Why insurance companies aren't enjoying peace of mind?

While the players have increased the pie has not grown in the same proportion. Today, just about 5 per cent of the population is covered by any kind of insurance "Sadly, the insurance business is not being run the way it should" -- Chunky Chhetry, deputy general manager of Sagarmatha Insurance Company Ltd "Businesses and economic activities should be brought under the net of insurance compulsorily " -- Rajendra Khetan, chairperson of Everest Insurance Company "A truly positive attitude about insurance is still lacking" -- Dr Anil R Bhattarai, director of National Insurance Board (NIB)
The concept of insurance began in Nepal with the establishment of Nepal Insurance Company in 1947 with non-life insurance. Currently, the country has 25 insurance companies in operation, out of which eight only deal with life insurance and 16 are nonlife insurance companies.
National Insurance Corporation, which was established in 1967, is the only one that provides both life and nonlife insurance services. While the players have increased the pie remains the same and while insurance is a defensive measure against future conditional losses the concept is yet to be accepted by the vast majority .

Unofficial data shows that only about five per cent of the total population is covered by insurance as a financial security tool for both life and non-life. "The industry is in its nascent stage, meaning there is a huge untapped market," says Chunky Chhetry, deputy general manager of Sagarmatha Insurance Comany Ltd.
According to him, mindset is the biggest problem and insurance is only seen as a surplus need to be sought after all the responsibilities of life have been fulfilled.
People feel that money paid for insurance is a total waste.
He opines that to attract more people to buy insurance, the insurance industry and all concerned stakeholders need to create awareness about the benefits of insurance. "Sadly , the insurance business is not being run the way it should," he says.

Insurance companies are also suffering from undercutting of rates and lack of creativity in offering new schemes. A price war among themselves for the existing market rather than developing new schemes and expanding the market is another problem that plagues the industry .

According to insurance professionals, even if they try to bring innovative and attractive schemes, it will take time to change mindsets.
A whole host of issues need to be resolved but the two major challenges facing the industry are the absence of reinsurance and lack of demand in the market.

Rajendra Khetan, chairperson of Everest Insurance Company, admits that the insurance companies have not been able to expand and explore the dynamic untapped market and lack longterm vision. "Since we have been developing the market by ourselves, we have not been able to offer products to attract the mass economy, and thus are unable to appeal to a majority of the population," says Khetan. According to him, both the regulating authority and insurance players have not been able to come out from their conventional style of functioning to appease the market economy as compared to the dynamics of the international market.

To change the mindset of people, consumer education and awareness is a must.
"Though there has been gradual increase in awareness about the risks associated with life and goods, a truly positive attitude about insurance is still lacking. Earlier, insurance was not the priority of the government, but now it is also concerned about making financial security accessible to the commoners," says Dr Anil R Bhattarai, director of National Insurance Board (NIB).

To expand and offer micro insurance in rural areas, NIB has directed insurance companies to provide micro finance in at least one sector such as health, agriculture or livestock. The board is also in the process of amending the existing Insurance Act 2049, which include the concepts of micro finance, reinsurance and mergers among others. Though the new Act is still under discussion at the Ministry of Law, NIB is hopeful to get the required approval.

"If microfinance in agriculture is made compulsory, there must be government subsidy. For, without the government subsidy and reinsurance, it is not possible as every business seeks profit from the investment," says Chhetry . Though there is less probability in microfinance like in livestock and agriculture, insurance of tea gardens can be pilot projects.

However, Bhattarai is against any government subsidy because that increases the tendency of private companies to be dependent. "To back up the insurance companies, reinsurance companies are needed, and for this a taskforce has been formed. If this happens, private companies will be locally safe," Bhattarai admits.

"There must be one window to solve the problems of insurance companies. So, the regulating authority, government and private sector should come together to cultivate the culture of insurance in rural areas," says Khetan, adding , "Supply side is abundant but we lack the vision of dynamic market."

"Bringing new business opportunities such as third party insurance coverage, insurance of livestock and agriculture is suitable, but there must be strong policy and regulations to check against fraud. For instance, there is misconception and confusion regarding third party insurance and people are making claims that are even more than the premium," says Chhetry. "Actually third party insurance is a legal liability but in Nepal it is exercised as a no fault liability. For example, if a vehicle hits a pedestrian then the vehicle has to pay all the bills even if the vehicle has no fault. Such cases are increasing daily, and we cannot do anything in such case as the papers are sent to us from the Chief District Office," says Chhetry . He feels all the concerned parties including the government have to come up with an effective regulating mechanism to control the irregularities seen in this business and only then can the industry perform as per expectations.

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