– Santosh Acharya
In general, life insurance is a contract between the insured and the insurer (insurance company). In which the insured pays a certain amount, the insurer agrees to provide financial security to the insured or his heirs in the future. In other words, life insurance is a financial contract made between the insured and the insurer with the aim of providing financial security in the future.
According to the Insurance Act, 2079, life insurance is a contract entered into by the insurer with the insured under which, if a person pays a specific amount in lump sum or installments based on his age, the insured or his authorized person or, in the event of his death, the authorized person or the person he wishes or his heirs as mentioned in the insurance policy will receive a specific amount.
Insurance policy surrender means the process of breaking the condition of paying insurance premiums for the period specified in the insurance policy as per the contract between the insured and the insurer and immediately demanding the amount due to the insured under it.
Generally, there is a legal provision that the insurance period under the surrender of an insurance policy should be 3 years or more and the premium payment should be completed. Once the insurance policy has been surrendered, the insured cannot revive the insurance policy and activate it. Therefore, after the insured surrenders the insurance policy and receives the cash value (surrender value) under the insurance policy, there is no financial liability left between the insured and the insurer.
The situation regarding the surrender of life insurance policies in Nepal is dire. In the year 2022. 23, approximately Rs. 13.34 billion of policies were surrendered. Similarly, in the year 2023. 24, with an increase of 8.67 percent over the previous year, Rs. 14.50 billion and in the last few months of 2024. 25 alone, insurance policies worth approximately Rs. 2 billion have been surrendered.
The reasons for the surrender of life insurance policies in Nepal can be explained as follows
##1. Considering life insurance only as an auxiliary importance
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## In our country, Nepal, insurance is still not considered as a mandatory importance. In Nepal, insurance is understood as a necessity or importance only after all other needs are fulfilled. Even a large number of individuals who understand that insurance is a necessary thing do not have life insurance in Nepal. It has been found that most of the life insurance in Nepal is done by agents, not by understanding and feeling the need, or by taking out tax exemptions to get life insurance. That is why, when life insurance policyholders encounter some financial difficulties in their personal lives, they first think of supplementing their financial resources through insurance without looking for alternative solutions to other financial instruments, and when the problem arises, they immediately close it and destroy it. The main distortion of surrendering insurance in Nepal has been the lack of mature literacy.
2. The economic situation of the country
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## The economic situation of the country is not dynamic, except for some areas, and the entire region is depressed due to the extreme economic crisis or economic contraction, which makes it difficult for customers to pay daily insurance premiums due to the financial crisis.
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## ##3. Lack of development of professional agents
The life insurance agent profession in Nepal has not been fully developed as a professional agent, and due to the lack of communication of correct insurance information, misselling in insurance has been found to occur, and the inability to provide the right life insurance plan to the right person has also prevented life insurance from operating in the long term.
4. Changes in personal circumstances
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## In Nepal, insurance surrenders are also increasing due to loss of employment, departure abroad without a future in the existing employment, daily business decline and closure, changes in family responsibilities, etc.
## ##5. Lack of timely information about insurance premium payment
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## In Nepal, life insurance companies have been found to inform customers about premium payment via messages and phone calls. However, while insuring, ignoring the fact that the medium of information transmission in the proposal form may be e-mail in the future, the proposal form only includes the phone number as the medium of information for customer information, and since that number also changes over time, the information cannot be transmitted to the correct number, which leads to a long gap in information transmission between the insurer and the insured, and the delay in the transmission of information related to insurance premium payment, which is not timely, and the obligation to pay insurance premiums for many years at once is also increasing insurance surrender.
6. Failure to inform about the losses incurred when surrendering an insurance policy
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## In Nepal, although life insurance companies advertise their products in various media, there is no public awareness campaign to highlight the losses incurred due to insurance surrender, the importance of life insurance, and the digital importance of insurance surrender. This is most important today.
## 8. Failure to explain the importance of life insurance
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Even now, the Nepali people have the impression that they have done it for a life insurance agent or an employee of an insurance company because they are not able to say ‘I did it because I was a barber’. The insured has not been able to explain the feeling that life insurance is for me, for the financial stability of my family, and despite the efforts made, the development of the feeling that insurance is for him, for this, has not allowed insurance to last long.
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## 9. Dissatisfaction with insurance services and companies
In Nepal, life insurance companies do not seem to show much interest in after-sales services to their customers. There is no specific plan to engage customers with them. Due to which there is customer dissatisfaction with insurance services. The company should inform the customer about its financial status from time to time, send messages on important days like the customer’s birthday, and inform about its bonus distribution, which keeps the customer informed about the company’s situation and keeps them informed that the organization they have insured is fine. Similarly, since there is a Nepali society where only a few customers are educated about making digital payments when renewing insurance, it is necessary to train the agent himself about this and if there is a provision to give some rebates when paying digitally in the first few years when renewing the customer, this will motivate the customer and ensure long-term continuity of the insurance no matter where he goes in the world. It is necessary to draw the attention of the concerned body to this.
10. High premium cost
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## The premium cost of life insurance in Nepal is more than the average income savings of the average person here. Therefore, the average insurance premium payment period is also not found to be more than 5 to 7 years. Therefore, according to the changing situation, a new life insurance plan that combines term and fixed life is necessary. Which can bear more risk at a low premium rate.
