Three Years of Microinsurance: Growth Strong, But Access Still Falls Short for Target Communities

Kathmandu — Nearly a decade has passed since Nepal formally introduced microinsurance, and three years have elapsed since the establishment of specialized microinsurance companies.

During this period, the sector has made notable progress in institutional expansion, business growth, and financial inclusion. However, its core objective (extending insurance protection to low-income and socially marginalized communities) has yet to be fully realized. According to the Nepal Insurance Authority’s report, Study and Analysis of Nepal’s Microinsurance Business, 2026, microinsurance services remain concentrated in urban and easily accessible areas rather than reaching the intended rural and disadvantaged populations.

The report provides a comprehensive assessment of the sector’s achievements, challenges, business performance, branch expansion, claims settlement, gender inclusion, product diversification, and future policy directions. While it acknowledges significant structural growth in a relatively short period, it concludes that substantial work remains to ensure meaningful access to insurance for the communities the sector was designed to serve.

Specialized Microinsurance Companies Mark a New Era

The concept of microinsurance was formally introduced in Nepal through the Microinsurance Directive issued in 2014. Before then, life and non-life insurers offered a limited number of low-premium insurance products. However, the Insurance Act, 2022, created a legal framework for establishing specialized microinsurance companies for the first time.

Under this provision, three micro life insurance companies and four micro non-life insurance companies were established in 2022 and 2023, bringing the total number of specialized microinsurance companies to seven. The report describes this as the beginning of a new institutional era in Nepal’s financial inclusion efforts.

Rapid Branch Expansion in Just Three Years

One of the sector’s most significant achievements has been the rapid expansion of its branch network. Microinsurance companies operated only three branches in fiscal year 2022/23, but by mid-March of fiscal year 2025/26, that number had surged to 209. During the same period, the workforce expanded from just 28 employees to 640.

The report notes that this demonstrates strong investment in institutional capacity. However, it emphasizes that the number of branches alone is not enough; their geographical distribution is equally important.

Branches Concentrated in Bagmati, Karnali Left Behind

The primary objective of microinsurance is to provide insurance access to people living in remote, low-income, and financially excluded communities. Yet the study finds a significant regional imbalance.

Approximately 22 percent of all microinsurance branches are concentrated in Bagmati Province, while Karnali Province accounts for only 6.22 percent. Furthermore, all company headquarters remain based in the Kathmandu Valley, meaning key business decisions are still highly centralized.

According to the report, this geographical imbalance raises fundamental questions about whether the sector is fulfilling its intended mission. Although remote areas generally face higher levels of risk, insurance penetration there remains minimal, making regional access one of the sector’s most pressing policy challenges.

Business Continues to Expand

Business performance has also improved significantly.

According to the report, micro life insurers collected NPR 859.5 million in first-year premiums by mid-March of fiscal year 2025/26, while the total sum assured reached NPR 255 billion. For an industry that has existed for only three years in its current form, the report describes this growth as encouraging.

Nevertheless, most business remains concentrated in term life insurance products, indicating that innovation in new products addressing emerging risks has been relatively limited.

Motor Insurance Dominates Non-Life Portfolio

The report also highlights a major imbalance in the micro non-life insurance market.

More than 80 percent of business comes from third-party motor insurance. Consequently, insurance products covering agriculture, livestock, health, housing, small businesses, and climate-related risks account for only a small share of the portfolio.

The Insurance Authority concludes that such concentration weakens the fundamental purpose of microinsurance and recommends prioritizing products tailored to agriculture and climate-related risks.

Women’s Participation Rising, But Decision-Making Still Limited

The study finds encouraging progress in women’s participation.

As of mid-March of fiscal year 2025/26, women accounted for more than 60 percent of all insured individuals under micro life insurance policies. While this indicates strong outreach to women, the report cautions that many still do not independently make purchasing decisions.

In many rural households, financial decisions continue to be dominated by men. The report therefore recommends expanding insurance awareness programs specifically targeted at women and developing products focused on maternity care, women’s health, household enterprises, small businesses, and savings-linked insurance.

Claims Settlement Improving, Digital Transformation Still Needed

Timely claims settlement remains one of the most important drivers of public confidence in insurance.

According to the report, micro life insurers had paid claims totaling NPR 312.4 million by mid-March of fiscal year 2025/26, reflecting the sector’s growing maturity.

However, the report stresses that claims processing should become faster, more transparent, and technology-driven. Paper-based procedures, mandatory physical visits, and limited access to information continue to create obstacles, particularly in remote areas.

It recommends introducing mobile applications, digital document verification, online claim tracking, and claim payments through mobile wallets to improve customer experience.

Capital Requirements Remain a Challenge

The Insurance Act requires every microinsurance company to maintain paid-up capital of NPR 750 million.

The study finds that only three of the seven companies have met this requirement through public share offerings. The remaining four have yet to issue initial public offerings (IPOs), leaving them short of the statutory capital threshold.

The report warns that unless these capital requirements are fulfilled, companies’ long-term financial strength and risk-bearing capacity may be constrained.

Individual Agents Continue to Dominate Distribution

Insurance agents remain the primary distribution channel for microinsurance.

According to the report, individual agents significantly outnumber institutional agents, particularly in the micro life insurance segment.

However, the Authority concludes that relying solely on traditional agents will not be sufficient in the future. It recommends developing partnerships with microfinance institutions, cooperatives, community organizations, and digital platforms to broaden insurance access more effectively.

Digital Microinsurance Seen as the Future

The report identifies digital transformation as the next major priority for Nepal’s microinsurance industry.

It recommends expanding the use of mobile wallets, digital insurance policies, online claims systems, electronic Know Your Customer (e-KYC) services, and partnerships with microfinance institutions and cooperatives for policy distribution.

Drawing on international experience, the report notes that mobile technology has significantly accelerated microinsurance adoption in countries such as India, Bangladesh, Kenya, and the Philippines. It suggests Nepal could replicate similar models to deliver affordable insurance services to remote communities.

Lessons from International Experience

The study compares Nepal’s progress with microinsurance models in India, Bangladesh, the Philippines, Ghana, and Kenya.

According to the report, India’s supportive regulatory framework, government backing, and digital infrastructure have driven strong market expansion. Bangladesh has successfully leveraged partnerships with microfinance institutions, while Kenya’s widespread mobile payment ecosystem has substantially increased rural insurance penetration.

The Authority believes Nepal can adapt these international practices to local conditions by developing partnership-based distribution models.

Key Policy Recommendations

The report recommends several measures to strengthen the long-term sustainability and effectiveness of Nepal’s microinsurance sector:

• Require mandatory branch expansion into remote and low-income areas within specified timelines.
• Develop new products focused on agriculture, health, housing, and small enterprises.
• Reduce excessive dependence on motor insurance by diversifying product portfolios.
• Introduce digital claims management systems and expand services through mobile wallets.
• Strengthen partnerships with microfinance institutions, cooperatives, and other financial institutions.
• Expand insurance awareness campaigns targeting rural and economically disadvantaged communities.
• Decentralize decision-making authority to the provincial level while strengthening institutional capacity.

Conclusion: Expansion Alone Is Not Enough

Nepal’s microinsurance sector has undoubtedly made significant progress within a relatively short period. Branch networks have expanded rapidly, premium income has grown, women’s participation has increased, and claims settlement has improved.

However, the report delivers a clear message: the success of microinsurance should not be measured solely by the number of branches or the volume of premiums collected. Its true success lies in whether insurance protection reaches remote villages, low-income households, farmers, laborers, and financially excluded communities; the very people the sector was created to serve.