Kathmandu: As a weapon to increase access to insurance in Nepal, the regulatory body has been focusing on the strategy of increasing the number of insurance companies. The number of insurance companies is increasing due to the trend of distributing insurers license after every election.
After the establishment of democracy in 2047 BS, four life insurance companies were given license. Then after the election of 2070 BS and after the election of 2074 BS, 10 life insurance companies and three non-life insurance companies were licensed. This trend seems to have started after the establishment of democracy in 2048 BS.
During this period, 17 life insurance companies, 16 non-life insurance companies and two reinsurance companies have emerged into existence. The licenses of these companies were distributed by the government before the elections. As of 2074 BS, 10 life insurance companies have been added totaling the number to 19. Similarly, 3 non-life insurance companies have been added to increase the number to 20. One month ago, one more reinsurance company was licensed.
The trend of distributing licenses to raise election campaign expenses for ruling political party is similar to that of Bangladesh. Such allegations have been made by linking license of new reinsurance company. The same government is preparing to issue licenses to some life, non-life and microinsurance companies through the Beema Samiti.
The committee has already prepared for the licensing of microinsurance companies in the name of expanding access to insurance. The Beema Samiti has directed to form a feasibility study committee and submit a report within 20 days. There is talk of distributing up to 14 licenses in the market at the state level. Licensed business groups are actively seeking to raise capital.
The government and the Beema Samiti have taken it forward in a planned manner. The possibility that a group with close access to state power can make a favorable decision cannot be ruled out. With the announcement of increasing the access to insurance to 33 percent through the budget and the study to increase the number of companies, the plan can be clearly understood.
Although the early years of the arrival of new companies seemed comfortable in the expansion of life insurance, the non-life insurance sector has not been able to expand and the business is in a shambles.
Is Nepal also following the path of Bangladesh?
In Bangladesh, one of the few South Asian countries’ with low access to insurance, the regulatory body has failed to exert political influence and seems to have issued licenses to insurance companies after each election. The number of insurance companies has reached 78 due to political influence. Of these, 32 are life insurance companies.
Source:IRDA Bangladesh and The Daily Star
Interestingly, the contribution of the insurance sector to the gross national product (GDP) has been steadily declining as the number of insurance companies has increased. According to the IRDA, the insurance sector’s contribution to GDP, which was above 0.9 percent in 2009, declined to 0.55 percent in 2017. According to the local news agency The Daily Star, the contribution to the GDP in 2018 is 0.57 percent only.
The contribution of the insurance sector to the GDP has started declining from 0.9 percent in 2009 to 0.94 percent in 2010. The share of life insurance in GDP in 2009 was 0.7 percent. In 2017, it dropped to 0.41 percent. Similarly, the contribution of non-life insurance was reduced from 0.20 percent to 0.15 percent.
Insurance premium growth increased from 18.59 percent in 2010 to 7.9 percent in 2017. In 2016, it had increased by 4.04 percent. According to a 2017/18 report released by the Insurance Regulatory and Development Authority (IRDA), Bangladesh’s regulatory body, only 17 million people out of a total of 160 million are covered by insurance. According to this statistic, only 10.55 percent of the population is covered by insurance.
In the case of Nepal, the contribution of the insurance sector to the gross national product (GDP) seems to be gradually expanding. In 2010, the contribution of the insurance sector was 1.31 percent. The insurance sector, which contributed 1.44 percent in 2014, has contributed 2.3 percent in 2017. Compared to 2016, it had increased by 18.71 percent in 2017. And in 2018, the insurance sector’s contribution to GDP grew by 28 percent to 2.6 percent.
Source: Economic Survey,Beema Samiti Nepal
Although Nepal’s position in terms of contribution to GDP is more positive than that of Bangladesh, Beema Samiti has not been able to strengthened its institutional capacity to effectively regulate insurance companies.
With the change of leadership of the government and the Beema Samiti in Nepal, there has been a trend in Nepal recently to issue licenses to insurance companies. However, only one reinsurance company has been licensed since the current chairman, Surya Prasad Silwal, took office. Beema Samiti has already indicated that the process of issuing the permit to new insurers will not have full stop for the time being.
The principle of supply and demand applies in the insurance market as in other markets. Nepal still has a large population that struggles to make ends meet in the morning and evening. In this regard, the demand for the insurance policy is unlikely. Although the company seems to have earned premium by selling the same policy when it was established, the number of those who continue it is very low. The lapse ratio of life insurance companies also confirms this. Bangladesh has the highest lapse ratio in South Asia. Nepal’s was above 25 percent last year.