Iswor Bikal Sapkota .
Life insurance is an insurance that gives a guarantee of specific amount of money to a designated beneficiary upon the death of the insured or to the insured if he or she lives beyond a certain age. It is a method by which large groups of individuals equalize the burden of financial loss from death by distributing funds to the beneficiaries of those who die. In other words, life insurance is a contract providing for payment of sum of money to the person assured or to the legally authorized person, on the occurrence of certain event that has been defined in the contract policy.
Furthermore, a family is generally dependent on the income brought at regular interval of time by bread earners of the family for their basic needs, i.e., food, shelter, clothing and other human needs. As long as one lives, and the income is made regularly, that family is secured. But sudden demise of one may bring a very difficult situation in the family. It is a fact that death is always uncertain in human life. This uncertainty is a risk which requires some method of protection against the financial loss that arises from death. Insurance substitutes this uncertainty by the certainty.
According to the insurance act 2049, “Life Insurance Business means the business relating to a contract regarding to the life of any person under which he/she or his/her legal heir in the event of his/her death, will be paid a particular amount in case a specified amount is paid in installment on the basis of his/her age”. Similarly, Life Insurance Corporation (LIC), India has defined the term life insurance as following. “ Life insurance is a contract between two parties whereby one party agrees to pay to the other party, a certain amount of money as premium to make good the loss of life arising out of an uncertain event of death in which the insured has interest.”
History of Life Insurance in Nepal
History of general insurance in Nepal goes back to BS 2005 (1948AD). Right from 1950AD, a number of companies started their operation in General Insurance. Presently 20 companies are transacting general insurance business. But start and growth of life insurance has been very slow.
1947: First non-life insurance company “Nepal Insurance Company” (then Nepal Transportation and Insurance Company) was established.
1967: First composite insurance company “Rastriya Beema Sansthan” was established as a private company under Company Act. First foreign company The Oriental Insurance Company was established
1968: Insurance Act, 1968 and Rastriya Beema Sansthan Act, 1968 were enacted on Oct 25, 1968.
1973: Rastriya Beema Sansthan started life insurance business.
1974: LIC of India handed over the life insurance policy of Nepalese citizens to RBS and took away its branch office from Nepal.
1988: First joint venture composite insurance company “National Life and General Insurance Company” was established.
1992: Insurance Act, 1992 was enacted. Insurance Board was established as an apex regulatory body of insurance sector.
1993: Insurance Regulation, 1993 was enacted.
2001: First time in Nepal, 100 percent domestic private sector life insurance company “Nepal Life Insurance Company”, first joint venture company “Life Insurance Corporation (Nepal) and first branch of foreign life insurance company “MetLife Alico” were established.”
2003: “Insurance Pool” was established with joint efforts of Government and non-life insurers to offer limited reinsurance services for non-life business sector.
2005: “Investment Directive for Life insurance was issued.
2008: “Life and Non-life Insurers’ Reinsurance Directive” and “Life and Non-life Insurers’ Liability Valuation Directive”, New licenses for four life insurers were issued.
2012: “Foreign Employment Term Insurance” became mandatory. ”
2017/2018: New Licenses for ten life insurers were issued.
The data shows that the need of life insurance in particular period i.e. 2001, 2008, & 2017 /18 & granted the operating license to many companies.
Insurance Act 1968 regulates all the insurance activities in Nepal. According to Insurance act and Regulation, 1992, Bema Samiti, monitors, regulates and amends the entire insurance activities in Nepal.
Insurance Sector towards Golden Moment
These developments clearly indicate the golden era of insurance sector in Nepal. The insurance business is flourishing, and insurers are gradually extending their business to many new parts of the country that previously remained out of the radar from insurance sector. With the new entries, observers say that the growth of the risk-mitigation business is likely to accelerate over the next few years. Currently, there are 40 insurance companies, 19 in life and 20 in non-life sectors& 1 Re-insurance, operating with more than 1,000 branches across the country. The addition of the newcomers brings the signals in a new era for market expansion of insurers and increase in access to insurance in Nepal. The increasing number also shows rising investor confidence in the domestic insurance market. This is displayed by fact that despite the mandatory hike in paid-up capital of insurance companies, new players want to immediately enter the market while the existing insurers are looking to further strengthen their position. The IB in late March announced a fourfold requirement for increment of paid-up capital of both life and non-life insurance companies giving them a deadline of mid-July 2018. As per the directive issued by the regulator, the new paid-up capital requirement for an insurance company has been set at Rs 2 billion from the current level of Rs 500 million. Likewise, non-life insurance companies have been told to increase their paid-up capital to Rs 1 billion which is presently Rs 250 million.
Similarly, the interest of the public towards insurance over the last few years has been grown as more Nepalese are looking to get insured. The devastating earthquake of 2015 with the huge loss of human lives and properties proved the significance of life insurance as well as other non-life insurance and hence made the people aware about future risks and the way of mitigating those risks.
Prospects, Problems and Solutions Any occupation, business and industry do have positive as well as negative aspects. It is undisputable fact that all the business suffers from various small to big problems. They even learn so many things from those problems and act in the way of making their brighter future. . The insurance business is one of the important business in the context of Nepal. However, this field of business has been suffering with varieties of problems. Such prospects and problems are as listed as follow:
- Development of Favorable Environment
- Development of industry & trade
- Growing interest on Bancassurance
- Highly focused on Microinsurance
- Provision of Compulsory insurance (Foreign Employment)
- Increasing middle class population/ Increase in PCI
- Established of Nepali Reinsurance Company
- Increased in Consciousness of people
- Increase in population
- Improving education level
- Lack of proper consciousness on peoples
- Insurance education is not compulsory
- Lack of training about insurance business
- Lack of skillful and competent officials
- Small market of insurance in Nepal
- Lack of provision of compulsory insurance
- The problem of unemployment
- Weak economic condition of the most of the people
- Less Profit from insurance business
- No Product diversifications
- Complicated claim procedure & slow settlement
- Unhealthy competition among insurance companies
Despite having prospects in insurance, this field still feels like lagging behind in comparison to other economic fields in Nepal market. So, the insurance field should adopt the following steps to make its presence remarkable in present scenario.
- Enactment of new Insurance Act
- Insurance literacy campaign
- Capacity building of Beema Samiti
- Effective enforcement of corporate governance directives
- Increment of insurers’ capital base
- Formation of Insurance Academy
- Merger and Acquisition process
- Strengthening relationship with IAIS, Asian Insurance Forum, SAARC Insurance Forum, etc.
- Widely investment criteria for insurance companies
- Need to develop effective & believable mechanism to protect insured’s
The penetration and density of insurance is much lower in Nepal as compared to other countries. In approximate, both life and non-life insurance companies have contributed to around 2.5% of the total GDP of the Nation. The penetration rate of life insurance is only near 12%, which means 88% of the total population are far away from the access of insurance services. This provides an opportunity to extend market of insurance industry, 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.
Ghimire, Dr. Rabindra (2018). Insurance Theory &practice. Kathmandu: Buddha Publication
Ghimire, R. (2012). Principles of Insurance and Risk management. Asmita Books Publishers & Distributors :Kathmand
Insurance Board. (2012). Existing Scenario of Nepalese Insurance Industries, 2012, Insurance Board
Note : The article was already published in Boston mirror, Vol : I, Boston International College, Chitwan