A worrying trend in the nation’s insurance industry is indicated by a sudden rise in life insurance policy cancellations. Over 45,000 life insurance policies were surrendered prematurely in the first five months of the current fiscal year, causing a loss of Rs 6.10 billion in insured amounts. This is very discouraging news coming from Nepal's insurance industry. Last month’s 26% rise in policy surrenders demonstrates a continuation of this disquieting scenario. These figures point to another disturbing reality: the nation’s economic downturn is compounded by a life insurance sector that has failed to reassure policyholders. In the past month, the Nepal Insurance Authority (NIA), the regulatory body of the insurance sector, noted a continuing increase in the number of abandoned insurance policies. Meanwhile, the percentage of people with insurance coverage has decreased from 43.09 percent to 43.02 percent. Insured individuals surrendered 8.67 percent more life insurance policies in FY 2023/24 than in the previous fiscal year. Policyholders surrendered 11,793 policies worth Rs 1.93 billion at the Life Insurance Corporation (Nepal), the largest number among all insurance companies. Reports indicate the main reason policyholders are cancelling their life insurance early is the economic hardship and the economic downturn. Rising inflation (consumer prices went up to 5.60% mid-November) and a slowing economy forced many families to cancel insurance to cover immediate expenses. Besides, the manipulative insurance agents contribute to policyholders prematurely cancelling their insurance. To earn large commissions, these agents create a vicious cycle of surrender and reinvestment that eventually harms both insurance customers and the industry. Meanwhile, the growing number of Nepalese leaving the country to settle abroad has contributed to insurance policies being abandoned.
Nepali companies and related agencies, if they want to bring vibrancy and trust to the sector, must try to learn from the insurance sectors of India and the USA. In India, regulatory mechanisms like the Insurance Regulatory and Development Authority of India (IRDAI) have implemented strict standards to protect policyholders. Indian insurers strive to balance affordable premiums with competitive returns while educating customers about life insurance’s long-term value and protecting them from unethical agents. As a result, Indian companies have decreased surrender rates and upheld policyholder trust. The life insurance practices in the United States have a top-notch reputation. US life insurers offer a variety of returns, such as, universal and variable life policies, making life insurance a key element of many retirement plans. Financial advisors prioritize client interests over commissions. Strong consumer protection laws and transparent claims processes build trust among US policyholders.
Nepal Insurance, IME General Insurance and Prudential Insurance...
The increase in policy surrenders has raised questions about Nepal’s need for 14 insurance companies because an excessive number of insurers only fragments the market, leading to the industry’s inefficiency and instability. Merging insurance companies can make the industry more dynamic, helping regulators better manage risks, improve operations, and enhance customer service. Some experts suggest that slashing the number of insurance companies from 14 to, say, about 8 or less may lead to industry consolidation, improving services like insurance claims processing and products and controlling manipulative agents. Also, a consolidated industry will make regulatory supervision simpler and will ensure policyholders’ interests are protected. Insurance agents represent the industry to the public, and their actions influence how people view it. To rebuild trust, the industry and the NIA need to hold agents more accountable. Agents should be provided with needed training and certification to up their standards while they should be discouraged undertaking unethical methods through strong monitoring. Companies should ensure that agents receive incentives that go with customer satisfaction and note the volume of policy sales. To lessen dependency on agents, companies should also adopt new technologies for direct customer service.
Besides, Nepali insurance companies are required to revamp their products to address the issue of premature policy surrenders. Insurance customers often give priority to value and, therefore insurance companies must create life insurance policies with competitive returns to attract more customers and curb early cancellations. They must aim at improving customer understanding of the benefits of life insurance. Finally, our authorities should strive to implement Insurance Act 2022 comprehensively aimed at ensuring accountability and preventing premature policy surrenders in the future.
