Life Insurance Companies Face Tough Time, New Business Shrunk by 31 Percent

Kathmandu: Life insurance companies are passing through a tough time amid an ongoing economic slowdown and inflation. It seems as if life insurance is no more in priority of the common people over their limited savings caused by the rise in the cost of living. According to the data unveiled by Nepal Insurance Authority, the first premium income(FPI) from new businesses declined by 31 percent in the second quarter of the current FY.

The life insurer collected Rs. 14 billion 792.3 million FPI in the first six months of the current FY 2079-80 against the FPI Rs. 20 billion 609.6 million of Q2 of last FY 7879. While the growth rate of FPI of the entire life insurance industry is negative, the FPI of life insurance companies has decreased from a minimum of 13 to a maximum of 134 percent.

During the second quarter, the renewal insurance premium income(RPI) increased by 14 percent compared to the same period of last FY. A total of Rs. 57 billion 474 million RPI was collected by life insurers in two-quarters of the current FY. Since the FPI growth rate was negative, the TPI increased by a mere 1 percent point as compared to the second quarter of last FY 2078-79.

Why is the life insurance business shrinking?

If the economic slowdown continues, the life insurance industry will suffer more amid downsized business volume. Due to inflation, common people have limited savings, so they are hesitating to make a long-term investment in life insurance coverage. In addition, banks and financial institutions(BFIs) have already swiped out most of the savings of the common people by offering double-digit interest rates. BFIs are compelled to collect term deposits offering an interest rate of 12 percent over liquidity crunch.

While life insurance companies are forced to increase capital and go for mergers, the top management level is under stress as the entire life insurance business is going downward. In order to sustain the market competition and maintain the market share, unhealthy competition among life insurers may ignite again.

What are insurance companies doing?

Life insurance companies are making every single effort to mitigate the consequences of poor business volume and lower market share. Some of the companies have already merged or closed their branch offices over high operating costs as compared to low business volume. Further, the management also taking steps to control the operating and management cost. Most of the employees’ additional benefits and the agency’s facilities have been curtailed.


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