Kathmandu. Life Insurance Sector of Nepal 2081. The company has collected $198.80 million (about Rs 2.75 billion) in insurance premiums till mid-June 2025. However, during the same period, it has paid claims of $ 14.5 million (about Rs 2.01 billion).
This is the data published in a study report on micro insurance business published by the Nepal Insurance Authority.
Nearly three-fourths of the insurance premiums collected from the micro-insurance business have been spent on claim payment, which has increased the pressure on the financial capacity of insurance companies. Traditional insurance companies, in particular, are more vulnerable. Micro insurance companies are still more vulnerable due to the low capitalization.
According to data from 14 traditional life insurance and 3 small life insurance companies, the overall claim-to-premium ratio in the sector has reached 73 percent. In the case of traditional life insurers, this ratio is an alarming 89 percent. Both of these claims ratios are much higher than the global standard of 40 to 60 percent.
Traditional insurance companies have collected Rs 2.06 billion in insurance premiums and paid claims of Rs 1.83 billion. This shows a frightening claim ratio of 89 percent. This leaves only a small amount of administrative expenses, reserve funds, and investments. Including the bribe amount paid to the manager of the microfinance, the micro-insurance has proved to be a loss business for the traditional insurer.
Micro insurance companies like Guardian, Crest and Liberty Micro Life have collected a total of Rs 68.60 crore in insurance premiums and paid Rs 17.70 crore. This is only 26 percent of the premium collected. While this may look comparatively good, future contingencies due to the small insurance base can put them in jeopardy.
The total insurance premium has reached Rs 2.75 billion and claim payment has reached Rs 2.01 billion. Apart from this, claims worth Rs 1.79 crore are yet to be paid.
Microfinance companies are the main source of traditional insurer’s micro-insurance business. Although microfinance provides business as an institutional agent for micro insurers, micro insurers also sell retail insurance directly in the market, so their claim ratio is lower than that of traditional insurers.
Why is the claim payment of a traditional insurer high:
}
Traditional insurers, who are interested in easy market and business, are doing micro insurance business by climbing on the bouw of microfinance companies rather than selling micro insurance in the villages. The insurance policy is much cheaper than the insurance premium fixed by the Nepal Insurance Authority. Although the rate of insurance is approved on the basis of age, the insurers are selling micro insurance policies to the borrowers at the same premium for all ages.
Microfinance companies that have been insuring the life of their borrowers at half the premium have entered the life insurance sector as termites. Around 80 percent of the insurance premium is taken back by the microfinance company as death claim and funeral expenses. Apart from this, the life insurer has to appease the senior officials of the microfinance company and the office bearers of the board of directors by bribing them to attract business.
According to the information received from the authority, most of the death claims in micro-insurance cases are found to be the death of the borrower within 3 months to one year of the issuance of the policy.
According to the insurer, the microfinance companies have publicized in the villages that they can get loans without having to pay the treatment expenses to increase the affiliation. Microfinance provides collateral-free loans to those suffering from serious illnesses on the recommendation of the group. As a result, patients’ insurance has increased. As there is a micro insurance, there is no need for health check-up, which is why life insurance is easily possible for the patients of serious diseases.
Along with the borrower, they charge a premium and get life insurance to protect the loan. While the treatment is going on, the borrower dies without repaying the loan, the microfinance company recovers the loan by taking the claim amount from the insurance company. Both borrowers and microfinance people benefit from this cycle, while the loss is for the insured who pay the premium so that the profit of the life insurance company will be shared.
