As Covid-19 continues to upend the economy, the insurance sector’s performance remains a mixed bag. Insurance companies observed a growth in profit and premium collection while the insurance coverage expanded to a larger population. Non-life insurers registered windfall gains from low motor claims thanks to lockdowns that put vehicles off the road. The pandemic accelerated the insurance sector’s shift towards digitisation. However, the spread of coronavirus also led to a decline in their business from some sectors that were hit hardest. Above all, the delay in the settlement of Covid-19 insurance claims risks eroding the trust of the public towards insurance companies. Though the Covid-19 insurance was a faulty policy from the first, the government, insurance companies and its regulator now must work together to settle all claims to maintain the public’s trust in the insurance business. Building on the progress achieved during the pandemic, the insurance industry can tap into the immense potential Nepal’s market holds.

--BY MILAN BISHWOKARMA

The Covid-19 pandemic that broke out in late 2019 hit almost all sectors as it did its utmost to upend the global economy.

While the pandemic ravaged the tourism and leisure sectors such as hotels and travel businesses, industrial and financial sectors were also severely affected by the spread of the novel coronavirus and subsequent containment measures introduced by the government.

However, the insurance business, considered to be a part of the financial sector, observed a growth in Nepal during the pandemic.

The global pandemic had a huge impact on the overall economy of the country. Growth contracted by 2.09 percent in the fiscal year 2019/20. While the national economy continues to suffer, the insurance sector’s performance remains a mixed bag.

The insurance data of the past two years would suggest that the pandemic has not dealt a big blow to the insurance industry like it did to the other sectors of the economy.

Life insurance and non life insurance witnessed a constant growth even in the midst of the pandemic. However, the pandemic and containment measures weighed heavily on some areas of the insurance sector, namely in tourism, hotel and hospitality. Due to the prohibitory orders and lockdowns enforced to curb infections, insurance companies couldn't conduct any activities to expand their business. Despite the series of prohibitory orders, the overall business witnessed a constant growth. The growth rate of the insurance business, however, declined as the non-life sector suffered a negative growth to some extent.

In the life insurance segment, the premium collection jumped 29.51 percent and 29.45 percent in the fiscal year 2019/20 and 2020/21 respectively. Before the onset of the COVID pandemic, life insurance premium collection had increased by 38 percent. Though the growth rate has declined, the premium collection still went up by double digits during the pandemic.

At present, there are 19 life insurance companies. They collected a total of Rs 91.7 billion in premiums in the fiscal year 2019/20 and Rs 118 billion in 2020/21.

Also, in the non-life insurance segment, premium collection rose by double digits i.e. 14 percent in the fiscal year 2019/20. In the previous year, it had increased by only 8.22 percent compared to a growth rate of 14.7 percent in the previous year.

Similarly, the reinsurance business also registered a positive growth. Nepal Reinsurance Company, the only re-insurance company in operation in the country till recently, saw a rise in premium collection by 10 percent in the fiscal year 2019/20 against an increase of 31 percent in the fiscal year 2020/21. It collected a premium of Rs 7.27 billion in 2018/19, Rs 8.1 billion in 2019/20 and Rs 10.51 billion in 2020/21. This amount also includes premiums collected from abroad.

Premium collection is considered as an indicator to measure the growth of the insurance industry. Likewise, the profit earned by insurers is also taken as a measurement of their performance.

During the COVID pandemic, almost all life insurance, non-life insurance and re-insurance companies were able to maintain their profitability. However, it was not only their core business that helped them to register a profit. The interest earned through banks remained a major source of income for the insurance companies. As the interest rate remained at a low level during the pandemic, their interest income from the funds that they were parking in fixed deposit accounts in the banks was also going to decline. But, insurance companies decided to tap into the soaring stock market. This investment not only offset the loss from interest income from banks, but also helped in sustaining their profits.

Although the growth rate has somewhat slowed down, insurance companies’ profits continued to rise during the pandemic.
Profits of life insurance companies increased by five percent in the fiscal year 2019/20 when coronavirus first started to spread across the country. In the fiscal year 2020/21, profits rose further by 12.41 percent.

However, the profit growth of non life insurance companies fell to 7 percent in the last fiscal year 2020/21 from 12.41 percent in the previous fiscal year 2019/20.  

After registering a profit growth of 5 percent in the fiscal year 2019/20, Nepal Reinsurance Company’s profits fell by 6 percent in the last fiscal year. The decline in profits is attributed to the payout to insurance companies for the settlement of Covid-19 insurance claims. The reinsurance company had to fork out Rs 1 billion in Covid-19 insurance settlements. The profit is based on unaudited financial statements and is likely to be revised upward after the final audit and actuarial evaluation.

