Kathmandu: Life insurance companies have paid Rs.12.18 billion against policy surrender to their policyholders in the last financial year 2078-79. According to the Board, insurance regulatory authority, during last FY, a total of 81,860 policies were surrendered by policyholders.
The amount paid against policy surrender accounts to 28.97 percent of the first premium income(FPI) earned by the life insurers during last fiscal year. Life insurers have earned Rs.42.04 billion FPI last FY.
The Insurance Board’s attempt to control the early surrender of life insurance policy has been proved futile amid surge in the policy surrender ratio in the last fiscal year. With an attempt to discourage the intentional surrender, the Board has implemented a minimum of 3 years waiting period for policy surrender.
With the provision implemented from Asar 2078 through the execution of Life Insurance Policy Directives 2078, a policyholder must pay three annual installment and three years from the date of policy commencement must be completed to get the surrender value.
The life insurance agencies have encouraged policyholders with large sum assured to surrender their policies. As per the Life Insurance Policy Directives, the 3 years waiting period implies only the policies issued after Asar 2078. So, the policies sold before that date can be surrendered after 1 or 2 years from the date of issue.
The market leader, Nepal Life Insurance (NLIC) has the highest number of policy surrenders of 26,603 in last fiscal year 2078-79. It has paid Rs.5.01 billion to its policyholders against surrender value while its first premium income(FPI) from new business for the same period was Rs.7.33 billion. The surrender value accounts to 68.34 percent to its FPI.
Life Insurance Corporation Nepal(LICN) stands at second position in terms of highest number of policy surrender. Rs. 2.93 billion has been withdrawn by its policyholders with the surrender of 9,868 policies during last fiscal year.
State-owned life insurer, Rastriya Beema Sansthan has paid Rs. 855.5 million against the surrender of 16,917 policies. Reliance Life and Prabhu Life have the highest number of surrender among new life insurers. Reliance Life has accepted the surrender of 455 policies and paid Rs. 148 million. Prabhu Life has paid Rs.147 million against the surrender of 286 policies.
IME Life has paid the lowest surrender value of Rs.24 million against 324 life insurance policies.
The mounting number of policy surrender is caused due to ill practices among life insurers to focus on first premium income only. Beside that the hefty commission and incentives provided to the insurance agencies against the FPI collection too is an encouraging factor for them to induce their policyholders for surrender in short term.
As per the provision on agency commission, an agency receives 25 percent against the FPI collected by him or her. Beyond that on the achievement of annual business target additional 18 percent incentives is offered to them as agency managers commission, fuel expenses, communication expenses, cash incentives.