CA, Yuba Raj Pandeya
COVID 19, commonly termed as Corona Virus is a pneumonia of unknown cause detected in Wuhan of China and first reported to World Health Organization (WHO) on 31 December 2019. The outbreak was declared as Public Health Emergency of International Concern by WHO on 30 January 2020 and on 11 March 2020 declared as pandemic. Currently more than 6.6 million people have been infected by the virus, with fatalities of more than 3.91 lacs worldwide, and in Nepal 3,235 people have been infected by the virus with 13 fatalities. Being the new virus, there is no any treatment available and nature of virus is under study and we have been receiving different information in day to day basis.
In the same context, the Beema Samiti (Insurance Board of Nepal, IBN) has started the insurance policy for coverage against COVID 19 on Baisakh 7, 2077. The policy has two categories namely Class ‘A’ with coverage of Rs. 1 lacs and Class ‘B’ with coverage of Rs. 50 thousands. The premium per person is Rs. 1,000 and Rs. 500 respectively for class ‘A’ and ‘B’, and if family is to be covered the same is Rs. 600 and Rs. 300 respectively per person. The insurance has got publicity and popularity and due to faulty nature of policy, the same is suspended on Jestha 23 and on Jestha 24 again resumed despite its same faulty design. The budget presented by Finance Minister has proudly taken the ownership of the insurance and included in the budget as providing subsidy for insurance and insurance of government employees.
Anywhere in world, the insurance of War, catastrophic event, pandemics etc. is generally not made, and made as social insurance by state participation and with some modifications. Insurance is based on principles of Good faith, principle of Indemnity and Insurable interest. The current policy implemented is not following any such principles and it is designed and implemented as ‘Network Marketing’ and ‘Conflict of Interest’.
Firstly, the current policy has faulty design of payment of sum insured on proof of COVID 19 to the insured person. Insurance payment is made to make good the loss i.e. the premium collected is accumulated and paid to the loss bearer to make the policyholder feel as if the economic loss has not occurred. As per WHO and latest information about COVID 19, around 80% of person infected with virus are asymptomatic and/ or have very mild symptoms. There will be no any economic loss from insurance point of view to those asymptomatic or mild symptomatic persons. Is this justifiable just to make payment on the basis of catching the virus only without any insurable loss.
The next cohort of around 15% have strong symptoms and may require treatment for symptoms and need rest. Nepal government has made and being member of WHO will pay the cost of hospitalizations to those persons. In this cohort of infected person, there is no insurable loss that need indemnification. So, nearly 95% of persons being infected with virus have no insurable loss, so it is not justified to make the payment just to catch the virus and having no economic impact.
Sadly, the last cohorts of about 5% have serious symptoms and need treatment for symptoms, and unfortunately they most probably will die. The cause of death by COVID 19 is found in those persons having underlying heath conditions (i.e. called co-morbidity). Nearly 5% of the persons catching the COVID 19 are susceptible of death, and the death varies country to country and person to person. As per CDC of US, the death rate of COVID 19 on population is less than 0.01%, and in future when the infection increases, testing increases the death rate will decrease further.
So, the first fault design of COVID 19 insurance need to be changed at the earliest to make payment on death due to COVID 19, not on just catching the virus.
Second, there is huge information asymmetry between the persons about the COVID 19 insurance. The first policyholders were the staff of Insurance Board Nepal (IBN) itself. Till Jestha 24, more than 3 lacs policies were sold. The insurance policy till date is purchased for employees of organized sector (Bank, Insurance Company, Media and Corporate Houses) at free ride of others. The cost of premium is mostly paid by the employers on behalf of employees (I’m not against the employee welfare), and as per budget the government will insure/bear cost of insurance of nearly 7 lakh government employees. Here, the policy buyers are of informed cohort, are in employment in organized sector, and are able to pay the premium (Rs. 100 or Rs. 500) which is significantly low cost.
Thirdly, the current COVID 19 insurance is against conflict of interest and based on ‘Network Marketing’ style (the network marketing is illegal, banned by Honorable Supreme Court of Nepal) . The coverage period of policies issued before Jestha 23 was one year, and from Jestha 24 the coverage is capped to Chaitra end 2077. The premium of employees of Insurance Board is paid from taxpayer’s money, and they will be benefited on catching the COVID 19 virus, that is the employees of Insurance Board are receiving the amount of premium and amount of coverage from the others pocket.
