THEMATIC REVIEW

ON
Prospect of Insurance Companies in Nepal

TRIBHUVAN UNIVERSITY
Faculty of Management

MASTER OF BUSINESS MANAGEMENT

2018

NEPAL COMMERCE CAMPUS

Minbhawan, Kathmandu

Submitted by: Submitted to:

Bandana Wagle Associate Prof. Nischal Risal
MBM 3rd Semester
Batch 2017-2019
Roll No.:25
 Preface

The thematic paper writing can be defined as any writing in which a central theme is developed
to convey the writer's message to the readers in a simple manner. This paper is conducted for the
partial fulfillment of Masters in Business Management Degree awarded by Tribhuvan
University.
This paper is prepared on the basis of the secondary data and knowledge gained during the entire
period of our study. With the time being a huge constraint, there was a lack of data and
information collection. This paper provides some information regarding prospect of insurance
companies in Nepal.
Hope the reader can find something interesting in this paper.
 Acknowledgement

This thematic paper has been prepared and submitted to NCC College under Tribhuvan
University faculty of management to partial fulfillment of the requirements of Masters’ degree in
Business Management (MBM).
I would like to express my sincere gratitude to Mr. Nischal Rijal for supervision of this thematic
paper and for providing opportunity to explore my potential through this thematic paper. I would
also like to extend my appreciation to all those who inspired and motivated me in many ways to
cope during the entire period preparing paper.
Bandana Wagle
MBM 3rd semester
Batch 2017-2019
Nepal Commerce Campus
 Unit 1: Introduction
Every rational person wants to reduce the risk of contingencies. Insurance is the outcome of this
wish because it protects the financial well-being of an individual, company or other entity in the
case of unexpected loss. And prospect refers to the possibility or likelihood of some future
events. This paper discloses the prospect of Insurance Companies in Nepal by going through
past, present and emerging things regarding insurance in Nepal.

As per Insurance Act 2049,

"Insurance Business" means Life Insurance Business or Non-Life Insurance Business and the
word includes the reinsurance.
"Life Insurance Business" means the business relating to a contract regarding to the life of any
person under which he/she or his/her heir in the event of his/her death, will be paid a particular
amount in case a specified amount is paid in installment on the basis of his/her age.
"Non-Life Insurance Business" means other Insurance Business other than the Life Insurance
Business.
"Re-Insurance Business" means re-insuring the portion of the risk which is excess of the risk to
be hold by the Insurer.

We can also define insurance policy as a contract between the insurer and the insured, known as
the policyholder. An insurance policy determines the claims which the insurer is legally required
to pay, in exchange for payment, known as the premium.

Parties involved in contract of insurance are:

 Insured: 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 or someone.

 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.

