“So far we’ve experienced gradual development, but now we are moving for rapid improvement. We are planning to significantly increase Insurance penetration in Nepal”; Interview with Bhoj Raj Sharma, Insurance expert – Beema Samiti

Bhoj Raj Sharma, Insurance expert – Beema Samiti, is the prominent figure in Nepali Insurance Industry. He has been in the forefront of the Insurance sector and has been contributing to its development continuously.

The insurance sector in Nepal is still underdeveloped with penetration of about only 7% of the total market. While the commercial banks are going for consolidation, Beema Samiti has recently given license to quite a few companies increasing the total number of insurance companies to 38 along with one re-insurance company. The Finance Minister, Dr. Khatiwada, had announced an ambitious plan to increase the penetration of insurance in Nepal to 25% within two years from now. On these backdrops Aakriti Thakali from Sharesansar caught up with Mr Bhoj Raj Sharma to gather the recent updates and the agendas for further developments. The excerpts of the interview are:

How would you summarize the current market for Insurance in Nepal?

To start from the very beginning, before the liberalization the market for insurance was very limited. We had branches of two foreign insurance companies along with Rastriya Beema Sanstha and Nepal Insurance. At that time Nepal Insurance only worked with Nepal Bank and hadn’t expanded its operations.

However, after the liberalization the market started to expand for both life as well as non-life insurance companies. Nepal Insurance also started working in full-fledged manner. So in course of time, not just the number of companies, but the volume of business and the premium collection also went up. From then onwards, Insurance companies have played an important role in collecting the dispersed saving from institutions, corporate houses and individuals in the form of premium. This fund is then being redirected to other investment sectors. In this way, insurance sector is contributing to the country’s economic growth.

Recently, new life and non-life insurance companies have been given license, so now we have a total of 20 non-life and 18 life insurance companies and one reinsurance company. Prior to the establishment of this re-insurance company, all our reinsurances were done in foreign companies - mostly India. We still do some outside the country, but we’re not wholly dependent now. The current re-insurance company has been functioning for about four years now. Prior to that we had an emergency fund for terrorism, which was later converted into re-insurance.

So till now the market players have increased and the market too has expanded. We have experienced gradual development but we haven’t reached the peak yet. Currently by combining life and non-life we have around Rs 60 to 65 arba in premium collection and approximately Rs 2 kharba in reserves and surplus. On that basis, we can say that in terms of number and volume of premium we’ve seen development but if we go to each individual based on their per capita income, the penetration is still unsatisfactory. Life insurance companies have penetrated around 10% of the total population and penetration of non-life is difficult to compute. Thus in approximate, both life and non-life insurance companies have contributed to around 2.5% of the GDP (Gross Domestic Product).

This is the gradual development that we’ve achieved in these many years, but that’s not sufficient. What we’re aiming for now is rapid development and I think it’s achievable too as the awareness among the public is increasing and the companies have also started to proactively work towards market expansion.

During the Golden Juvilee of Beema Samiti FM Dr. Khatiwada had directed to increase the insurance penetration from the current 10% to 25% within 4 years. Do you think its achievable? What are the progresses so far?

If we’re talking about the entire insurance market (Life and non-life) then I think is attainable. The 10% penetration I mentioned before was of Life insurance only, and that too represents the urban population. We have huge prospects in rural untapped market. Similarly, in non-life sector 3 new companies have come and with the establishment of these new companies the competition has become more intense, which means they would have to go to the rural areas just to ensure survival. Not only for the new companies, even the old ones are seeking to expand their network to all parts of the country. Previously, the insurance market in Nepal was demand based. However now the supply is pushing the market to create demand.

The second reason why I think its attainable is because the tendency to do insurance on their own has also increased among public. Previously, the agents had to visit and request and persuade to do insurance, but now people themselves have come to realize its importance and are actively seeking insurance services. This will also help in increasing the penetration rate.

The third reason is the growing culture of single family. As the joint families are being replaced by single families, people have growing concern regarding what will happen to their family in case something happens to them. What will happen to their children, their education? Who will support them financially? In such case insurance plays an important role in securing their child’s future.

The fourth reason why I believe the penetration rate is going to go up is the rapid product and service developments taking place. Insurance companies are now consistently coming out with new schemes. Few decades back, the only services available was either for retirement or death. Contrary to that, now we have a wide array of schemes to choose from based on the individuals need and payment capacity.

What is the level of awareness regarding Insurance in Nepal? How do you plan to impart the information regarding the importance of insurance?

Being aware and doing something about it are two different things. Let’s take for instance in city areas the awareness is high, almost everyone knows what insurance is how it will help but do they do it? No. Specially after the earthquake and the mass destruction it brought, the awareness among people has gone up. Pertinent to that we should have seen a lot of people coming for insurance, but have we seen it? No. During that period, people who had their houses insured prior to earthquake have already reconstructed their houses, whereas ones without insurance are still in rubble. This should have induced people to come for insurance protection, but have they really? I guess only a few have done.

So rather than just awareness we need to establish insurance as a culture. We should be able to identify the risks we’ll be facing from birth till death and then insure it. Not just insure, we need to be adequately insured. So until and unless we develop a culture where insurance is not a luxury but a necessary requirement, simply awareness will do nothing significant. Awareness just means having the knowledge of what is insurance and that has done nothing so far. So we need to work harder and we need to establish this culture in Nepali society.

Even educated people seldom rely on insurance, what do you think is the problem here? How do you plan to overcome it?

Like I said earlier, the only solution is by establishing the culture. And this culture can be established by:

• Positive Measures:

Here we need to work better on convincing people and making them realize why they need insurance. Similarly, insurance companies currently are more focused towards institutional and corporate clients and less priority is given to the individuals. So now it is time for the companies to diversify and touch the individuals. The awareness campaigns can also be effective if properly delivered.

