A REPORT ON INSURANCE INDUSTRY OF NEPAL
Chapter-1
Overview of
Nepalese Insurance Business
1.1
Conceptualization
of Insurance
Insurance is becoming the most
prominent measures to secure the value of life, indemnify the losses in
business and property and to achieve economic development of the nation. Insurance
is the pooling of fortuitous losses by transfer of such risks to insurers, who
agree to indemnify insured for such losses, to provide other pecuniary benefits
on their occurrence. The insurance policy is a contract between the insurer and
the insured, known as the policyholder, which determines that claims which
the insurer is legally required to pay, in exchange for payment, known as
the premium.
Insurance companies are a type of “non-bank” financial
institutions that sell policies and provide protection from various kinds of
risks. More specifically insurance company collect fund in the form of premium
and provide indemnification if the probable loss occur in the future. But financial
institutions provide both benefits and security on the fund collected from
their clients. Generally risks that insurance policies cover include the loss
of life, income, or possessions and the high cost of medical bills
Parties involved in
Insurance Policy are:
Insured
A person whose interest is
protected by an insurance policy: a person who contracts for an insurance
policy that indemnifies him against loss of property or life or health etc. insured
person may be individual, mortal, person, somebody, someone even soul of a human
being.
Insurer
Insurer is the insurance company which takes the risk of
insured person. There are two categories of insurer: life insurance and
non-life insurance. One insurer cannot provide products and services of both
life and non-life insurance simultaneously; means they must establish in
distinct base.
1.2 Review of Insurance Industry in Nepal
Insurance in Nepal is still in
the growth stage despite being 65 years old. The first insurance company was
established in Nepal in 1947. Before that some insurance companies from India
were operating in Nepal. The development of insurance business is closely
related to the beginning of industrialization in Nepal around 1940. The first
joint stock company, Biratnagar Jute Mills, was established in 1936. The first
bank, Nepal Bank Limited was established in 1973. During that period many
industries came up in the Terai belt. The Second World War began immediately
after. Indian entrepreneurs came to Nepal to establish factories. There was a
need for the factories to be backed by insurance. Indian companies took the
initiative to ensure those industries. Nepal bank provided loan to
entrepreneurs. To insure these loans, Nepal Bank established Nepal insurance
and transport company in 1947 as its subsidiary which was truly first Nepal
insurance company. Later on its name was revised and now it is operating as
Nepal Insurance Company. Now 65 years after the first Nepali insurance
company set up, there are 10 life insurance and 18 non-life insurance companies
with more than 450 branches throughout the country. Until the fiscal year
2066/67 these insurance companies providing direct employment opportunity to
2,895 employees. In terms of number of companies, number of policies sold
and revenue earned, there has been spectacular rise in the insurance business.
There are still many areas that the Nepali insurance sector has not been able
to cover, but there is no denying the act that the sector is witnessing
accelerated growth. Beema Samiti (Insurance Board) an autonomous body,
established to develop, systemize, regularize and regulate the insurance
business of Nepal under Insurance Act, 1992.
1.3
Nepalese Insurance Market Segmentation by
Products
There are more than 150 different types of policies that people
can choose from. But the majors are classified under four categories. They
are stated bellow:
1.3.1
Life Insurance
In general, life insurance is a
type of coverage that pays benefits upon a person’s death or disability.
In exchange for relatively small premiums paid in the present, the policyholder
receives the assurance that a large amount of money will be available in the
future to help his or her beneficiaries pay debts and funeral expenses. Some
forms of life insurance can also be used as a tax-deferred investment to
provide funds during a person’s lifetime for retirement or everyday living
expenses. The life insurance includes term, endowment and whole life insurance.
1.3.2 Non-Life Insurance
Non-life Insurance is also
called General insurance, which includes automobile and homeowners policies. It
provides payment depending on the loss from a particular financial event.
General insurance typically comprise any insurance that is not determined to be
life insurance
1.3.3
Other
Products
i.
Third Party Insurance: This policy ensures that third
parties involved in an incident are protected. So, for example, if you
were to crash into another car and the accident was deemed to be
your fault, then your liability to the driver of the other car would be
covered, although you would not be able to claim for damage to your own. This
is particularly the case the driver is considered by the insurance company to
be a high risk, or the car value is low so it is unlikely to get a pay-out
through an insurance claim.
ii. Health Insurance: One of the most important types of insurance to have is health
insurance. Your good health is what allows
you to work and earn money and otherwise enjoy life. If you were to come
down with a sickness or have an accident without health insurance you may find
yourself unable to receive treatment or even in debt to the hospital.