From the growth in profit and premium collections maintained by insurance companies, experts tend to conclude that the insurance sector has so far weathered the health crisis and the economic fallout of the pandemic. But, they also say that the insurance sector was not completely immune to the pandemic.

While insurance companies in other countries are scrambling to settle claims due to the high mortality rate caused by the pandemic which could hit their bottom line, Nepal’s life insurance companies report very few death claims linked to the pandemic.

Surya Prasad Silwal, Chairman of the Insurance Board, views that the insurance sector has not been affected that much by the pandemic.

Poshak Raj Poudel, Vice President of Life Insurers Association of Nepal and Chunky Chhetry, General Secretary of Nepal Insurers Association, echo the comments of the Chairman of the insurance sector’s regulatory authority.  They say that the insurance policy introduced for the pandemic helped in driving up the insurance coverage to 25 percent of the total population.

Currently, there are 19 life insurance companies, 20 non-life insurance companies and one reinsurance company in operation. Another reinsurance company was only recently issued an operating licence.

Insurance is a business that provides financial protection from the loss of lives and assets. As the pandemic claimed millions of lives and destroyed businesses and livelihoods across the world, more people have realised the importance of a financial safety net. The growing realisation highlighted by the pandemic about the need to safeguard oneself from the risks and losses or damages from unprepared--but probable--contingencies attracted more people towards insurance coverage, says Poudel.

Not only did the insurance service offer financial protection for people and businesses from possible losses, the insurance industry was also able to provide employment opportunities for hundreds of people who lost their jobs to the pandemic, say insurance executives.

“Many people who lost employment because of COVID started jobs as insurance agents which helped in the expansion of the insurance service. In normal times, they would have had difficulties visiting and meeting people to convince them to buy insurance policies. They found it an opportune moment to talk with people who were confined to their homes to increase the insurance business,” says Poudel, who is also the CEO of Citizens Life Insurance Company.

He further says that the savings that many people had due to the lockdown also helped boost the insurance business. “Of course, there are many who lost their jobs or saw a decline in their income. But, there were also some people who had accumulated savings as they could not spend anything on holidays, travel or dining out, and, therefore, thought it wiser to invest in insurance policies to insure themselves, their family members and their properties,” he says.

Chunky Chhetry says that the performance of the insurance sector remained fairly good during the pandemic.

“COVID-19 came with risks. When people see a risk coming nearer, they tend to hedge such risks and safeguard themselves. The growing risks caused by the pandemic prompted people to get coverage from insurance to the extent of the losses that they foresaw,” says Chhetry. According to him, if the government had increased its development expenditure during Covid-19, the insurance business would have increased further. According to Chhetry, who is also the CEO of Sagarmatha Insurance Company Ltd, the insurance business that the tourism sector, infrastructure development and leisure activities generate took a hit during the pandemic.

Non-life insurance companies were also able to reap some windfall in profits due to a drop in the claims of motor insurance. Containment measures including prohibitory orders and lockdowns due to Covid-19 is said to have lowered motor insurance claims during the pandemic as drivers and vehicles remained off the road due to the prohibitory orders and lockdowns to contain the spread of coronavirus, point out industry insiders.

Shift Towards Digitisation
The pandemic not only brought a rise in the insurance business but also accelerated a shift towards the digitisation of the operations of insurance companies.

While the previous efforts made to digitise the sector had not brought any tangible effects with digitisation plans remaining limited to paper, the pandemic became a catalyst for the digitisation that insurance executives were seeking for.

"We were successful in shifting to digitisation due to the pandemic,” says Poudel. He cites recent provisions to issue insurance policies digitally. Ending the requirement to be physically present, the Insurance Board now allows insurance companies to issue insurance policies in a digital way. Similarly, the underwriting works are also carried out digitally.

"Nearly 80 percent of insurance works have already been digitised, an achievement that can be largely attributed to the pandemic," says Poudel.

Some Portfolios Hit Hard
While insurance companies were able to expand their business even during Covid-19, they have, however, seen the pandemic impacting some portfolios. Insurance executives say that they have lost the business they used to get from tourism, hospitality and leisure sectors which together form a big part of their business. As flight insurance, travel insurance and motor insurance got hit hard, they could not get much business out of them even after offering a huge discount on their premiums.  

In terms of the life insurance segment, the number of policy surrenders and lapses also increased. In the last fiscal year, insurance policies worth Rs 10 billion were surrendered. The pandemic is said to have been a factor that led to the spike in policy surrenders.  

Insurance Board Chairman Silwal says that efforts are underway to reduce the number of policy surrenders.

