Kathmandu. Although the size of the micro insurance business has tripled in the three years since the establishment of micro insurance companies in Nepal, the target group defined by the Insurance Act 2079 is still not covered under the umbrella of insurance protection at the same pace.
According to a study report titled TAG_OPEN_em_26’Digital Transformation and Insurancetech Readiness: A Pilot Assessment of Micro Insurance Companies in Nepal’ published by the Nepal Insurance Authority, Nepal’TAG_CLOSE_em_26 s microinsurance companies have achieved significant financial expansion since the independent micro insurers started operating in 2023. The total income of all the seven licensed microinsurance companies has increased by more than twenty times in a span of three years.
FY 2079. Total income from Rs. 8.26 crore in FY80. Rs. 52.31 crore in FY81. FY 2081. Increased to Rs. 1.70 billion in FY82. Similarly, net profit in FY 2079. From Rs. 2.48 crore in FY80 to Rs. 2.48 crore in FY2081. It increased to Rs. 9.19 crore in FY82.
Especially in the case of non-life microinsurance, FY 2082. In the first four months of ’83, the non-life microinsurance business grew by 40.18 percent, which is more than three times that of traditional non-life insurance companies. But despite the rapid financial growth, the sector is facing deep structural contradictions with regard to real market access and the dominance of traditional insurers.
According to another study by the Insurance Authority of Nepal mentioned in the report, the share of 14 established traditional life insurance companies in the total life insurance premium collection is about 75 percent and the share of the total insured risk is more than 80 percent. In contrast, the market share of the three newly established dedicated small life insurance companies is only about 20 percent or less.
According to Section 75 of the Insurance Act, 2079 and Microinsurance Directives, the target communities of microinsurance are as follows:
- Low-income and people below the poverty line,
- Marginalized, Backward Classes and Extremely Poor Communities (e.g. Dalits and Marginalized Indigenous Tribes),
- People living in rural and geographically remote areas,
- Women in Informal and Subsistence Economies,
- Small farmers and agricultural labourers dependent on agricultural soil and daily wage labourers in the informal sector
}
}
}
According to the Nepal Standard of Living Survey (Fourth) released by the National Bureau of Statistics, 20.27 percent of the total population of Nepal is below the poverty line. According to the Economic Survey and the Food and Agriculture Organization (FAO), about 60 to 66 percent of the total population of Nepal is directly or indirectly dependent on agricultural occupations and agricultural families.
The report points to low public trust, low awareness and high administrative costs as major challenges to the expansion of micro insurance.
Delays in the insurance claim payment process and complicated paperwork, complaints due to lack of timely services from insurers in the past, lack of brand recognition and long-term credibility as a new and newly established organization are the main reasons for the weakening of public trust, according to the report and market study.
In addition, the lack of financial and insurance literacy, especially in rural and telecom-accessible areas, and the lack of effective means of explaining the terms, benefits and processes of insurance policies, and the traditional perception of insurance as a burdensome tax or expense rather than savings or security poses a challenge to public awareness.
The challenge of high administrative costs is the high collection cost due to the high cost of collection due to the need to issue a large number of insured insurance policies with a low premium amount, high expenditure on staffing, office operations and technology connection while expanding physical branches in all 7 provinces and rural levels, but the size of the business is small in proportion.