1.4
Needs
of Insurance Policy
Life
is unpredictable. And insurance is the simplest way to cope with the unforeseen
and the unexpected. It is the best back-up that people or people dependents can
rely on when risk becomes a reality and results in loss of life
or property. Plan well and start early. That’s the best way to make
insurance work for people. Premiums will be low, processing will be minimal and
a long term financial cover is in place to take care of later years. Insurance
is a contingency plan to take care of uncertainties. It is a way of providing
for people dependents and ensuring continuity of their material needs and
wants in your unfortunate absence. It is a way to plan and ensure a
regular income whenever people decide to
retire Insurance is a responsibility. It ensures security and mitigates
risk. It is an assurance to someone dependents that he/she cares. Insurance is
also an investment tool and provides tax benefits too. Most of all,
insurance is peace of mind. The price of getting insured is negligible compared
to the value that insurance delivers. Insurance is sensible and practical. It
can be said that insurance is like a raincoat which protects us from rain.
Because of this reasons insurance is needed.
1.5
Insured
and Insurer Inter-relation
There should be a good relationship between insured and insurer in
order to prosper of insurance company. Insurance companies, along with the
brokers and agents who sell life and non-life insurance, are committed to
safeguarding insured’s rights when they shop for insurance and when insured
submit a claim for concerned loss. Insured’s rights include the right to be
informed fully, to be treated fairly, to timely complaint resolution, and to
privacy. These rights are grounded in the contract between insured and insurer
and the insurance laws of insured people province. With rights, however, come
responsibilities including, for example, the expectation that insured
person will provide complete and accurate information to their insurance
company. The policy outlines other important responsibilities. Insurers, their
distribution networks, and governments also have important roles to play in
ensuring that insured rights are protected.
1.5.1 Rights
and Interest of Insured Person
There are many interests and rights of Insured persons. Some of
them are listed below:
i.
To be informed
Insured can expect to access
clear information about his/her policy, coverage and the claims settlement
process. Insured have the interest or right to an easy to understand
explanation of how insurance works and how it will meet his/her needs. Insured
also have an interest to know how insurers calculate price based on relevant
facts. Under normal circumstances, insurers will advise an insurance customer of the customer’s
intermediary of changes to, or the cancellation of a
policy at least 30 days prior to the expiration of the policy,
if the customer provides information required for determining renewal terms
of the policy at least 35 days prior to the expiration of the policy.
Insured have the right to ask who is providing compensation to his/her broker
or agent for the sale of his/her insurance. Insured’s broker or agent will
provide information detailing for he/she how he or she is paid, by whom,
and in what ways. Insurance companies should disclose their compensation
arrangements with their distribution networks. Brokers and agents are
committed to providing information relating to ownership, financing, and other
relevant facts.
ii.
Insured has interest to complaint resolution
Insurance companies, their
brokers and agents are committed to high standards of customer service. If
insured has a complaint about the service he/she has received, then he/she has
a right to access Insurer Company’s complaint resolution process. Insurer, agent
or broker can provide he/she with information about complaint is heard
and promptly handled.
iii.
Professional service interest
Insured has the right to deal
with insurance professional who exhibit a high ethical standard, which includes
acting with honesty, integrity, fairness and skill. Brokers and agents must
exhibit extensive knowledge of the product, its coverage and its limitations
order to best serve insured.
iv.
Interest of privacy
Because it is important for
insured to disclose any and all information required by an insurer to provide
the insurance coverage that best suits them, he/she has the right or know
that his/her information will be used for the purpose set out in the privacy
statement made available to insured by broker, agent or insurance
representative. This information will not be disclosed to anyone except as
permitted by law. Insured should know that insurers are subject to country’s
privacy law.
v.
Social insurance interest
A person who is insured under
social insurance scheme inside country, he/she is entitled to a pension on the
basis of his contributions in a country. A person should be provided widow’s
pension, orphan’s benefit, maternity allowance under social insurance
scheme.
vi.
Flexible standard
Insured person may have
the interest of flexible standard in insurance scheme. One
scheme should cover the many sub related area.
For example, if wok related injuries has been applied to
anyone and he/ she is injured as a result of the hurricane, either while on the
way to work, or during work, or on the way home from work, payments have been
handed out to him/her and it should be classified as work related deaths.
vii.
