There are nine life insurance companies in all of Nepal, and only 5.6 percent of the total population is insured. The figure was 4.7 percent one and half years ago. If we consider the multiple number of policies held by people, the actual penetration level is below this mark.

However, there are two ways to look at these numbers. Certainly, close to 1 percent growth in overall penetration can be regarded as a positive result. However, if one
considers that 23 percent of the total population has insurable income in Nepal, and a mere 5.6 percent has insurance means extremely poor penetration. If you analyze from the opportunity side, it presents enough headroom for the future.

Needless to say, higher penetration means higher amount of funds in the form of premiums flowing from the informal to the formal segment, which can be deployed for overall economic development of the country. In a country which is fighting this formal versus informal cash flow battle, all stakeholders including the government, the regulator and the life insurance companies must work towards increasing the penetration level.

While we just talked about the gap between the actual versus potential penetration level, it is also important to mention the low level of corporate governance in Nepal’s life insurance segment. The Insurance Board, the regulator, must pull up its socks to implement some of the systematic measures to fight this problem.

Also, the tax rebate for people buying life insurance is very low. Currently, only Rs 20,000 is exempted from the taxable income on an annual basis. This needs to be increased five-fold to Rs 100,000.


Despite the aggressive publicity campaign mounted by a few life insurance companies over the last two years, a majority of the people are still unaware of life insurance. Even if they have heard about life insurance, they are not aware about the value proposition that life insurance products can bring to their individual lives. The Insurance Board, for whatever reasons, has done nothing at all to publicize life insurance. The demands raised by all the insurance companies (both life and non-life) have landed on deaf ears. Something that needs to be noted here is that all the insurance companies pay 1 percent of their premium collections to the Insurance Board. If this amount cannot be utilized towards uplifting the segment, one wonders what can.

With regards to corporate governance, despite the Company Act requiring an independent audit committee, almost all the companies do not practice this system. As long as CEOs or managing directors keep on hiring internal auditors, a robust internal audit system cannot be achieved. There cannot be any debate on the need for a parallel structure of the internal audit reporting directly to the audit committee and the board.

Way out

The Insurance Board should implement a systematic and structured awareness campaign as early as possible. Individual companies generally cannot portray threat components (for example, earthquakes, accidents or incidents of bloodshed) in their campaign as their primary objective is to attract more business. However, the Insurance Board can certainly bring in fear factors along with other aspects of awareness in their campaign. This is a must and needs to be implemented immediately.

In governance measures, the Insurance Board must learn from Nepal Rastra Bank and implement the internal audit system as soon as possible. There must be a parallel structure of management and the internal audit system for better checks and balances. It is a self-correcting system and is being widely used in international organizations successfully.

As mentioned above, when we look at the two-fold benefit of increasing cash flows in the formal segment and securing people’s lives, the government must increase the current taxable income exemption from Rs 20,000 to at least Rs 100,000. We have a highly potential segment in life insurance. It just needs a little push from the concerned stakeholders.

(Jha is a member of the Prime Minister’s Economic Advisory Council and CEO of Prime Life Insurance. The views expressed here are personal.) ( Source: ekantipur)


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