IB mulls household insurance for quake grant beneficiariesPeople eligible for grant of Rs300,000 to rebuild houses devastated by earthquakes of April and May 2015 may soon have to purchase household insurance policies, as the Insurance Board (IB), the insurance sector regulator, has started laying the groundwork in this regard.
People eligible for grant of Rs300,000 to rebuild houses devastated by earthquakes of April and May 2015 may soon have to purchase household insurance policies, as the Insurance Board (IB), the insurance sector regulator, has started laying the groundwork in this regard.
“We have started holding informal discussions with officials of the National Reconstruction Authority to make it mandatory for beneficiaries of housing grants to purchase household insurance policies,” Insurance Board Director Raju Raman Paudel said.
Reconstruction Authority Executive Committee Member Chandra Bahadur Shrestha also confirmed that the issue is being discussed.
“We will discuss the matter in detail with the Insurance Board in the coming days and forward the recommendation to our steering committee [which is headed by the prime minister] if it is plausible. The committee will then take the final decision,” Shrestha said.
The Reconstruction Authority is currently extending housing grant of Rs300,000 to owners of every house completely destroyed by the 2015 earthquakes.
The amount is being given away in three instalments, with first tranche comprising Rs50,000 and two other instalments containing the remaining Rs250,000. So far, over 400,000 households have received first instalment of Rs50,000.
The quakes completely damaged around 800,000 private residential houses around the country.
However, a significant chunk of these home owners are awaiting the government’s financial support to rebuild the houses, as they had not insured their properties.
This highlights the case of low insurance penetration in the country, which stands at less than 2 percent of the gross domestic product.
“We are aware that houses being built through the grant will be quake-resilient. But the insurance will further insulate households from various other risks, such as other types of natural disasters, fire and incidents like thefts,” Paudel said.
Currently, non-life insurance companies are selling household insurance policies for around Rs1.75 per Rs1,000 of coverage amount. This means annual payment of Rs1.75 covers losses and damages worth Rs1,000.
Considering this premium amount, it could be said home owners who are rebuilding houses with grant of Rs300,000 will need to pay Rs525 per year to insure their properties. “But this premium amount may be quite high for some of the households. So, we’ll come up with a special rate for beneficiaries of the government’s grant amount,” Paudel said.
Also, the household insurance policy currently being sold by insurance companies comes with coverage amount of up to Rs 10 million.
This means these insurance policies do not provide coverage to damage or losses exceeding Rs 10 million.
This provision has compelled people to look for other insurance products, such as fire, which provides coverage of unlimited amount based on premium clients pay.
“We are willing to revise the coverage amount as well to suit the needs of grant beneficiaries. Besides, the cost of house alone, especially in the Kathmandu Valley, stands at over Rs 10 million, so we will need to rework on the ceiling on coverage amount,” Paudel said.
Earlier, the government, through the budget of this financial year, had announced a plan to bring all private residential houses under the ambit of insurance beginning this year.