Kathmandu. The recent Economic Survey of India highlighted rising distribution costs in the insurance sector as a long-term risk, sparking a serious debate in emerging insurance markets such as Nepal. In Nepal too, expensive distribution structure is seen as a major obstacle to the expansion of insurance penetration.
Currently, Nepal’s insurance market consists mainly of sales through individual agents, banks and financial institutions, institutional agents, limited digital and direct distribution systems. Of these, the individual agent system is still the mainstay. However, experts in the insurance sector say that this system is putting a lot of pressure on the distribution cost structure of insurance companies.
In Nepal, high commission and incentive expenses, high initial commission, bonuses, travel incentives and non-cash benefits, limited renewal rate, short-term closure of policies, high cost of finding a new business, limited use of digital technology in manual and paperwork, risk-assessment, claims, and renewal are some of the reasons for increasing administrative expenses.
There is a tendency in Nepal’s insurance market to focus on selling insurance policies by any means rather than creating insurance awareness. In addition, the insured fails to build goal-focused sales, long-term trust, and value rather than need-based.
The cost of distribution is expensive and the insurance premium is expensive. Ultimately, consumers will have to bear unnecessary burdens. Expensive distribution costs make it difficult to expand access to rural and low-income groups.
There is also the possibility of weakening trust in insurance as risks to insurance companies’ profitability and financial stability increase.
According to insurance experts, it has become imperative to carry out policy and structural reforms simultaneously in Nepal.
Improvement in Commission Structure: Implement a system of reducing the initial commission and giving priority to long-term customer service agents by giving priority to renewal and service-related payments.
Empowering Digital Distribution: Promote mobile app-based shopping and payment facilities for the sale of simple living, health and micro insurance.
Expansion of Group Insurance: cooperative, microfinance, employer, debt-linked insurance makes it possible to reach a large population at a lower cost.
Simplification of insurance products: Fewer options, easier to understand terms Insurance helps reduce the cost of selling.
Cost Control in Health Insurance: Coordination between hospitals, insurance companies, and third-party administrators also makes it possible to increase access to digital claims and insurance.
The main challenge in Nepal’s insurance sector is no longer the rules or licenses, but the cost structure. If the cost of distribution can be controlled, insurance will be cheaper. Access is wider. Companies become sustainable. As India’s experience has shown, in Nepal too, “not just growth, but quality and sustainable growth” should be the common goal of the policies and industries.