 Losses from interest income due to low deposit rates was another factor that squeezed the profit of insurance companies. Insurance companies invest a chunk of their funds in the fixed deposits of banks, which are considered to be safer and a more liquid investment. The pandemic also hit the business expansion drive of all insurance companies. Poudel says business expansion programmes like expansion of branches, training programmes for employees and agents and awareness programmes were halted due to the pandemic.

Covid-19 Insurance Controversy  
Though insurance companies put Covid-19 policies as a priority product at the beginning of the pandemic, the settlement of claims has now become a major headache for them. Insurance companies, upon the approval of the Insurance Board, had introduced Covid-19 insurance policies when there were very few cases of infections in the country. All 20 non-life insurers and Nepal Reinsurance Company had started the Covid-19 insurance scheme through a microinsurance pool in 2021.  As reflected in their promotional activities, life insurance companies tried to cash in on the public's growing fear of being infected and the possible financial loss.

The Covid-19 insurance policy gained such an attraction that insurance companies were able to sell thousands of policies. But as Covid-19 cases surged, so did the insurance claims, and the insurance companies started to get overwhelmed by the Covid-19 claims. Then, the Insurance Board decided to ditch the Covid-19 insurance policy on Bhadra 28, 2077. However, the policy was resumed after the government assured it would bear the compensation costs if they went over Rs 3 billion. Under the arrangement, the Insurance Board agreed to bear a liability of Rs 1 billion, Nepal Reinsurance Company (Rs 1 billion), microfinance pool (Rs 1 billion) and the catastrophic fund of non life insurance companies (Rs 500 million). A panicked public started to purchase Covid-19 insurance policies as the pandemic continued to rage. In line with the rise in Covid-19 cases, insurance companies received claims for astronomical amounts.

According to the Insurance Board, the total claims for Covid-19 insurance stand at Rs 13.14 billion.

Out of the total, the insurance sector (that includes Insurance Board, reinsurance company, microinsurance pool and non-life insurance companies) has already paid off Rs 3.5 billion. However, the government has not yet released the Rs 9.62 billion required for the settlement of the claims as it had promised. The government’s delay to release the fund for the settlement has resulted in a backlog of thousands of claims. The backlog has tarnished the reputation of the insurance companies. This dilly-dallying of the settlement process has been interpreted by the public as an attempt by insurance companies to shirk their liability, while the insurers say that they have already fulfilled their obligations and it is now the government that has to fulfil its part.

For many, the Covid-19 insurance policy is itself flawed. They say that the insurance is not one that covers any type of pandemic anywhere in the world. Against the insurance principle, Nepal’s insurance regulator prodded insurance companies to come up with an insurance policy for the pandemic. And the Insurance companies obliged.

Rabindra Ghimire, an insurance expert, says that introducing the Covid-19 insurance policy was a bad decision by insurance companies and the regulator, one taken without making a true assessment of the possible claims.

This insurance policy has now been stopped. However, the issue of the settlement of claims has not yet been resolved. While insurance companies say that they cannot fully pay off the nearly Rs 9 billion in settlement claims, the government has turned a deaf ear to their requests to release the funds required for the settlement.

Silwal admits now that it was the wrong decision to introduce the insurance policy to provide coverage for the pandemic. He says that both the Insurance Board and insurance companies were at fault for rolling out the Covid-19 insurance product.

“It was all our fault. But, it should not be a blame game anymore. This is a big lesson that we can all learn from,” says Silwal. “We have provided the Ministry of Finance some alternatives to resolve this problem. The ministry is also positive. Let’s hope all those who have made eligible claims will receive the compensation,” he says.

Challenge to Regain Trust
Nevertheless, the Covid-19 insurance policy has helped in expanding access to insurance in the country. “There was an overwhelming response to the Covid-19 insurance policy. As more and more people signed up for the insurance coverage under this policy, there was a huge expansion of the insurance population coverage,” Silwal says.

“But, reluctance to settle the insurance claims has tarnished our reputation. Our efforts will now be on rebuilding the reputation of the insurance sector or regaining the trust,” he says. He also says that the intention of insurance companies is not to evade their liabilities. “If that was the intention, why would insurance companies pay Rs 5 billion in compensation for the claims so far? They are honestly paying compensation for claims for other insurance policies. Since the remaining claims are the liabilities that the government had agreed to bear, there has been a delay in the settlement,” Silwal says.

Chunky Chhetry says that the government should immediately release the funds to settle the claims swiftly. “When we realised that it was beyond our capacity to handle the claims due to the surging Covid-19 cases, we were of the view of stopping the further issuance of the coronavirus insurance policy. However, we decided to resume this policy when the government made a commitment to bear the liabilities exceeding Rs 3 billion,” he says. “So, we cannot settle the claims anymore on our own. The government must play its role now like a reinsurer,” he says.