The following short-term and long-term actions can be taken to reduce life insurance policy surrender in Nepal
##1. Provide insurance literacy
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## The main way to prevent life insurance policy surrender in Nepal is to provide financial literacy regarding the need for insurance. For insurance literacy, insurance awareness should be included in the curriculum from school onwards. This will spread awareness about the importance and necessity of insurance in the long run. Similarly, all companies should conduct a digital awareness program regarding the losses incurred while surrendering insurance. Therefore, companies should clearly inform customers about the financial losses that may occur when they come to the branch to surrender insurance and the importance and benefits of the insurance taken. If possible, special training should be provided to a specific employee and customer counseling should be arranged. If there is a complaint about the service to be surrendered for the customer, a practice should be developed to address it immediately.
2. Agent Capacity Building Training
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## Insurance agents are an important part of the insurance sector. In Nepal, more than 90 percent of insurance is done through agents. Insurance agents should be trained to ensure long-term customer satisfaction. They should be trained on how to choose the right plan based on the customer’s financial situation, objectives, and needs.
The tendency to sell insurance by providing incorrect or incomplete information should be eliminated. Arrangements should be made to link the number of renewals to the growth of the agent’s position. In addition, in the honor programs organized by companies, not only the annual business but also the agents who are dedicated to serving their customers by engaging in the most renewals should be specially honored and motivated.
3. Simplify policy renewal premium payment
Flexibility in premium payment (monthly, quarterly, or annual installments) should be provided. Encourage the use of digital payment systems such as mobile banking, e-seva, Khalti, etc. Similarly, make special arrangements for QR system for renewal on the company’s website, official Facebook page, as well as various newspapers to facilitate renewal payments.
4. Providing policy loan or partial withdrawal facility
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## Formulating special plans for insurance policy loan or partial withdrawal facility to protect the customer from having to surrender the insurance due to sudden financial needs.
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## ##5. Providing information on bonus and financial status
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## Providing accurate information on the bonus, dividend and maturity amount received from the insurance plan to the customer from time to time. Which ensures the security of their investment and continues to establish a harmonious relationship between the company and the customer.
6. Improve customer support and consultation services
Provide direct consultation services to the insured to solve problems. Arrange a free hotline system at the central office or at the provincial level and make special arrangements for customer support and consultation services. In addition, at least once a month, arrange for a high-level employee or grievance officer of the company to come to the free hotline system for some time to directly talk to the customers about their direct problems, complaints or their wishes. This will help to get information about the company’s objectives and actual progress and to take long-term plans and corrective actions towards the procedures that have been found to be different.
7. Special provision for revival of insurance policies
The economy of Nepal after Covid has not been as strong as before. Therefore, there is a provision in Nepal for customers who have missed their insurance premiums for 4-5 years to revive them by paying the premium at once. It is the demand of the day to review the special legal provision for a few years by amending the special law and providing a premium holiday, and ending the mandatory situation of paying the premium at once for many years by making a special assessment of the insurance amount paid and continuing it annually.
8. Raising public awareness about the structure of insurance companies
Due to the current problems in cooperatives in Nepal, many people have compared insurance companies and cooperatives on the same scale. Therefore, there is a huge difference between life insurance and cooperatives. There is a need to create widespread awareness that this is regulated and inspected by the Insurance Authority, a government body that is a part of the Ministry of Finance. Similarly, if there is any complaint, since the Insurance Authority has been established in each province, it should be informed that it has come to the provincial-level villages to lodge your complaint.
9. Formulating special provisions for insurance surrender and new insurance policies
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Another anomaly seen in life insurance is the practice of agents taking their clients with them when they leave one company and go to another. It has been heard that some people surrender their previous insurance by showing that it is better to surrender it to another company. Therefore, a special provision should be formulated so that no matter which company you surrender an insurance policy to, you can only do it to the same person after a certain period of time. This will help in the continuity of long-term insurance. For this, an insurance information center should be established and its implementation role should be played.
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## 10. Need for a special department for insurance surrender
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## Nepal is currently on the grey list under AML and CFT, so the risk of money laundering in the financial system is high. It seems necessary to address this risk in the insurance sector as well. In particular, to make the insurance surrender process more transparent and regulated, a separate approval process should be required for insurance surrenders above a certain insurance figure or premium paid. For this, a special department should be formed for insurance surrender and a system of approval from the same body should be implemented. This arrangement will not only prevent possible abuse in the financial system but also prohibit attempts to money laundering. In addition, it will help strengthen the credibility and stability of the insurance system by further regulating the large insurance surrender process.
##Finally
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## The main need today is to increase the number of counseling centers and awareness programs that make people feel the need for insurance without ignoring the current situation in Nepal, where the ratio of insurance surrender is increasing by about 17 percent. Similarly, since insurance is also a long-term plan, there is no better tool than insurance to provide financial certainty for an uncertain future, so it is necessary to continue insurance. If financial problems arise in the middle, the alternative solution provided by the company is to provide loan facilities at minimum interest without taking any additional service facilities after paying the full insurance premium for 3 years by keeping the policy paper as collateral. This is considered beneficial to the insured. Because while the transfer of financial liability is completed between the insurer and the insured during surrender, the risk bearing is continuous when taking out a loan facility.
Therefore, attention should be paid to developing a strong relationship between the insurance company, agent and the insured by increasing the awareness that insurance is a means of ensuring the future rather than a temporary benefit.
(The author is the Branch Head of Acharya Himalayan Life Insurance Biratnagar Branch.
