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 persons 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 persons 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. Thats 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 insureds rights when they shop for insurance and when
insured submit a claim for concerned loss. Insureds 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 customers intermediary of changes to, or the cancellation of a policy
at least 30 days prior to the expiration of thepolicy, 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. Insureds 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 Companys 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 countrys 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 widows
pension, orphans 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 insureds 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
policyholders 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 undertakings 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 companys assets condition to face their future risks.
viii.To determine the companys 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 couldnt be done due to time constraints. As a result
its 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.

For Data analysis and conclusion section please visit on this

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Posted by Samudra Paudel at 8:34 PM
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