 Beneficiary: The person paid may be the beneficiary designated in the policy. A
common example of this situation is a life insurance policy where the proceeds are not
given to the insured but to a third party designated by the insured.
 Unit 2: History
History of Insurance
Insurance has a history that dates back to the ancient world. The earliest forms of insurance were
a primitive form of commercial insurance, especially in regards to shipping goods, since cargo
was often lost or damaged or stolen by thieves and pirates. The earliest methods of reducing risk
involved either the pooling of risk or transferring the risk to moneylenders or investors of
expeditions. Over the centuries, it has developed into a modern business of protecting people
from various risks. The industry has been profitable for many years and has been an important
aspect of private and public long-term finance. Following table shows the development of
insurance in the world:
Time Events
3000 BC Treacherous Travelling:
Chinese merchants travelling treacherous rivers would redistribute their wares
across many vessels to limit the loss.
1750 BC Loss At Sea:
Babylonians develop an insurance system, recorded in the famous code of
Hammurabi, whereby a merchant, who receives a loan to fund his shipment,
would pay the lender an additional sum in exchange for the lender’s guarantee
to cancel the loan if shipment will be lost at sea.
550 BC Royal Assurance:
The Achaemenian monarchs of Ancient Persia become the first to ensure their
subjects. They register the insuring process in governmental notary office.
500 BC Good Book:
The Talmud mentions insuring goods.
408 BC Sinking Feeling:
The inhabitants of Rhodes invent the concept of general average. Merchants
whose goods are shipped together pay a proportionally divided premium which
would be used to reimburse any merchant whose goods are jettisoned in order
to lighten the ship and save it from sinking.
14th century Marine Insurance:
Separate insurance contracts (not bundied with loans or other contracts) are
invented in Genoa. The separation of insurance contracts from investment was
most frequently used in marine insurance.
1628 Life insurance:
The will of the English colonist Robert Hayman mentions two ”policies of
insurance” taken out with the diocesan Chancellor of London, Arthur Duck,
Worth 100 pound each, one relates to the safe arrival of Hayman’s ship in
Guyana and other is life insurance.
1666 Fire of London:
Modern insurance is invented after the Great Fire London destroyed more than
13000 houses. The fire converts the development of insurance “from a matter
of convenience into one of urgency.”
1680s Lloyds:
 Edward Lloyd opens a coffee house that becomes popular amongst ship
owners, merchants, and ships’ captains. Lloyd’s insurance market Is born.
1681 Fire Insurance:
Nicholas Barbon and eleven associates establish England’s first fire insurance
company, at the back of the Royal Exchange. 5000 homes are covered by
Barbon’s Insurance Office.
17th century Friendly Behavior:
“Friendly societies” are established in England, in which people donate
amounts of money to a general sum that can be used for emergencies.
1693 Not Haley’s Comet:
Astronomer Edmond Halley publishes an article which leads to the British
government selling life insurance.
1732 First US Insurance:
The first insurance company in the United States is formed in Charles Town
(now called Charleston), South Carolina.
1752 Franklin’s Insurance:
Benjamin Franklin founds the Philadelphia contributionship for the insurance
of houses from loss by fire. Franklin’s company refuses to insure wooden
houses. The reason is the risk of fire is too great.
1787 New York is Fired Up:
The first fire insurance company is founded in New York city. Between 1787
and 1837 more than 24 life insurance companies are started. Less than 6
survived.
1861 Slave Insurance:
Some insurance companies in the Deep South insure the lives of slaves for
their owners.
1880s Germany Leads the Way:
Chancellor Otto Von Biamarc introduces old age pensions, accident insurance,
medical care and unemployment insurance to Germany, forming the basis of
modern European welfare state.
1897 Employee Insurance:
The Workmen’s Compensation Act in Britain requires employers to insure
their employees against industrial mishaps.
1905 Social Insurance:
Lead by Sir Henry Campbell Bannerman and the Liberal Party, the British
introduced a system of social insurance.
1944 The Modern Welfare State:
Social insurance becomes the modern British Welfare State.
1949 People’s Insurance of China:
The insurance industry in China is nationalized. Insurance is only offered of
People’s Insurance Company of China.
1992 Single Market:
The Third Non life Directive and the Third Life Directive are passed in the
European Union, creating a single insurance market in Europe and allowing
insurance companies to offer insurance anywhere in the EU.
2003 Insurance Repealed:
 In response to bills I California and one in Illinois, companies that issued
insurance to slave owners for their slave are forced to search their record for
such policies. New York life report that Nautilus sold 485 slaveholders life
insurance policies during a two year period in the 1840s.

2008 Insurance Growth:

Global insurance premium grow by 3.4% to reach $4.3 trillion. The US and
Japan alone account for 40% of world insurance, much higher than their 7%
share of the global population. Emerging markets account for over 85% of the
world’s population but, generate only around 10% of premiums.

History of Nepalese Insurance

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.

In 1968, Rastriya Beema Sansthan (RBS) was established. After the establishment of RBS, the
then Life Insurance Corporation of India transferred its business to RBS and closed its office in
Nepal from 1972. In 1968 Rastriya Beema Sansthan (RBS) was established under Company Act,
2021 and was converted into Corporation in the following year under Rastriya Beema Sansthan
Act, 2025. This is a government owned organization even now, and has been operating both life
and nonlife insurance business. Prior to the enactment of Insurance Act, 1968 there was no
regulatory body that supervises insurance business in the country. Under the Insurance Act,
1968, Beema Samiti (Insurance Board) was established as the insurance supervisory Authority.

