarly the number of insurance policies to population ratio does not seem notable as well. According to the preliminary result of the National Population Census 2011 released by Central Bureau of Statistics (CBS), the population of Nepal has reached 26.62 million in the year 2011. There are 5.66 million households living in 4.77 million dwellings or houses. The urban population of Nepal has constituted about 17 percent of the total population. Comparing the total 1.34 million insurance policies issued in 2010/11 with the total population shows that only 5.03 percent of population has been insured so far. In the same way the figure shows that only 29.41 percent of the urban population has its access to insurance. Insurance policy holders though may have been duplicated in some cases, are assumed as individual for each policy in these calculations. While examining the density of insurance coverage, it is found, there is only one policy holder among 4.22 families or this could be said in this way as well – Insurance in Nepal has covered just one person among each 19.96 people.

These statistical facts portray the miserable condition of insurance business in our context, contrary to what the scenario is in the global practices. ‘In India, more than 35 percent of overall population have got the insurance service and most of developed countries have their 90 to 95 percent of the population insured’, informed P.R. Mishra, director and chief executive officer, Life Insurance Corporation (Nepal) Ltd. (LIC). He added, ‘In terms of proportion to GDP, life insurance has covered some 5.4 percent in India, about 9 percent in Korea and Japan, and ultimately more or less 20 percent in United Kingdom and United States of America’.
Insurance Infrastructures:  Six Decades in Infancy

As they say, ‘Promise without premises often ends in vain’, it will not be insightful to make promise before having proper ground to fulfil it.  And as to insurance – the business of promises where one party of the contract, that is insurer  assumes particular risk of the insured party and promises to pay to him/her or his/her nominee a certain sum of money on a specified contingency – each promise costs price in a great deal. Based on large membership, insurance transfers to shoulders of all, risks attached with individuals. For this, proper infrastructures are the key to success. In Nepal, however, insurance companies are undernourished in basic premises like visionary State policy, sound capital base, optimum public awareness and availability of accurate data as well as efficient human resources. These limitations, at present, have occurred stagnation to abbreviate entire insurance industry into a midget size.

Realising the fragile capital base, Beema Samiti has recently given direction to fine tune the paid up capital structure of life and non-life insurance companies at minimum financial requirement of 5 hundred million and 2 hundred 50 million respectively till mid July 2013. ‘We think it is quite essential to strengthen risk retention capacity of the insurance companies to maximise profit and bonus rate, reducing their reinsurance package cost’, stated chairperson of Beema Samiti, Dr. KC, ‘Thus capital base must be strong and we may gradually enhance it by 2013 and afterwards too’. Insurers, in addition, regard as logical; the direction to increase capital base. ‘It sounds rational to enhance capital owing to need of efforts from infrastructure level’, said Bivek Jha, general manager, Nepal life Insurance Company Ltd. (NLIC). He pointed out the possibility of catastrophic risk coverage with sound capital base which is yet beyond the capacity of the insurers. He proposed to set up risk management committee in each insurance company that may proceed to evaluate, cover and mitigate the catastrophic risks.

Besides, State itself has not utilised the insurance schemes thus far to indemnify the social loss. To ensure the social security, government can introduce various schemes like old age insurance, disability insurance, medical insurance, unemployment insurance, civil service retirement scheme, workers’ insurance, flood insurance and so on.  ‘If insurance schemes are put into practice to mitigate social risks, it will reduced the expenditure on social security programmes’, insisted Binod Aryal, executive director, Beema Samiti. Government needs to think about bringing in such policy to cover social costs.