Simplified procedures
The procedures of insurance
company are taken as a load. In many cases, insured persons have to wait for
long time to complete the unwanted procedure. People are supposed to wait long
time to get payment from the insurance company. Therefore, these kinds of procedures
have to be simplified.
viii.Speedy payments
Insured people always want to
have speedy payments. In many cases, customers have to wait long time for
payment even the claim is satisfied. The delay of payment should be supervised
by the concern authority.
ix.
Health care Quality
Information People, who are
insured under health insurance scheme, health care providers must measure,
analyze and report data on health care quality and effectiveness. Information
obtained by the insurer in the process of health care quality and effectiveness
evaluation must be annually communicated to the served population through mass
media to the insured people.
1.6
Role
of Insurance Supervisory Authority
The Central Government has established the Insurance Regulatory and
Development Authority to regulate the insurance industry. This authority has
formulated the Insurance Regulatory and Development Authority. These
regulations spell the various rights of an insured and the protection of
policyholders’ interests. Many insurance companies are mainly focusing on
increasing sales policy. However, insured have an insurable interest in the
policy, their interest were not identified in many case.
Insurers, their distribution networks, and government
also have important roles to play in ensuring that insured’s rights and
interests are protected. Under various laws and regulatory, ISA is supervising
body (works) of insurance companies regarding the protection of insured rights
and interests. The activity performed by the Insurance Supervisory Authority since its setup and until now was
conducted in seven main directions:
i.
The institutional and functional construction of the Insurance
Supervisory Authority.
ii. Elaborating and applying the
secondary legislation for the insurance filed.
iii. Licensing the insurers and the
Insurance brokers.
iv. Managing the Compulsory
Insurance- Motor Vehicle third party liability and solving the policyholder’s
claims.
v. Supervising and controlling the
activity of the insurers and the insurance brokers.
vi. Managing the Special Fund for
the Policyholders Protection.
vii.
Nepalese Integration and International Relations.
1.7
Instrument
of the Insured Interest Protection
i.
Right of the insured may be protected either through pre-court settlement
procedures or through filing a law suit at court.
ii. Cases of damage to the insured
property may be decided both through pre court settlement and at court.
iii. Decisions about compensation
for health and any moral damages are filed through court only.
1.8
Objective
of Supervisory Authority
Main
objectives of supervision are to ensure that the undertaking’s business
continues to comply with the laws, regulations and administrative provisions
with which the undertaking must comply and to prevent or remedy any
irregularities prejudicial to the interests of the assured persons. In Nepal,
Beema Samiti is an autonomous body which regulates the insurance business of
Nepal under Insurance Act, 1992. Some other are mentioned below:
i.
Supervision of Re-insurance cover.
ii.
Supervision of free assets that is used to cover unexpected losses
in Insurance business.
iii.
Supervise the premium on insurance and making provisions related
with.
iv.
To establish accounting standards, balance sheets, profit and loss
account on the basis of uniform principles and correctly reflect the financial
standing of the undertakings.
v.
Detailed information about the object and conditions of the
contract in order to judge the product offered.
vi.
To monitor the undertaking of AGM of insurance company.
vii.
To determine insurance company’s assets condition to face their
future risks.
viii.To determine the company’s
risks from the current business and from its future business plan.
Chapter-2
Methodology, Objectives and
Limitations of the study
2.1
Methodology
Methodology refers the steps that will be adopted in the
study. The more systematic method gives the more actual results for the study.
This report is prepared on the basis of data available not on the basis of
research study. Methodology basically deals with the resource of data i.e. from
which sources data has been collected. Data required for the preparation of
this report were collected from mostly secondary sources..
2.2
Objectives
The analysis and finding may not be significant and accurate
due to secondary data and their chances of manipulation by publisher
This
report has been prepared as per the requirement of academic purpose. Beside
academic purpose this report has following main objectives.
i.
To gather various data about insurance industry of Nepal and
analyze them critically to have a better understanding of the industry.
ii. To explore the major challenges of
insurance industry of Nepal.
2.3
Limitations
The deep comprehensive analysis and study couldn’t be done
due to time constraints. As a result it’s the secondary data based study.
Beside this some other limitations are enlisted below.
i.
Lack of statistical data on several topic analyzed in this
report.
ii.
Difficult in analyzing the information obtained from
different secondary sources due to the qualitative nature of information.