In 1986, a new experiment was made in Nepalese insurance field by providing license to the
joint venture insurance company to operate both life and non life insurance business. But the real
expansion of the insurance company in Nepal took place during and after 1990s followed by the
financial sector reform and liberalization of the economy by the government. The new policy
gave emphasis to the involvement and growth of insurance business in the private sector. As a
result, many companies came into the scene in the private sector.
 Unit 3: Present Status of Insurance in Nepal
Nepalese insurance business showed a rapid growth especially after the enactment of the new
Insurance Act, 1992 and Insurance Regulation 1993. At present, there are altogether 35 insurance
companies in Nepal.
Table 1: Trend in Nepalese Insurance Industry
Year 1990 1995 2000 2005 2010 2011 2012 2013 2014 2015 2016 2017

No. of 5 9 11 19 25 25 25 25 26 27 27 39
insurance
companies

Source: Insurance Board

Table 1 show that the insurance industry is in growing trend. 39 insurance companies in 2017
include 18 life insurance companies, 20 non- life insurance companies and 1 reinsurance
company. There is high growth in number of insurance in 2017 so, Insurance Board raised the
paid up capital requirement of life insurance from Rs 500 million to Rs 2 billion and that of non-
life insurance from Rs 250 million to Rs 1 billion. But, the increasing number also shows rising
investor confidence in the domestic insurance market.
Similarly, the interest of general public towards insurance over the last few years has grown as
more Nepalese are looking to get insured. The devastating earthquake of 2015 with the huge loss
of human lives and property proved to be an important lesson in this regard. As a consequence,
people have become more aware that insurance can be instrumental to mitigate the risks in the
future.
In addition to these, Insurance Board published ”Beema Samiti Strategic Plan 2014-2019” which
also throws a light on progress of the insurance business in Nepal (based on data till 2013)
which is summarized as below :
 Nepal has seen a steady increase in the expansion of branch insurance companies both in
the life and non-life insurance categories (Annex 1).
 The portfolio analysis of insurance companies reveals a promising outlook on the
insurance business in Nepal. The total assets of non-life insurance companies have made
a dramatic leap from NRs. 783.55 million in 1990 to a massive NRs. 14,809.24 million in
2013 (annex 2). Comparatively, the total assets of life insurance companies have gone
from NRs. 81.80 million to NRs. 82,271.72 million (Annex 3).
 Liabilities on the other hand is showing similar trends although this can be said to be
“part of business” since liabilities in the insurance business tend to be relatively high.
 Premiums have been showing a favorable outlook since 1990 with the initial NRs. 106.40
million for non-life insurance companies going up to NRs. 8,784.30 million in 2013.
Similarly, life insurance companies have been earning premiums of NRs. 194.89 million
in 1990 to NRs. 18,229.09 million in 2013.
  The total claim for non-life insurance companies in 1990 was only 1 thousand while the
number of policies issued was 14 thousand. These increased up to 45 thousand and 768
thousand in 2013 respectively. Life insurance companies issued 31 thousand policies in
1990 and paid claims of 2 thousand which increased to 3,556 thousand and 77 thousand
in 2013 respectively.
All of the above facts show the growth potential of insurance business in Nepal. Therefore, some
new products have been added to the prevailing products in insurance sector. Those prevailing
and new insurance products are described below:

Insurance Products
Insurance companies in Nepal have various types of insurance products for Nepali policyholders.
Life insurers have been selling a range of policies such as whole life policy, term life insurance,
endowment plans, money back plans, accident and health related policies, children insurance
plans, group insurance/employee benefit, among others. Besides these, companies are also seen
launching new products in order attract more Nepalese into insurance. NLIC, for instance,
introduced the one-year ‘Smart Life Insurance’ scheme under which the company will provide
Rs one million to the nominees if a policyholder dies during the policy period. The insured are
required to deposit Rs 10 per day.
Non-life insurers, in the meantime, also have various products in their portfolio. As per the
Insurance Regulation, 1993, non-life insurance companies are allowed to sell policies in Fire
Insurance, Marine Insurance, Aviation Insurance, Motor Insurance, Engineering and Contractors
All Risks Insurance and Miscellaneous Insurance. The Miscellaneous Insurance covers areas
including accidents of individuals and groups, transit, third party liability, industrial accidents,
damages to households, livestock, crops and medicine.

