KATHMANDU, Dec 31: The trend of surrendering life insurance policy has surged by a notable rate in recent months due to the ongoing economic slowdown, increasing price of essentials and possible manipulations by the insurance agents.
The records with Nepal Insurance Authority (NIA) show that a total of 45,060 units of life insurance policies were surrendered in the first five months of the current fiscal year. It makes up the abandoned insured amounts worth Rs 6.10 billion in total.
The NIA reports an even worsening situation of abandoning of the insurance policies in the past one month. During mid-November and mid-December, the cases of surrendering insurance policies surged by 26 percent, with the abandoned insured values increasing to Rs 6.10 billion from Rs 4.82 billion in a month. This has also taken down the population under insurance coverage to 43.02 percent from 43.09 percent.
In the FY 2023/24, the cases of insured individuals surrendering their life insurance policies surged 8.67 percent compared to the figure in the previous FY. The insured individuals abandoned their life insurance policies worth Rs 14.50 billion in the last FY.
Policyholders fourth in payment priority order in case insurers...
Rabindra Ghimire, an expert in the sector and Associate Professor at Pokhara University, told Republica that policyholders surrender insurance policies due to financial crisis and psychological reasons. “The buyers of small policy amounts mostly surrender when they face financial problems like the ongoing economic slowdown. The big players surrender insurance policies in collusion with insurance agents who are supposed to get hefty amounts in commissions from insurers by insuring people,” said Ghimire.
Ghimire added that the increasing number of people going abroad could also have resulted in the increasing cases of abandoning insurance policies.
There are a total of 14 life insurers operating in the country. In the first five months, Life Insurance Corporation (Nepal) recorded the surrendering of its 11,793 units of life insurance policies worth Rs 1.93 billion, the largest of all.
The NIA has maintained the rule barring the buyers of life insurance policies from surrendering before settling the premium payments for three years. Likewise, insurers cannot issue general life-insurance policies for less than five years of maturity.
Provided insured individuals give up their insurance policies, they get back only 40-60 percent of the premium amounts that they paid to insurers. Similarly, they also lose the bonus amounts that are offered by the insurance companies.
An official at the NIA said the ongoing economic slowdown could have surged the cases of surrendering of insurance policies. “The cases could have increased recently as many individuals are required to clear their tax liabilities in the arriving end of the second quarter of the current FY.”
A study carried out by the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) in 2022 also pointed out the economic slowdown and soaring prices of consumer goods as some of the main factors that push the insured to cancel their insurance policy. The five month report of Nepal Rastra Bank showed that the consumer price inflation rose by 5.60 percent in mid-November, up by 0.78 percentage points compared to the previous month.
A research paper published by ‘Nepalese Journal of Finance’ in April 2024, shows that company loyalty towards customers, fair premium charge, knowledge and behavior of agents, effective claim settlement process and company image were the factors behind individual’s choice on buying life insurance products in Nepal. Among these factors, claim settlement process and company image are the most influencing factors in line.
Another research conducted by Lord Buddha Education Foundation in June 2023 underlined returns to insurance policy buyers, weak implementation of laws and number of flaws seen on the side of insurance agents among the reasons behind surrendering of insurance policies.
“In addition, life insurance companies should focus on products that provide similar returns to the policyholder as other financial instruments provide. Necessary rules and regulations should be formulated to aide Insurance Act 2022 to tackle the policy surrender problems,” the study suggests.