Concerns of an Erosion of Trust in Insurance
Many policyholders are fed up with the long delay and hassles that they have been facing to get the compensation. The reluctance or delay from the part of the insurance companies to provide compensation against the claims for the policies for which they have received premiums has been eroding the public trust towards insurance companies. As the insurance business survives on the confidence of policy holders and the public, any erosion of such a trust will have a consequence on the overall insurance sector, according to experts. This will also have an impact on the expansion of insurance coverage. Insurance coverage saw a huge amount of interest after the earthquakes in 2015. There were expectations that the pandemic would also encourage people to get insurance coverage. But, the delay in the settlement of claims is now likely to act as a deterrent against buying insurance policies.

Importance Reinforced
With Covid-19 cases subsiding, the insurance market is also gradually returning to normality. While insurance companies’ executives hope that crises like natural disasters attract people to insurance, they could also put pressure on the financial performance of the insurance companies. Such natural disasters trigger insurance claims.

Insurance sector leaders say that the performance of the various companies is now getting better as the pandemic’s impact is becoming less severe. As the government has intensified the vaccination drive, the insurance sector is moving ahead in a normal way, say leaders of the insurance industry.

Poudel says he worries the business may not rise significantly after the pandemic.

“The overall trend after Covid-19 is positive. But, I think there is no  possibility for huge growth in the business once the pandemic ends completely. As savings could decline with spending going up, there will be an impact in the growth of the business for insurance companies,” he says.

According to Poudel, insurance companies are implementing their plans and policies that they had formulated before the pandemic. He says that companies are implementing their previous plans and policies rather than coming up with new policies post pandemic. "Companies have resumed their training of employees and agents, awareness programmes and expansion of branches. Lately, they are also doing homework to introduce new products," he says.

Scope for New Policies
The pandemic has also highlighted the importance of bringing out two additional insurance policies in Nepal, according to experts. As many people lost their jobs or livelihoods and businesses faced unexpected losses, insurance companies should now come up with unemployment insurance policies and business interruption insurance policies to cover such risks, they say.

Unemployment insurance payments provide temporary financial assistance to those workers who lose employment and cannot get reemployment opportunities for some time and to business organisations during periods when business cannot be carried out as usual due to an unexpected event. As there are no such policies in Nepal, many individuals and businesses faced huge financial losses during the pandemic.

Insurance expert Ghimire, who is also the chairman of Nepal Reinsurance Company, says that insurance companies can also introduce similar products in Nepal once feasability studies are carried out.

Business Case for Health Insurance
Currently, the health insurance service has been implemented as a government programme while some insurance companies provide health coverage under their various products.

As a result, health insurance policy has not been very effective. Chunky Chhetry says that health insurance policy has the potential to become a commercial product.

“There is huge business potential for health insurance in Nepal. However, this cannot be run under the current form by the government where even the common cold or cough becomes a reason for the claim. Rather than making a claim for such general health conditions, it can be implemented in a way that provides coverage for the hospitalisation or claims for real medical expenses,” he says. By paying a certain premium fixed by the government, policyholders can get certain coverage, he says, adding that the health insurance policy can be implemented in a way where policyholders can get more coverage by paying higher premiums.

Regulator’s Role
Despite a history of seven decades, Nepal’s insurance industry has not been able to take off in the true sense.

The first insurance company, Nepal Mal Chalani Tatha Beema Company Ltd was established in 2004 BS by Nepal Bank Ltd. The insurance company now operates as Nepal Insurance Company Ltd.

However, life insurance in Nepal only started in 2029 BS after Rastriya Beema Sansthan was set up in 2025 BS.

Even so, the insurance business has gained in pace in the last five years.

Compared to a decade ago, there has been huge progress made by the industry in terms of increasing access to insurance, expanding the market and increasing awareness on the importance of insurance. However, a huge market potential still remains untapped for the insurance companies. Experts say the Insurance Board should play a leading role to increase the access to insurance.  

Chhetri is of the view that insurance services should be made mandatory in addition to incentivizing people to buy policies.

“Unless you make insurance services mandatory, people will think an insurance policy is merely about spending. It is good to make it mandatory so that the people are under a safety net,” he says.

Poudel sees the importance of raising awareness on the importance of insurance services.

"The Insurance Board should conduct extensive awareness programmes in coordination with insurance companies. We need to bring the poor people under insurance coverage because they are the ones who are severely affected by any crisis. It is insurance that will provide financial protection for them," said Poudel.