The devastating 2015 Gorkha Earthquake served as a wake up call for Nepal, exposing the country's vulnerability to natural calamities and the alarming lack of insurance coverage among its populace. With only a small fraction of affected individuals holding life or property insurance policies, the catastrophic event prompted a much-needed reevaluation of Nepal's insurance landscape. Stakeholders emphasised the urgent need for comprehensive coverage against unforeseen disasters.
A decade on, the situation has not changed much. Nepal continues to grapple with the aftermath of natural disasters which further underscores the call for robust insurance practices. The country ranks high in global risk assessments for various disasters, including earthquakes, floods, storms and lightning strikes. Despite the looming threats, over half of Nepal's population remains uncovered, leaving them vulnerable to financial ruin in the face of adversity.
Recent data from the Nepal Insurance Authority (NIA) paints a mixed picture of the insurance sector's health. While the overall insurance penetration remains low, there is a significant opportunity for expansion, particularly in the property insurance segment. Non-life insurance companies have, accordingly, shifted focus from traditional sectors like motor insurance to property insurance given the sector’s high profitability. This underscores the potential for growth and diversification in the industry.
However, the insurance sector faces formidable challenges due to economic slackness exacerbated by the COVID-19 pandemic. Business growth has been sluggish, reflecting a broader economic stagnation across major sectors. The government's failure to prioritise insurance as a pre-disaster measure further hampers the progress of the industry. Likewise, the new capital requirement has become a significant challenge for insurance companies, with many struggling to meet the mandated minimum capital thresholds. Many companies are pursuing the merger route to meet capital requirements, signalling potential consolidation in the industry. Moreover, protracted delays in releasing government subsidies for pandemic and agricultural insurance claims have strained insurer-government relations which, in turn, is hampering market stability and growth.
Both the government and insurance companies, therefore, must collaborate to enhance public awareness and understanding of insurance as a primary risk management tool. Establishing insurance training centres and provincial offices are positive steps taken by the regulator towards addressing the awareness gap and fostering a culture of risk mitigation. Furthermore, there is a pressing need to diversify investments of insurance companies. Insurance companies can contribute to economic development if they are allowed to invest in infrastructure projects. Leveraging insurance funds for development initiatives can unlock significant opportunities for economic advancement.
Microinsurance is emerging as a promising avenue for expanding insurance coverage to marginalised communities. Although established firms hesitated to enter this market initially, new players have aggressively pursued microinsurance and are generating good business. Regulatory directives requiring microinsurance participation for established companies underscore the industry's commitment to extending coverage to the most vulnerable segments of society.
Nepal's insurance sector is at the crossroads of challenges and opportunities. By embracing innovation, promoting literacy, and prioritising inclusivity, companies can navigate the complexities of the insurance landscape and unlock its full potential for sustainable growth and resilience.
