KATHMANDU, Sept 22: The Insurance Board, regulator for the insurance sector, has been lobbying the Finance Ministry to make it compulsory for all residential and commercial complexes located in municipalities to insulate themselves with earthquake-damage insurance coverage for the last two years.
The regulator´s proposal has been gathering dust for the last two years but the Finance Ministry has not taken any initiative to turn the proposal into a law.
“The last time we had sent a formal request was during the time when the government was preparing the budget for this fiscal year,” an Insurance Board official, who is familiar with the issue, told Republica. “But we haven´t heard from them.”
The Insurance Board had floated the proposal of mandatory coverage for earthquake damage after Nepal´s capital topped the 2001 list of world´s most earthquake-vulnerable cities. A 2004 study said if a tremor of magnitude more than 8 on Richter scale hits Nepal, six out of 10 buildings in Kathmandu would collapse.
A one-and-half-minute teaser was witnessed last Sunday when an earthquake measuring 6.8 on the Richter scale shook the country, causing more than 150 buildings to collapse and develop cracks in even the so-called sturdiest structures in Kathmandu.
Considering this, the possibility of buildings turning into rubbles in case the country is hit by an earthquake of bigger intensity cannot be ruled out.
“We were lucky that the damage caused by Sunday earthquake was minimal,” the Insurance Board official said. “But we can´t be lucky all the times as we know our country lies in one of the most seismically active zones in the world.” That´s why, he said, Insurance Board has been pushing to make insurance coverage for earthquake damages compulsory.
In the initial phase, the board has proposed that the coverage be extended to houses, residential and commercial complexes located in municipalities, where density of such structures is high. In these areas, losses can reach millions, if not billions, of rupees in case of a catastrophe.
“Who will provide compensation under such circumstances as the government won´t be able to cover losses of this magnitude,” the official asked, signaling urgency of the matter.
Currently, insurance companies include the quake-damage coverage in the fire-risk insurance bundle. But since it is not compulsory, many just purchase fire-risk insurance and avoid earthquake coverage.
Two insurance companies - Nepal Insurance Company Limited and Sagarmatha Insurance - told Republica that more than 95 percent of people who buy earthquake damage coverage are those who have acquired home loans as mortgage lenders force them to do so.
“Other individuals simply opt out assuming chances of a quake destroying their houses are remote,” Chandra Singh Saud, Deputy General Manager of Nepal Insurance Company Ltd, said.
This is despite the fact that earthquake-damage insurance costs about Rs 1.25 per year for property worth Rs 1,000. In other words, an individual who owns Rs 2-million house has to pay a premium of Rs 2,500 per year.
Saud said: “If Rs 2,500 per year can prevent losses of Rs 2 million, it should be considered rational investment. But most of the people don´t understand this.”
Insurance Board official called these people ´ignorant´. “It´s because of people like them that earthquake-damage coverage has to be made compulsory,” he said.
Published on 2011-09-22 01:45:42