New Insurance Products

Agriculture Insurance
In January 2013, Insurance Board implemented the Crops and Livestock Insurance Directives
and six types of insurance policies have been issued in this regard. The policies cover various
types of crops, vegetables, cereals, fruits, poultry, fish, cattle and farm animals. Despite a
lukewarm response after the implementation of the policy due to lack of awareness among the
farmers, there has been a significant jump in sales of agricultural insurance products in recent
years. The government provided a 50 percent subsidy on insurance premiums of crops, livestock
and poultry from FY2013/14 and in FY20115/16 the subsidy increased to 75%, this has made the
agriculture insurance effective.
Micro insurance
Micro insurance is being seen as a tool to increase insurance in Nepal. The government led by
Prime Minister KP Sharma provisioned the micro insurance program in the budget for FY
2016/17. Under this, both life and non-life insurers are mandatorily required to provide at least 5
percent services in micro insurance out of their total services. The program sets out to minimize
the financial risks associated with agriculture, cattle/livestock and other small rural businesses.
Insurance Board has already introduced the Micro Insurance Directives in 2014 which has set the
insurance policy amount at a range of Rs 100,000-Rs 200,000 with the annual premium being
0.1-5 percent.
Migrant Worker Insurance
A new health insurance policy was implemented in mid-February 2017 that enables Nepali
migrant workers who have bought term life insurance to receive coverage for critical illnesses of
15 types against an insurance premium for Rs 400. The government announced it would increase
the insurance coverage to Rs 2 million from Rs 1.5 million for migrant workers who work in 110
countries. Under the program, the government will bear half the premium amount while the
remaining has to be paid by the workers themselves.
Reinsurance
Reinsurance is a new area of insurance business in the context of Nepal. Reinsurance basically is
a risk management practice where insurance companies transfer a portion of their risks to other
insurers (reinsurers). Insurance companies in Nepal mostly rely on reinsurers in India, Singapore,
Japan and Hong Kong and Africa for reinsurance. However, the prospect of reinsurance has risen
with the establishment of Nepal Reinsurance Company Limited (NRCL) in December 2014 with
a 43 percent stake of the government, 39 percent of non-life insurers and the remaining 18
percent from life insurers, the company has gained notable momentum in just two and a half
years. Its transaction amounted to Rs 2 billion in its first year. NRCL has been working with 17
Nepali non-life and four life insurance companies at present. Also the company has been
providing reinsurance services to 26 insurers from 15 countries.
The government in the budget for FY 2017/18 has announced that a mandatory arrangement will
be made for Nepali life and non-life insurance companies to reinsure a major share of their
insurance policies to Nepal Reinsurance Company to reduce the outflow of fund from the
country in reinsurance. It is estimated that Rs 10-12 billion goes out from the country for
reinsurance annually.

These new products are supported by government for the betterment of the country’s economy
and for financial inclusion of all the citizens.
 Unit4: Challenges to the Insurance Companies in Nepal
Insurance is considered a sector with vast potential in Nepal as the penetration of insurance is
just 1.31 percent of the GDP at present. According to the Financial Inclusion Roadmap 2017-
2022 prepared jointly by The Centre for Financial Regulation and Inclusion (CENFRI), Finmark
Trust and United Nations Capital Development Fund (UNCDF), 80 percent of the adult
population of Nepal do not have any type of insurance coverage. As per Insurance Board, the
access to insurance in the country currently stands at 12 percent combining both life and non-life
insurance coverage. Estimates put just around 5 percent of the country’s population to be
covered by life insurance policies at present. Despite the opportunity of large market coverage,
there are some key challenges in Nepalese insurance market. The following are those challenges
as per the Insurance Board:
 Low and Irregular Income: A large segment of Nepal’s population has low purchasing
power. Many lower and even middle class Nepalese are neither familiar with the culture
of insurance nor their income is enough to buy life insurance policies. Insurers are thus,
faced with the challenge of familiarizing potential clients with the benefits of insurance
coverage. Moreover, slow economic growth and political instability in the country also
hinder the further growth of insurance market.

 Unhealthy Competition among the Insurers: Since the size of the insurance market is
small, the unhealthy competition among insurers is a serious challenge for the Nepalese
insurance market. The practice of price-cutting is also rampant and the experience of de-
tariff practice is not very promising either. Almost all of the insurers, particularly the
non-life insurance companies have concentrated their businesses in selected urban areas
only.