Data and human resource lacking are other major hurdles, quite necessary to address promptly. Due to the unavailability of accurate data, too many stones are still unturned in launching innovative insurance products. ‘In absence of organised data as regards to the households and their property, it is complicated enough to cover catastrophic risks, even though Nepal is a prone market lying in the seismic zone’, industrialist Khetan shed light on the current phenomenon. By the same token, insurance market is suffered by the inadequate technical human resources. ‘Most of students from business, finance and chartered accountancy background hesitate to join insurance’, shares Jha, general manager, NLIC. This tendency, he added, is a consequence of public awareness which is at bare minimum level. Regulators and private stakeholders often sing duet whenever the responsibility of public awareness is questioned. Despite Beema Samiti has included few portion of insurance education in the school level course, it seems inadequate to produce fit and proper human resources to uplift the industry. In a bid to develop skilled workforce sufficiently, ‘Beema Samiti is planning to run an Insurance Academy as a training hub in coming days’, informed executive director, Aryal. Once the academy will come into operation, it is believed, it will promote both the technical human resources and the public awareness.
Insure as Investment Instrument

Insurance is neither gambling, nor charity. At personal level, it deals with buying contract of promise as an instrument of investment to cover possible loss in future. At national level this industry generates funds for long term investment. The case however in Nepal is quite different where most of the insured have acquired the policies as a part of force selling marketing. In same way, funds collected as premium is almost locked as the term deposits in various banks and financial institutions. ‘People seem to consider less value of life in developing countries as compared to the advance economies. This tendency may be one of the reason hindering the expansion in insurance habit’, examined P.R. Mishra, director, LIC.

Due to the notable inflation rate levelling at double digit and attractive rate of return in bank deposits, not many investors are convinced to utilise insurance policy as the tool of investment. ‘Insurance is itself not insured as an investment instrument for financial and soul security’, opined industrialist Khetan. It is though provisioned in the Income Tax Act that one can rebate the paid life insurance premium up to 20 thousand rupees per year while determining his/her taxable income, lots of salaried people are yet to come under the hood of insurance. Bibek Jha, general manager, NLIC urged the authorities to raise the threshold up to 50 thousand rupees to promote life insurance. But the logic of the concerned authority seems quite interesting. Dr. Phatta Bahadur KC, chairperson, Beema Samiti explained, ‘In average we found life insurance policies purchased so far worth at the range of 80 to 90 thousand rupees each that costs 5 to 6 thousand premium per year. A client holding a policy of 500 thousand is obliged to pay 15 thousand 6 hundred and 62 rupees only per annum. In this context, relaxing the threshold come out as simply facilitating the upper class accordingly.’

Experts and the authorities are putting stress on the investment diversification of the insurance companies in these days. Observation of the investment portfolio of 25 insurance companies indicates that they are heavily relying on the fixed deposit schemes of various banks and financial intermediaries. Of the total 41.37 billion rupees investment of the life insurance companies, 23.63 billion is deposited in fixed deposit of commercial banks, 2.32 billion and 1.52 billion is deposited at fixed deposit of development banks and finance companies respectively. Life insurance companies have invested their 12.18 billion funds in government bonds and development bonds. Similarly, the investment of non-life insurance companies totalled at 7.60 billion rupees,  of which 4.18 billion, 676 million and 424 million is  deposited at fixed deposit of commercial banks, development banks and finance companies consecutively. Non-life insurances have their investment of 1.39 billion in development and government bonds. In view of these concentrated investments in financial sector, Beema Samiti is all set to amend shortly, its directive on investment. Following the upcoming amendment, government will have chance to channel necessary funds from the insurance sector at the priority projects of national pride at the same time as the investment year 2012-13 is on celebration. ‘Insurance companies may possibly invest in tourism, hydropower, health, education sector but above all is transparency and absence of vested interest’, insisted Dr. KC, chairperson, Beema Samiti.
Governance at the Ground Floor : Robust Regulatory Regime Requisite

‘Insurance companies are indeed not functioning in public manner, notwithstanding they are public entity in corporate legal personality’, said Binod Aryal, executive director, Beema Samiti, revealing what exists as present status of corporate good governance that of intact insurance business. Mostly, managements in the insurance companies have come into sight, overruled by the non-professional directors holding major portion of the equity shares whereas chief executives and general managers are spellbound to perform in their tune accordingly. Regulatory surveillance of those companies has hinted such details. Insurance companies promoted by the business houses are often alleged for surge in their business through covering the risks of their own companies in the chain. They are also supposed to carry out fast-track settlements in case of claims those of their own group of companies. Quite annoyed with these sorts of malpractices, Beema Samiti is likely to issue a directive for internal corporate good governance in the insurance market. ‘Trying to eliminate all forms of non compliances in the insurance market, we have commenced on-site inspection of all 25 companies annually since this fiscal year’, informed executive director, Aryal.

