The Challenges and Prospects of Insurance Industry in Nepal

Early methods of insurance–a tool for mitigating the risks of financial loss, is said to be first practiced by Chinese traders, when they would redistribute their wares across many vessels in order to limit the loss due to capsizing of the vessels while crossing dangerous rivers. Today, all around the world, modern insurance systems have taken off, including Nepal, especially after the earthquake of 2015.

Shikhar Insurance Company Limited is a general insurance company dealing with banking, aviation, manufacturing, travel trade, media houses and so on. It aims to address the persisting challenges of developing policies as required for potential clients and filling the gap of technical human resources in the insurance industry in Nepal.

For NEXT Venture Corp’s tenth Venture Talk series, Mr. Dip Prakash Pandey, the founding CEO of Shikhar Insurance spoke about the insurance market scenario in Nepal, the challenges, and future prospects. Mr. Dip Prakash Pandey has two decades of experience in the insurance field Before joining SICL, he served as the General Manager at Everest Insurance for about ten years. His professional ability and prudence along with his strong belief in teamwork has helped him acquire experience in the local as well as in the international market.

Breaking down insurance

Insurance, to define simply, is a risk-mitigating system, which involves a contract, and a premium (amount of money charged by the insurer for coverage), mainly used against uncertain financial loss. There can be several types of insurance, but it is mostly categorized by life and non-life insurance. An insurance policyholder in Nepal receives a contract from an insurance company, such as Shikhar Insurance company, receives an insurance policy, which consists of the terms and conditions under which they will be insured. Should the insurance holder suffer a loss, they can submit a claim, and should be compensated. During major claim events, a reinsurance is used by the insurance company, where they purchase an insurance policy in order to remain financially stable.


The evolving insurance market

Some may say that the insurance market is resistant to change, but the truth is that it is changing in several ways. For example, new policies that guarantee coverage even if due to changes in taxes, the amount of coverage changes have been emerging in the international market. Similarly, an increase in the capital base, upto a 100 crores has increased the capacity of insurance companies like Shikhar to retain risks, and take less premium from the reinsurance market. Shikhar insurance also takes what is called a proportional treaty agreement with the reinsurer. This is where the reinsurer, based on their business projection and class of business, arranges a treaty facility  on an annual basis, and agrees to cover the specified share of all the insurance policies issued by Shikhar within the scope of the contract.

Not only this, since the earthquake of 2015, Shikhar Insurance has increased its number of branches from 29 to 85. It had the highest catastrophic cover of 200 crores, and the loss amounted to be fairly insignificant.  The catastrophic cover has been increased to 800 crores now.

Factors that have caused growth in the insurance market

The Nepali insurance market has always been a forced market. Insurance first started out with Nepal insurance companies, and soon, there was a regulatory requirement to take insurance, and people were obliged to buy insurance. After that, the insurgency became a fear factor in the peoples’ minds, and caused them to get more and more interested in buying insurance. Later, road accidents became very common and the finance minister applied a compulsory insurance rule.

Another growth inducing factor for the insurance market, was when 4 years ago, the government announced agricultural insurance. The insurance agencies weren’t too keen on this type of insurance since the cost was high, and so they divided the country into 17 segments, and operated a lottery system to decide which company would cover the agricultural sector of which area. Shikhar Insurance ended up with Makwanpur, Chitwan, Dhading, Nuwakot, and Rasuwa. This wasn’t a great source of profit for them, but it did create a confidence in the country about insurance, and how it can actually come to use. People started looking into insuring their property, vehicles, and so on.

Opportunities in the insurance market

It is easy to underestimate the opportunities in rural areas of Nepal. Some 3-4 ago, when Shikhar Insurance Company opened up a branch in Jumla, the premium was hardly 10-12 lakhs. People would think it was absurd that the company was still operating in Jumla, where profit-maximizing seemed almost impossible to achieve. Today, the same branch is giving a premium of 2.2-2.5 crores, and Shikhar has expanded its branches to remote areas such as Doti, Achham, Mugu and Kalikot.And besides that, career opportunities in the insurance sector are abundant, especially since there is a shortage of technical human resources in the insurance industry.

Falguni Basnet