 Low Retention Capacity of Insurers due to Low Capital Base: Similarly, the paid-up
capital of insurance companies is too low. Before July 2013, the provision of paid-up
capital of life and non-life insurance companies was NPR 250 million and NPR 100
million respectively. But now the provision of paid up capital of life & non-life insurance
companies is NPR 500 million & NPR 250 million respectively. Therefore, risk retention
capacity of insurers is very low owing to the low capital base. Again, there is a limited
access to reinsurance market for Nepalese insurers. Both regional as well as international
reinsurers are reluctant to accept businesses from Nepal.

 Shortage of Competitive Human Resource: More effective training of the staffs of

Insurance Board as well as companies and intermediaries is crucial in the insurance
market. Shortage of well qualified human resources proves to be yet another challenge to
the Nepalese insurance sector. The plan of the Insurance Board to set up an Insurance
Academy has not yet been materialized.
Beside these, other challenges are low level of insurance awareness, limited access to
reinsurance market, weak legal and regulatory framework.
Insurance Act is responsible for the legal and regulatory framework, but the provisions in the
existing Insurance Act, being more than two decades old have lost its relevance in certain key
matters to address the burning and current requirements of the insurance industry.
The Insurance Board already drafted a new insurance Act and submitted the same to the
concerned authority for enactment. The proposed Act addresses a number of issues including,
paid-up capital, conversion of the existing Insurance Board to the Nepal Insurance Authority,
composition of the new insurance authority, provisions of mergers and acquisitions based on
IAIS Core Principles (the International Association of Insurance Supervisors (IAIS) is a
voluntary membership organization of insurance supervisors and regulators which promotes
effective and globally consistent supervision of the insurance industry in order to develop and
maintain fair, safe and stable insurance markets for the benefit and protection of policyholders
and to contribute to global financial stability.)
Emerging trends in insurance is also a challenge to insurance companies. E-insurance and
Bancasuarance are in emerging trend.
The business of insurance is all about providing practical solutions to the clients using latest
technologies. While the concept of e-insurance has gained prominence in developed and many
emerging economies, Nepal has lagged behind in terms of expanding the insurance business
through digital means. Nevertheless, the digital gap in insurance innovation has narrowed with
the launch of the portal www.ebeema.com. Introduced in April 2016, the insurance portal
enables users to compare and purchase insurance policies being offered by a number of insurers
in the country. This can pose challenge to the companies to sustain in the market. If they are not
competitive enough, they may not exist.
Bancassurance was introduced in 2006 in Nepal, but it has remained a low profile insurance
service due to the lack of interest among the customers, banks and insurance companies.
However, with more banks and insurance companies joining hands to provide insurance services
to their clients Bancassurance has been speeding up over the last few years in Nepal. It is
basically an arrangement in which banks and insurers enter into a partnership to sell insurance
products to the client base of the banks. The Insurance Board is also said to be working to
introduce the Bancassurance Policy whereby customers can receive insurance services through
all branches of banks throughout the country.
In conclusion, each company also should become able walk in the pace of changes; otherwise
those companies would be left behind.
 Unit 5: Conclusion
While referring to the history, we can find that people started insurance for reducing the losses
due to unanticipated events. Today also insurance is done for the same reason. But, the way
insurance is done and its scope have changed. Before only businesspersons/ traders used
insurance but, now every person can have insurance contract with the insurer for protecting them
against various risks.
Nepal, though it is small in area, provides scope for insurance business. Insurance Companies
have growing trend in Nepal. Despite this, only 12 percent of the populations are using life as
well as non life insurance products. It might be due to lack of awareness or, due to concentration
of insurance service to urban areas or due to other reasons. New products like micro insurance,
migrant worker insurance, agricultural insurance is likely to increase the users of insurance
products.
Therefore, despite having challenges, insurance business in Nepal may increase more in future.
 Annex 1

Source: Insurance Board

Annex 2

Source: Insurance Board

 Annex 3

Source: Insurance Board

References

 Beema Samiti Strategic_Plan_2014-2019

 https://infographiclist.com/2011/11/09/the-history-of-insurance-a-timeline-infographic/
 Insurance Act 2049
 Insurance_Core_Principle_updated November 2017
 http://www.investorwords.com/2510/insurance.html
 Ministry of Finance, Government of Nepal. “Economic Survey”
 Samudra Paudel (2012) “A report on insurance industry of Nepal”
 Sanjeev Sharma (2017) “Insurance Sector Towards the Golden Days”, New Business
Age