How Did the Insurance Sector View the Budget? Reactions from Industry Stakeholders

Kathmandu — Unlike previous years, when the budget primarily focused on health insurance while only broadly addressing the insurance sector, this year’s budget appears somewhat different. It seems to place greater emphasis on reforms for non-life insurance companies rather than life insurance. At the same time, it appears to prioritize guaranteeing business for the domestic reinsurance company without fully considering its risk-bearing capacity.

This year, insurance sector stakeholders had recommended measures ranging from insuring government infrastructure and expanding tax incentives to addressing concerns about domestic reinsurance companies’ limited capacity to absorb risks.

However, the government’s priority appears to have been ensuring business opportunities for Nepal Reinsurance Company.

In addition to the measures traditionally included in budgets, the government has proposed increasing motor insurance premiums and making the installation of “accident devices” mandatory. It has also introduced a policy to gradually make accident insurance and critical illness insurance compulsory. Insurance professionals have generally viewed these measures positively, noting that several recommendations submitted by the Insurance Authority have been incorporated.

Likewise, the government has announced income tax incentives related to residential housing insurance.

On this issue, BeemaPost spoke with Sushil Dev Subedi, Executive Director of the Nepal Insurance Authority; Birendra Baidawar Kshetri, President of the Nepal Insurers’ Association; Prabin Raman Parajuli, President of the Life Insurers’ Association; and Kedarnath Adhikari, former President of the Insurance Agents’ Association. Below is a summary of their views on what they had expected from the budget and what they ultimately received.

Sushil Dev Subedi, Executive Director, Nepal Insurance Authority

I have observed that the government has incorporated the recommendations submitted by the Insurance Authority into the budget.

The budget seeks to protect the state-owned reinsurance company and also attempts to bring certain government institutions that currently remain outside the insurance framework under the scope of the reinsurance company.

Overall, from the regulator’s perspective, we view the budget positively.

Prabin Raman Parajuli, President, Life Insurers’ Association

The budget has attempted to address the insurance sector in a positive manner. However, I feel that the life insurance sector may have received less priority this year.

We had hoped that the budget would expand tax relief on insurance, address taxation issues related to policyholder bonuses after policy maturity, and resolve concerns regarding double taxation. While we expected amendments through the budget, the outcome fell short of our expectations.

Birendra Baidawar Kshetri, President, Nepal Insurers’ Association

Looking at the budget as a whole, it appears that efforts have been made to address the concerns of non-life insurance companies. Although insurance professionals had submitted recommendations to the government, the budget did not fully reflect those suggestions.

The government has made positive efforts by increasing third-party insurance coverage, providing tax relief for residential building insurance, requiring compliance with insurance, housing, and safety standards, and maintaining existing agricultural subsidy arrangements.

However, regarding the protection of Nepal Reinsurance Company, the focus seems to be solely on guaranteeing business for the company. The government appears to have ensured business opportunities without first studying the extent of risk the company is actually capable of bearing.

On the other hand, the government does not appear to have given sufficient attention to the issue of requiring the Health Insurance Board and four other institutions established to provide low-cost services to reinsure with Nepal Reinsurance. Ideally, such arrangements should be studied and evaluated through the insurance regulator, the Nepal Insurance Authority. Instead, the government seems to be implementing a direct reinsurance requirement without adequately assessing the company’s capacity.

We had proposed mandatory insurance coverage for government infrastructure because if the government itself does not insure its assets, it becomes difficult for the public to appreciate the importance of insurance. However, the government does not appear to have shown interest in this proposal.

Overall, while the budget contains some positive reforms for the insurance sector, it continues the mandatory requirement that certain insurance business be reinsured through Nepal Reinsurance Company.

Given the difficulties already experienced in settling claims related to COVID-19 insurance, floods, landslides, and even claims associated with the Gen-Z movement, there is concern that the continued mandatory domestic reinsurance requirement could further weaken insurance companies rather than strengthen them.

Kedarnath Adhikari, Former President, Insurance Agents’ Association

I find this year’s budget extremely encouraging.

“With mandatory third-party insurance coverage increasing to NPR 1 million, compensation available to middle- and lower-income groups in the event of losses will effectively double. This will provide significant relief to many people. It is a very positive step. While policyholders who previously paid a premium of around NPR 3,000 may now have to pay NPR 7,000, the benefits they receive will also increase substantially,” he said.

“Previously, many people only purchased insurance when it was required to obtain a bank loan. The provision allowing income tax deductions of up to NPR 10,000 on premiums paid for residential building insurance will increase public interest in insurance. That is a very positive development,” he added.