Kathmandu. A study report published by the Insurance Authority of Nepal (NIA) on the analysis of socio-economic factors influencing the inactivation and dedication of insurance policies in the life insurance sector of Nepal has exposed a major crisis in the insurance market.
According to the report, life insurance in Nepal’s life insurance industry has become a pervasive economic challenge rising above the usual phenomenon due to inability of insured to pay premiums on time and cancellation of policies due to premature financial necessity or other reasons.
FY 2080. Looking at the data of 81, more than 11,58,000 life insurance policies valued at more than Rs 34.37 billion were inactive without renewal. In the last financial year 2081. The size of inactive insurance policies increased to Rs 36.51 billion in 1982.
Similarly, 1,13,976 insurance policies have been surrendered in a period of one year. As a result, Rs 14.5 billion has been excluded from the insurance system. Inactivity means that insurance cover is suspended due to inability to continue. Surrender means discontinuing insurance in the middle and withdrawal of money, which has taken away the long-term financial security of the insured and has also seriously affected the financial stability of the insurance companies.
The report has pointed out multi-faceted reasons why policies are not renewed on time and why the insured are forced to surrender the policy. The main reasons for this are the personal financial crisis of the insured, the sluggish economic situation of the country, high inflation (inflation), instability in income and foreign employment or migration.
Of the multiple answers, 78.9 per cent of the insured said financial hardship (such as loss of job or reduced income) was the main reason. 61.2 per cent said they had to surrender their insurance to get cash immediately for emergency household expenses, medical treatment or children’s education.
In this process, the insured themselves buying expensive insurance policies without considering their actual income and long-term capacity, the agents getting insurance on the basis of personal or social relationships (according to 76 percent of the agents) without evaluating their actual financial capacity, and the lack of a clear understanding or financial literacy about insurance has also played a big role. Similarly, poor service of insurers, delay in claim payment (65.2 percent agreed) and low bonus rates compared to banks and cooperatives have also disappointed the insured.
The trend of insuring without a clear understanding of insurance in the life insurance market in Nepal and the statistical picture associated with it is very worrisome. According to the study report, people do not know about the long-term benefits of insurance, the losses caused by inaction, and how they can take a loan with an insurance policy. According to the research, 64.2 percent of the participants said that they did not know about insurance loans.
Due to these reasons, as soon as there is a small financial problem, they pay a high price and surrender the insurance. In Nepal, about 12 lakh 10 thousand to 12 lakh 50 thousand insurance policies are constantly in the circle of inactivity. Thousands of insurance policies are surrendered monthly.
Most of these passive or surrendered insurance policies are found to be between 3 and 5 years old, especially young professionals with volatile income in the market, small businessmen and those who have bought insurance policies with large premiums at an early stage. The burden of average surrender value and passive insurance premiums has affected the long-term funds and economy of the overall insurance sector.
The report has put forward various measures of policy and practical reforms to prevent and control the increasing inactivity and surrender trend of insurance policies. The regulatory body Insurance Authority and insurance companies should mandatorily implement a financial suitability assessment before issuing new policies, which will only sell insurance based on the actual income and paying capacity of the customer.
In addition, it has been suggested to design flexible product structures such as premium waiver period or partial payment option to make it easier for the insured to pay the premium, and to put in place strict legal and training to control the tendency of agents to sell insurance in an erroneous manner.
Establishing customer protection and reinsurance units at the branch level, monitoring the risky insurance policies, adopting easy renewal process through digital means and conducting a comprehensive insurance literacy campaign in the local community can effectively prevent the malpractice of inactive and surrendered insurance policies.