Meanwhile, Beema Samiti has prepared a proposed draft for amendment in the existing Insurance Act 1992 to incorporate various up-to-date aspects of insurance business and its regulatory approaches. Sharing some salient features of the draft amendment, Dr. Phatta Bahadur KC, chairperson, Beema Samiti informed that it will include the minimum paid up capital requirement for operating insurance and reinsurance companies, minimum qualifications, fit and proper criterion for the promoters, establishment of an Insurance Authority with regulatory and supervisory powers up to imprisoning the financial criminals, oversight to prohibit the cross holding business or insurance of related parties and so on. In the amendment, paid up capital requirement of 1 billion, 2 billion and 5 billion rupees is proposed for establishing a non-life insurance company, a life insurance company and reinsurance company respectively.

Success of indemnity coverage depends upon the law of large numbers where the probable risks of associated members are distributed evenly in cooperative form. But while there are few heads to rein the business in their vested interest, insurance possibly will not provide proper protection to its insured members. Undue promises though sold through the fascinating marketing schemes, protection in real sense is not guaranteed unless the benefits are equally shared to all the participants. Just hedging at words or promising the earth does not attain credibility and insurance–the business of promises do not flourish exclusive of credibility. Hence, the regulatory regime in coming days should be insightful, able to intervene promptly to maintain integrity in the market. Proactive role to maintain prudent norms and streamlining supervisory system should be the essence of regulation. Regulatory body should have authority to penalise the intentional players in the market operating the business disorderly.
Insurance in the Crossroads

For insurance business in Nepal, it is time to act an age and this could only be done ensuring the spectacular rise in its reach, density of coverage and volume of business. Identification of new and innovative products to cover the lower middle class segment and expansion of risk retention capacity of the market to absorb more return is quite essential today for the record growth. Underpinning micro insurance for business expansion and instigating a reinsurance company to widen the retention capacity of Nepalese market could be resultant to success. 'Nepal should seek the opportunity to bring a reinsurance company in partnership at regional level such as South Asian countries to Asia Pacific countries. This could bring the business from the promoter countries to sustain the reinsurance', suggested P.R. Mishra, director, LIC.  While almost 50 percent of the total premium of the non-life insurance companies is ceded to foreign reinsurance companies, Nepal has been remained as a lucrative market for a reinsurance company. 'Reinsurance company can support for the foreign exchange reserves as well', opined Bir Bikram Rayamajhi, chief executive officer, United Insurance Ltd. He is also the former deputy governor of Nepal Rastra Bank. Moreover, the reinsurance company can assist the local insurers to launch various need based insurance policies in our own context.

Micro insurance coverage like seasonal crop insurance, cattle insurance is not brought into service due to the denial of reinsurance companies overseas to cover the potential loss. Those companies have denied so showing the reason of lacking proper data in such regard. 'Our board has approved different six types of micro insurance products on crop and cattle insurance but none of the companies are able to launch these products in the absence of reinsurance support', informed executive director, Aryal. Hence, in an effort to facilitate micro insurance, Beema Samiti is working for the arrangement of a micro insurance pool right now for next 3 years period. The pool is proposed to have 50 million rupees fund, of which 50 percent investment from the State and rest of the investment from the non-life insurance companies will facilitate in the first phase. Once all the necessary data are composed regarding seasonal crops and cattle farming, such as production rate, production status per household, types of diseases, mortality rate of the livestock etc, these types of products will get reinsurance facilities anywhere and the pool will get dissolved. Small insurance coverage seems essential for sustainable growth of the industry, first to develop micro level accessibility of indemnity service and secondly for hedging the risk associated with concentrated large sized exposures of the insurance companies.

Written and Edited by Amrit Kharel