As per Insurance Board’s latest arrangement, the coverage upto 35,000 claims is secured as 10,000 from Insurance companies, 10,000 from Nepal Reinsurance Company (Nepal Re), 5,000 from Catastrophic reserve of Insurance companies and 10,000 from reserve of Insurance Board, and claim above 35,000 is assured from Nepal Government (although no further information how Nepal Government will fund is not available). The fund arrangement is to benefit the informed and economically stable cohort of people from the taxpayer’s money. Is this socially justifiable to make free rider benefit to the policy makers from the tax payer’s money? No its not, and Insurance Board has no answer because the base of current policy is total fault.
It is working like network marketing because only the coverage for 35,000 claims is secured, then what about the remaining 265,000 policyholders? Insurance Board has no answer in toady and what happens the infection rate increases and all the policyholders will catch the virus. In this pandemic situation the catching the virus is almost certain in the due course of time and the same is very much affected by the ‘R’ number known as ‘Reproduction Rate’ in epidemiology. The current ‘R’ rate of Nepal is not known (because no one has made study) but as per trend, it is more than 1. R signifies the number of healthy persons become infected by the infected person, and after Jestha 32, 2077 some partial lifting of lockdown is expected, so the R number will definitely go up and infection will rise rapidly.
Further, the insurance policy is issued with proper study and reinsurance arrangement. The current arrangement has no proper study (actuarial analysis) and no reinsurance backup and international reinsurance companies will not accept the risk of this faulty policy. In recent days, Nepali insurance company’s business is not accepted by the international reinsurance companies because of ad-hoc baseless decisions of Insurance Board and this will further deteriorate the ability of reinsurance arrangement for Nepali Insurers (remember Nepal has only one Reinsurance Company and this company need to pass the risk to another company in aboard).
How to fix the broken parts
- Make the insurance policy on the basis of payment to family of deceased person (or serious illness such as kidney failure, liver cirrhosis etc.)
- Make the terms of policy equal to all with retrospective effect (the tenure be 1 year for all the new policies also, or the old policies should be end of Chairta 2077.)
- Mass information and mass policy selling
If the above two suggestions are taken and corrected, the premium of current policy can be reduced or managed to cover the payment for family member of deceased person.
The one and only silver lining of current policy as per Insurance Board is the operation of Insurance Pool. The premium is collected on Pool and payment is made from the Pool and this is said as Not Profit Social Responsibility of the insurance companies. The arrangement can be made more effective, by providing the some money to cover the cost of administration to the insurance companies so that mass selling can be made more effective.
As per the data of WHO and CDC, the population mortality is 0.01%, so for Nepal the total death expected is 30,000 (sadly each and only death is great sorrow). So in worst case scenario, the total death from COVID 19 in Nepal will be less than 30,000 and hope this will decrease further. If the insurance coverage is for half of population so 1.5 Crore people will be covered and total premium collected will be nearly 15 Arab, so it is sufficient to pay for family member of 15,000 deceased person. As the coverage of insurance increases, the premium collected will increase and it will be sufficient to pay the family member of all COVID 19 death cases.
Further, the government has declared in budget to cover the nearly 7 lakh government employees premium which will be nearly 70 Crore, and current plan of Insurance Board to cover 1 Arab from Insurance Board’s Fund, It will be sufficient to cover the further worst case scenario death. From this fund, the premium subsidy can be provided to very poor persons as per Local Government recommendation. This will be socially justifiable and will not have any burden on taxpayer’s money.
Now it is in the hands of Insurance Board to take the right step and being key player of social justice in case of pandemics or to further worsen the insurance market with childish and baseless policy corruption. Hope Lord Pashupatinath will provide the right wisdom to Insurance Board’s Chairman Mr. Chirinjivi Chapagain, who has told he has not slept for one night to review the policy. Mr. Chapagain, please don’t sleep one more night, and correct the policy and do some meaningful contribution, otherwise this policy will be legally, ethically and socially most severe policy failure and policy corruption in Nepal’s Insurance Industry.