Family Ties and False Promises by Insurance Agents Contribute to Rising Policy Lapses, Study Finds
Kathmandu – The number of life insurance policies discontinued before maturity through lapses and surrenders has increased significantly in Nepal. According to a report recently published by the Nepal Insurance Authority, the value of inactive life insurance policies due to non-payment of renewal premiums reached Rs 36.51 billion in the fiscal year 2023/24 alone. More than 1.158 million policies were affected.
According to the report, the rate of policy surrenders, in which policyholders cancel their policies and withdraw their money, increased by 17.58 percent. As a result, Rs 14.50 billion exited the insurance system in a single year. This has added significant challenges to the financial stability and cash flow of insurance companies.
Why Are People Discontinuing Their Insurance Policies?
Economic slowdown and inflation: Economic stagnation, irregular income and rising inflation have made it difficult for people to pay insurance premiums. According to the report, 61.2 percent of policyholders surrender their policies to meet emergency cash requirements, such as medical treatment and their children’s education.
Pressure from family and social relationships: According to 76 percent of insurance agents, people who purchase policies without an actual need, simply because of family relationships or social pressure, are the most likely to discontinue their insurance.
Mis-selling: Customers have also become dissatisfied because agents make false promises while selling policies, fail to clearly explain the terms and conditions, and do not provide services after selling the policies. This has contributed to the problem of orphan policies.
Low returns: The report states that declining institutional trust is also linked to insurance companies offering lower bonus rates compared to bank interest rates and delays in claim payments.
Authority Recommends Strict Measures for Improvement
To control the rising rate of policy lapses, the Nepal Insurance Authority has made new policy recommendations for insurance companies and agents.
- Mandatory assessment of financial capacity: Before selling a policy, customers must undergo an assessment of their long-term income and ability to pay premiums.
- Flexible insurance plans: To prevent policies from being cancelled when policyholders experience a decline in income, arrangements should be made to allow premium payment periods to be deferred (premium holidays) or policies to remain active with reduced benefits through paid-up options.
- Policy retention units at branch level: Each branch should establish a separate retention desk to follow up with customers on premium payments and manage orphan policies, even when the insurance agent responsible for a policy leaves the profession.
- Waiver of penalties and digital payment systems: The Authority has urged insurance companies to reduce penalties charged when reinstating lapsed policies and make premium payments easier through digital platforms.