In context of penetration is rural areas, we have opted for micro insurance. Micro insurance is for the low-income groups. For example, a person with low income, won’t be needing huge coverage/ risk financing. In case his/her house gets destroyed, the sum they’ll probably be needing will be around a lakh or two to construct a small shelter. So, for him we will charge low premium with low capping and low sum insurance. We have distinguished micro insurance in that way and we believe this will cater the mass population.

Additionally, this isn’t restricted to rural areas. If you fall under the low-income group, even if you live in urban parts you can go for micro-insurance.

• Negative Measures:

The negative measures are not something that we do, but the experiences that people collect. People will gradually learn through their experiences. It is sad, but it does impart lessons showing how the ones insured are better off than the ones that are not.

We are working on the positive measures as we believe that prevention is better than cure. People should realize the need of insurance. Incase anything happens to me, how will my kids complete their education, who will support them and feed them. The house I have made with my blood and sweat with years of saving or loan, if something happens to it how will I recover. Similar is the case for the vehicles we own. Currently the third-party insurance is made mandatory by the government, but people should do it on their own conscience and with spontaneity.

Like I said earlier, now we can’t stay satisfied with gradual development. We need rapid improvement and for that we are cooking up some plans and programs.

Does the micro-insurance policy vary among the insurance companies?

No, it is formulated as the central insurance policy. So it’ll be same throughout the sector.

Do you think the penetration is low due to high premiums?

I’ve been saying it in many occasions, Insurance companies are business entities and in business if there is no profit who will put in their money. Yes, I do agree on the fact that the premium should be reasonable and compatible with the risk associated. However, in determination of the premium amount the law of mass distribution applies. When the insurance population grows the premium will go down but if the insurance population is less than the risk coverage is distributed over few people as a result of which the premium tends to be high.

But in my experience and understanding, premium itself is not a dictating factor. For example, the premium on household policy is very nominal. Someone who has made their house at Rs 50 lakh, their premium falls around Rs 5000. So, a for a person making house of Rs 50 lakh, is premium of Rs 5000 high? Of course no, but still they don’t do insurance. So I think its not just because of the high premium.

It’s often seen that the audit of Insurance companies don’t happen in time. Is there a specific reason?

We are considering this problem. In case of Life Insurance companies, the main hindrance is the actuary valuation and in some cases when the actuary disappears the company needs to find another actuary and this takes time. So apart from a few exceptions, the audits are happening in time. Even for those not happening in time, they’re doing it within the time specified in law. The company act has specified that if the audit isn’t completed within 6 months, 3 months can be added by paying a penalty.

A lot of new insurance companies have been given license recently. Given such small population size of our country don’t you think it too many?

Apparently yes it’s true, but this is a market that hasn’t seen growth yet. The Nepali market for insurance is virgin and very fertile. When I say the growth is yet to happen, I say that based on the potential. For example, hydropower is a very potent industry for our country. But have we touched all the possibilities? Are we fully able to utilize our potential to 100%? We’re not but if we reach the potential then hydropower has the ability to turn the face of the economy.

It’s the same in case of Insurance too. Our market is small but all parts of this small market hasn’t been touched yet. The number of insurance companies will be high only when the demand pushes the market, but for now the supply is pushing the market to create need/demand. So, for the supply side to be stronger more companies is good actually. They compete and push each other outside the urban boundaries and touch the untapped parts of the market. The growth potentiality is really high so with the increased number, now companies can’t just sit back and relax. They will have to provide highly efficient services/ products.

In future if in case any company is lethargic and unable to compete, there is always the choice for merger and acquisition. It’ll make the system even more sound.

Do you also plan to make it mandatory for the insurance companies to reach rural parts?

I think it’s not required to make it mandatory. The companies are going themselves as the market in urban areas won’t be sufficient for such high number of companies. So even to survive and then to thrive they’ll on their own reach out to the rural parts of the country. Similarly, the expansion of banks in all local bodies is also a good thing. When a bank is established in some place, along with it a new financial eco-system gets established and that eco-system also comprises insurance companies.

The insurance companies will reach out either via bancassurance or collaboration with bank or individually.

Do you think making health insurance compulsory by government, like third-party insurance, is a good approach?

The government has brought a scheme and has been selling it and companies are also adding higher coverages to that scheme. However, I think making it mandatory is neither possible nor reasonable. How can you possibly force a person to insured himself/herself? If in case a person is financially challenged how will s/he pay the premium?

So rather than making it compulsory, we can bring in new schemes that can fit people’s need. We can create an environment and facilitate them through cheaper rates and beneficial schemes and proper risk financing. We need to bring out products and services that will cater to the mass.

Capital market

The scrips of Insurance companies are highly volatile in comparison to other sectors. What do you think is the reason? The price-earnings ratio is also very high because of high market price. Do you think its alarming?

I’m not an expert in this sector and am unaware of what happens. I even don’t own any shares.

Final Note:

The Insurance Sector in Nepal is still in under-developed stage and so far we’ve experienced gradual development. Now we are looking forward to aggressively move ahead and proliferate our market through newer schemes and mass awareness campaigns. We also need rapid improvements to increase our penetration rates. Currently, we’re organizing various programs in schools and other sectors to create a general understanding regarding the insurance market.

 So to sum up we’ve set our growth target and we’re continuously working towards it. And I want to request everyone, especially the newer generation to review themselves. Ask yourself these questions:

Am I insured?

If I am, then am I adequately insured?

If no, why not?

What could happen to me and my family if I don’t have an insurance?

We have to think of all these things and be able to rationalize it. Like one famous person said, “Charity begins at home”. So rather than just being aware of what insurance is we need to develop the culture of doing insurance spontaneously. Only then the change is possible.