NATIONAL8 (Spotlight Weekly]

Confined Coverage

The potentials of insurance business remain largely untapped

By SANJAYA DHAKAL

Among the seven SAARC countries, Nepal remains at the bottom as far as insurance business is concerned. Merely two percent of the income-generating population in the country have their lives insured, compared to 19 percent in India and five percent in Sri Lanka.

In the non-life insurance sector, too, the prevalent practice here is to buy insurance policies only when it is required compulsorily, such as when seeking bank loans. "Private property is rarely insured," says an insurance official.

Rastriya Beema Sansthan : Plagued by problems

Even with such minimum penetration, the total market of insurance in Nepal has reached around Rs 7 billion. "Five billion rupees for the life insurance and the rest for non-life," says the official.

Already there are 17 companies involved in insurance business, with four allowed to operate in life insurance. Recently, the branch of Delaware-based American Life Insurance Company (ALICO) and Life Insurance Company — a joint venture with LIC India — have been granted permission to run life insurance business.

ALICO was the first foreign company allowed to run the lucrative life insurance business by the Insurance Board, the body that regulates the sector. It has started the business with the initial investment of Rs 50 million. Two other companies — state-owned Rastriya Beema Sansthan (RBS) and Nepal General and Life Insurance Company — are involved in this sector.

Some officials argue that the decision by the board to grant permission to foreign companies to run life insurance business in the country is a "revolutionary" one, as even India has not given such permission. The officials see it as "test case".

People involved in the insurance sector point that there is ample opportunity to widen the insurance market here. At present, most of the people are not even aware about the insurance policies and their benefits.

There are more than four million households in the country. Even if only ten percent of them insured their property, the present business could jump by ten folds, estimates one official. Besides, there is no sound insurance policy of the government.

When the insurance board took the initiative a few years ago to get the insurance of the Kaligandaki A project done by domestic companies, the annual premium of the companies increased by Rs 50 million. If all foreign projects are made to have their insurance done by domestic companies through government policy, the business could make a great leap.

One insurance official rues the lack of government policy in using the funds collected by the insurance companies. "The government and the National Planning Commission should issue insurance bonds to make use of such funds and use them in development works," he says.

Among the insurance companies operating in the country, the RBS is fully owned by the government. But it has been passing through various problems like outstanding premium. Recently, there were reports that it has not been audited for the last five years.

While the situation of the government-owned insurance company is so dismal, the situation of private ones is at best "unknown". Most of the "big houses" or industrialists have their own insurance company. The Chaudhary Group has United Insurance, Khetan Group has Everest Insurance, Golchha Group has Sagarmatha Insurance and so on.

Naturally, the businesses of these "big houses" are channeled to their respective insurance companies. And as both the insurance company as well as the client company is owned by the same group, the transparency of their transaction is often overlooked. As one official puts it, "They are public limited companies run in private culture."

With the insurance sector getting bigger recognition worldwide, the sector here needs some dressing up. Moreover, as the country prepares to enter the World Trade Organization, proper policies are imperative to equip domestic insurance companies with the necessary expertise.