Kathmandu: The Insurance Board has drafted the Guidelines for Insurers to address the risk of Climate Change. The regulatory authority, in collaboration with the World Bank, has prepared such guidelines with the assessment that climate change is also a major factor in determining the risk of the company in life, non-life and re-insurance.
According to officials the guideline has been prepared in the course of implementation of Risk Based Capital(RBC). Nepal is highly prone to devastating flood, landslide, drought, unseasonal raining due to climate change. In recent years, Nepal has witnessed loss of numbers of lives including wildlife and casualties to properties.
According to the recent facts and studies of Asian Development Bank(ADB), Nepal faces losing 2.2% of annual GDP due to climate change by 2050. Nepal ratified the Paris Climate Agreement and its Second Nationally Determined Communication (NDC) in 2020. Nepal’s Second National Communication to the UNFCCC (2014) (NC2) identifies the country’s energy, agriculture, water resources, forestry and biodiversity and health sectors as the most at risk to climate change.
Insurance companies have been allocating funds for Catastrophe Fund, General Reserve Fund, Capital Fund to absorb possible risk which can not be reinsured. According to the proposed Directives, it will be mandatory for insurance companies to allocate certain fund for addressing the risk against climate change.
The directive is aimed to be implemented in three phases. The regulatory authority has set a target of implementing some issues in the next one year through the directive. The next phase of implementation is given three years. And the third phase is targeted to be completed in the fourth year. Thus, the committee aims to fully implement this directive in the next four years.
This guideline should be implemented by the life insurance company from the course of product design. Also, the investment decisions made by insurers must meet the guidelines on climate change. Further, non-life insurers have to fix their insurance premium rates based on the assessment of claims due to climate change.
