This research assesses the current status of microinsurance operations and explores prospects and potentials for commercialization of Nepalese microinsurance sector. Microinsurance has been implemented in five different modalities: full service, community based, mutual aid, partner agent and providers model in the form of crop insurance, livestock insurance and health insurance in Nepal.
Insurance act and regulations should govern microinsurance operation in Nepal, but it is not happening. Most of microinsurance operation has been done outside the preview of insurance act and regulations. Microfinance policy 2063 includes microinsurance as one of the microfinance services and there is no separate policy and act to regulate, supervise and mainstream microinsurance operation in Nepal. Insurance Board has been working to down scale insurance operation for the poor and disadvantaged groups. Government and donors has shown increased interest and commitment to promote microinsurance in Nepal.
Findings of this research reveal that policy holders (clients) are satisfied with current micro-insurance services partly due to the absence of other choices and alternatives as well as these schemes are characterizes by their transparency and simplified operation including claim handling. There are specific reasons for low demand for insurance in spite of intense need due to limitation in operation. It has been found that pricing, including willingness to pay and availability of subsidies, influence insurance market. Difficulty in distribution is one of the most cited reasons for absence of rural insurance. High costs of penetrating rural markets, combined with underutilization of available distribution channels, hinder their growth. Contrasting perspectives of the insured and the insurers, lead to low customization of products and low demand for what is available.
Existing microinsurance schemes are cost effective, timely, with simplified operation and no additional burden to service providers which is linked with loans and part of service packages. These schemes minimize fraud, adverse selection and moral hazard with limited or no asymmetric information. The schemes are efficient to increases client consensus with existence of multiple service providers. These schemes however lack of market lead approach to product development; guided, top-down and lack of demand led approach; limited human capacity; lack of client education and no effort on product promotion, separate business and reinsurance with minimum risk spreading. These schemes have limited risk coverage and do not adequately address the issue related to vulnerability management of the poor and disadvantaged groups.
There exist potentials for commercialization of microinsurance operation through scale up and formalization. There is high interest of insurance service providers, and regulators to commercialize microinsurance operation and these schemes can be linked for addressing vulnerability mission of the government. Further, there exist possibilities for forging partnership between microfinance institutions and mainstream insurance companies. The nine life insurance companies of Nepal are quite keen to downscale their operation to bring poor and disadvantaged groups under the ambit of their service delivery. Challenges of existing schemes includes: mainstreaming with regulatory framework, business ownership, meeting expectation of the clients, wrong mission and intension of financial institutions, reaching the poor and disadvantaged groups, integrated versus stand-alone services, and ensuring proper balance between savings and credit operation and extending insurance services. There are however barriers to commercialization and they are related to technical (pricing, risk assessment), operational (capacity, claim handing), institutional capacity and policy (no separate microinsurance policy). These barriers are applicable across all types of microinsurance modalities.
There is a need to commercialize microinsurance operation and there is no way that existing operation could continue for future and achieve sustainability. Government should bring microinsurance policy and related act/rules to augment commercialization process. Mutual aid model currently implemented National Federation for Savings and Credit Union Nepal (NEFSCUN) in partnership with selected Savings and Credit Cooperatives (SCCs) has limited potentials to expand while partner model is cost ineffective to expand the frontier in remote areas. Promotion of partner agent model of microinsurance has been recommended to ensure outreach, viability and impact.
On the basis of study findings and conclusions, the study recommends that the future work in Nepalese microinsurance sector should revolve around leveraging existing network for microinsurance, linking microcredit with microinsurance, implementing strategy for microinsurance on human resources requirement and training, operations and systems, development of adequate feedback mechanism, database and consumer education, marketing and grievance handling. Further, future work should focus on product development, process re-engineering, building database, using existing infrastructure and technology; and refinement and scale-up of specific insurance product such as crop insurance, livestock insurance and health insurance for improved ownership and sustained impact to address the vulnerability issues.