Life Insurance Policy Surrenders Surge in Nepal Amid Financial Challenges
Kathmandu – The rising trend of life insurance policy surrenders in Nepal has become a growing concern for the insurance sector. According to data from the Nepal Insurance Authority, a total of 45,060 life insurance policies worth Rs 6.1 billion were surrendered by the end of Mangsir month (mid-December) of the current fiscal year, signaling a troubling challenge for insurers.
The phenomenon of policy surrender has escalated in recent years, with the COVID-19 pandemic exacerbating the issue. A recent study by insurance experts Rabindra Ghimire, Bharat Singh Thapa, and Vilas Waikar explored the behavioral shift among Nepali policyholders. This research, the first of its kind in Nepal, investigated the reasons behind policy surrenders in eight major cities, including Kathmandu, Pokhara, Biratnagar, and Bharatpur, as well as other regions such as the mid-hills and Terai.
Surveying 445 policyholders between 2020 and 2021, the study identified financial difficulties, advice from family and friends, insufficient information about policies, and inconvenient customer processes as the primary drivers behind surrenders. Alarmingly, no demographic factor was found to have a clear association with surrender behavior, suggesting that the issue is pervasive across all groups.
The report further highlighted 27 reasons contributing to policy surrenders, including lack of follow-up by agents, low bonus rates, high renewal penalties, and inadequate customer service. Misleading information provided by agents, low family income, and poor relationships with insurers were also found to be significant factors.
This rising trend poses a serious challenge to the financial health and sustainability of life insurance companies. Experts have emphasized the need for stronger financial underwriting processes, enhanced customer education, and better engagement with policyholders to address these issues.
The report also states that this challenge also presents an opportunity for the insurance industry to improve its practices. Strengthening customer relationships and providing accurate policy information could enhance the credibility and long-term stability of the sector.
The findings of the study aim to raise awareness among insurers and regulatory bodies, encouraging them to devise strategies to mitigate policy surrenders
Study Report
https://www.nepjol.info/index.php/idjina/article/view/73209/55989