Almost 90% of the total population in Nepal is living without an insurance policy despite the existence of insurance companies for almost half a century. The penetration of insurance is just 1.31% of the GDP.
- Definition / Scope
- Market Overview
- Market Risks
- Top Market Opportunities
- Market Trends
- Industry Challenges
- Regulatory Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Distribution Chain Analysis
- Competitive Factors
- Key Market Players
- Strategic Conclusion
Definition / Scope
Insurance is generally known as the transfer of risk from individual to the insurance companies in lieu of a premium amount. In Nepal, there are two types of insurance companies – Life Insurance and Non-life Insurance companies.
Life insurers have been selling policies like whole life policy, money back plans, endowment policy, accident and health related policies, children insurance plans and policies, etc.
Whereas, non-life insurers are selling products like Fire Insurance, Health and Medical Insurance, Marine Insurance, Group Accidental Insurance, Aviation Insurance and Miscellaneous Insurance. Insurance companies can use their funds consisting of premiums, reserves, and capitals to finance claim payments and other expenses.
The remaining fund is invested as per the Investment Directive of Insurance Board.
Before the liberalization the market for insurance was very limited. There were branches of two foreign insurance companies along with Rastriya Beema Sanstha and Nepal Insurance. However, after the liberalization the market began to expand for both life and non –life insurance companies.
Currently, the business of insurance industry is slowly flourishing and insurers are gradually reaching out to many new parts of the country that previously remained out of reach of the insurance sector. In 2016, there were only 27 insurance companies, 9 in life and 17 in non-life areas. But, recently the government has given operation permit to 10 life insurance companies and 3 non life insurance companies making total of 39 insurance companies, 19 in life and 20 in non life areas.
This signals a new era for market expansion of insurers and increase in access to insurance in Nepal. The penetration of insurance is just 1.31% of the GDP. This shows that there is a large untapped insurance market in Nepal.
- Due to regulatory constrain and requirement, large portion of the investment fund of insurance companies is kept in banks as fixed deposit. The volatile bank interest rate can lower the overall investment return for insurance companies.
- Due to rigidity in the Investment directives of Insurance companies, there is little diversification opportunities for insurance companies. Life insurance and non-life insurance companies are required to invest a minimum of 75% and 65% of their investible funds in government securities like treasury bills, schemes of mutual funds, short and fixed term deposits, promoters’ shares, etc. respectively.
- There is asset-liability mismatch in insurance companies. They issue policy for long term whereas can invests only for short term.
Top Market Opportunities
The devastating earthquake of 2015 has also led to increase in insurance business. The loss of people during earthquake has made people realize and become aware about the instrumental role of insurance.
More than 9,000 people lost their lives, 22,000 got injured and damage amounting to USD 10 billion was recorded due to the natural disaster. According to the Post Disaster Needs Assessment (PDNA), the damage to property and infrastructure amounted to USD 5.17 billion. However, only 3% of the damage was insured.
- One of the announcements in fiscal policy 2017/18 was expansion of health insurance throughout the country.
- According to the Financial Inclusion Roadmap 2017-2022, 80% of the adult population of Nepal do not have any type of insurance coverage.
- The access to the insurance in the country stands at only 12% combining both life and non life insurance coverage.
- Before, the agents had to visit and request and persuade to do insurance, but now people themselves have come to realize its importance and are actively looking for insurance services.
- As the joint families are being replaced by nuclear families, people have growing concern regarding what will happen to their family in case something happens to them. In such cases, insurance can be instrumental in minimizing the risk.
The Insurance Board announced on late March, 2017 to increase the paid up capital of both life and non-life insurance companies to Rs. 2 billion and Rs. 1 billion respectively by the end of mid-July 2018. Any new competitor willing to enter the market will have to come up with huge amount of capital.
- The government has recently issued operation license to 10 life and 3 non-life insurance companies. This will lead to deficiency of experts and experienced human resource. The new companies will poach employees from competitors by offering them attractive salary.
- The existing insurance law has become outdated and does not comply with best international practices.
- The country lacks actuaries for actuarial evaluations, an insurance appraisal based on economic and demographic assumptions for estimating future assets and liabilities for non-insurers. Foreign actuaries are hired at present for this purpose.
- Nepali insurers do not have competent workforce to evaluate and assess the damages and claims. It needs a team of experts comprising of statisticians, actuaries, underwriters, loss assessors, etc.
- There is lack of proper awareness among the people about the benefits of having insurance coverage.
- The new Nepal Labour Act 2074 has made medical insurance coverage of USD 1000 and accident insurance coverage of USD 7000 per year compulsory for every worker.
- On January 2013, Insurance Board implemented the Crops and Livestock Insurance Directives and six types of insurance policies have been issued in this regard. The policies cover various types of crops, vegetables, cereals, fruits, poultry, fish, etc. the government has been providing 50% subsidy on insurance premiums of crops, livestock and poultry from 2013/14.
- The government led by former Prime Minister KP Sharma provisioned the micro insurance programme in the budget of 2016/17. Under this, both life and non- life insurances are mandatorily required to provide at least 5 % services in micro insurance out of their total services.
Other Key Market Trends
- A Nepali worker traveling abroad has to buy insurance. A new health insurance policy was implemented in mid-February 2017 that enables Nepali migrant workers who have bought term life insurance to receive coverage for critical illness of 15 types against an insurance premium for USD 4.
- The concept of e-insurance is gaining importance in developed and emerging economies. Though Nepal is lagging behind, the launch of portal www.ebeema.com on April 2016 has enabled users to compare and purchase insurance policies being offered by number of insurers.
- Bankassurance has been speeding up over the last few years in Nepal. The banks and insurance companies are joining hands to provide insurance services to their clients. The Insurance Board is working to introduce the Insurance Policy whereby customers can receive insurance facilities through all the branches of the bank.
Market Size and Forecast
IBN’s annual report shows an insurance penetration of 1.57% of the GDP for the FY 2013/14 (Insurance Board, 2014) while the insurance penetration for emerging markets and Association of South East Asian Nations (ASEAN) stand higher at 2.71% of GDP and 3.32% of GDP respectively for the year 2014 (Swiss Re, 2015).
Nepal’s insurance penetration rate is 1.14% points below the emerging markets standard. Another indicator for comparison is the insurance density – premium per capital. The insurance density of Nepal for 2014 stands at USD 11.43 whereas insurance density of our neighbour India stands at USD 55. (Swiss Re, 2015) The total premium for life insurance and non-life insurance amounted to USD 31.92 billion and Rs. USD 15.04 billion respectively in the FY 2016/17.
The annual growth rate of insurance premium of both life and non-life insurance companies have been around 25% over the last six years. The table shows the premium collection for life and non-life insurance companies over the past 5 years.
- The insurance sector is expected to cross the minimum 25% coverage as against the current coverage of 8% in the next five years.
- With the introduction of new life and non-life insurance companies, the earning of this sector is also supposed to increase simultaneously.
Distribution Chain Analysis
Before there was only one distribution channel for selling insurance products which was through insurance agents who can be either individuals or institutions. Currently, insurance companies are selling insurance products through the corporate agency of banks which is known as bankassurance.
Insurance companies are consistently coming up with new schemes. Few years back, the only services available was either for retirement or death. Contrary to that, now there are wide array of schemes to choose from based on the individuals need and payment capacity. Also in order to gain competitive advantage, insurance companies must come up with innovative product and service.
Key Market Players
In life insurance companies, Nepal Life Insurance is seen to be market leader in terms of premium collection and net profit. As per the data of Insurance Board the premium collection of Nepal Life Insurance was USD 58.40 million, followed by LIC Nepal and National Life Insurance which collected USD 29.4 million and USD 23.4 million as insurance premium respectively.
In non life insurance companies, Shikhar insurance is in leading position in terms of premium collection and net profit. The premium collection of Shikhar Insurance amount s to USD 34.2 million followed by Sagarmatha insurance and Siddhartha insurance which collected USD 18.3 million and USD 17.8 million as premium respectively.
Also, Shikhar Insurance has stood ahead among the insurance companies and has achieved a landmark of collecting premium worth more than USD 30 million in less than one year in FY 2017/18. With the collection of record premium, the insurance company holds the highest market share of 16% among non-life insurance companies of the country.
The insurance penetration and density is much lower in Nepal compared to other companies. In approximate, both life and non-life insurance companies have contributed to around 2.5% of the GDP. The penetration rate is only 8% which means 92% of the total population are far from the reach of insurance services.
This provides insurance industry an opportunity to extend its market which eventually helps in increasing the premium volume and share in GDP contribution of the country. Also policymakers and regulators should identify the role of insurance sector in economic development and structure insurance friendly policy.
- Nepal Economic Survey, 2016/17
- Insurance Board Nepal
- FY – Fiscal Year
- IBN- Insurance Board Nepal
- LIC – Life Insurance Corporation
- USD- US Dollar
- GDP – Gross Domestic Product
- PDNA – Post Disaster Needs Assessment
- ASEAN – Association of South East Asian Nations