Nepal spent an average of Rs50 billion annually on post-disaster response between 2012 to 2020, a report said, highlighting the critical need for tailoring insurance coverage to address specific risks and potential scenarios.

Experts on Tuesday said that Nepal needs to factor in all possible contingencies to ensure comprehensive coverage is in place to safeguard against unforeseen challenges.

According to the Global Climate Risk Index for 2000-2019, Nepal ranks as the 10th most affected country in the world, considering the impacts of extreme weather events in terms of fatalities and economic losses.

“Among the seven countries in South Asia that are part of the insurance risk financial facility of the UNDP, Nepal is the one that is affected the most. The country is extremely vulnerable to disaster risk, which has witnessed the loss of thousands of lives in the last two decades,” said Ayshanie Medagangoda-Labé, resident representative of UNDP Nepal, launching the Country Diagnostic on Inclusive Insurance and Risk Finance for Nepal, on Tuesday.

“Nepal continuously invests in infrastructure but each time disaster happens it engulfs a lot of resources that we invest in the country’s development,” Medagangoda-Labé said.

Migration, remittances, and resilience to shocks (including from climate risks) are interconnected in the Nepali context and must be considered when thinking about how inclusive insurance and risk finance can enhance the resilience of vulnerable populations, the report said.

Historical losses due to earthquakes, floods, and landslides in Nepal are significant.

According to the Emergency Events Database, between 2012 to 2020, earthquakes alone accounted for over 85 percent (about $ 5.17 billion) of total disaster damage (driven by the 2015 earthquake), followed by floods, which caused $915 million worth of damages.

Damage resulting from major landslides amounted to $15 million. The Nepal Disaster Report 2019 accounts for over 6,000 natural and non-natural disaster incidents, 900 plus deaths, and Rs6.84 billion ($51.1 million) in estimated property losses for 2017-2018; the latter is mainly attributable to fire incidents.

The report said that limited information is available on the Nepal government's contingent liabilities for disasters, but a recent earthquake model estimates average annual losses of Rs11 billion ($92 million) and up to Rs144 billion ($1.2 billion) for a 1-in-100 year event.

Medagangoda-Labé urged the National Disaster Risk Reduction and Management Authority, Ministry of Finance, Nepal Insurance Authority and the private sector should join hands to tap into some of the market opportunities so that people who are left behind would be able to protect their livelihood.

Citing that only 5 percent of the global population has insurance, Medagangoda-Labé said each time any hazard, conflict or disaster happens, whatever the investment UNDP have been doing for years, they are reversed.

“Insurance has a multidimensional impact in the area of social security,” said Ram Prasad Ghimire, revenue secretary at the Ministry of Finance.

He said there is still a lack of awareness about insurance.

There are issues of not getting claim amounts when any events happen, he said.

“We are also working on fiscal risk management. We are developing a comprehensive framework and an already developed fiscal risk register, which provides the government's assessment of the likelihood and potential impacts of a range of risks,” said Ghimire.

“For sound financial fiscal management, we need to build resilience and protect the lives of people and that should be inclusive,” he said.

Insurance is not only important to mitigate risk but also to foster development, Ghimire said.

“If we have a sound insurance system, it can draw foreign investors.”

Nepal Insurance Authority, formerly Beema Samiti, reported that a total of 30.56 percent of people are covered by life insurance, which includes endowment, term, and micro-term insurance, as of mid-January 2023.

As per the authority, the coverage ratio was 22.49 percent a year earlier.

“Insurance has not been the priority of the government,” said Dip Prasad Pandey, CEO of Shikhar Insurance. “The government has given subsidies in several schemes. But it has not settled almost Rs2.50 billion of the insurance companies for the last one and a half years.”

“As a result, insurance companies are forced to stop issuing insurance policies,” he said.

It will be difficult for the private insurance companies to sustain in this situation when the government keeps on holding the money, said Pandey. “We have stopped selling insurance because we have not received the funds,” he said.

“For a sound insurance system, we need to have confidence in the government.”

He said that people do not have the funds to meet their current needs. “So why would they go for future needs and insure themselves,” questioned Pandey.

According to the report, microinsurance supply has largely been driven by life policies.

The total number of microinsurances the Ministry of Agriculture and Livestock Development’s Crop and Cattle Programme policies issued for the fiscal year 2021-22 was just over Rs4 million, totalling 4.17 million.

Credit-life microinsurance products offered by microfinance institutions drive the relative success of life microinsurance in Nepal, and life microinsurance is generally viewed as a profitable business, the report said.

Non-life microinsurance products have struggled to take off and have met several challenges, the latest being the Covid pandemic which caused a dramatic decrease in the number of policies issued, according to the report.

According to a recent baseline survey of financial literacy in Nepal carried out by the Nepal Rastra Bank, 30 percent of the adult population uses insurance products, 26.78 percent of the population has life insurance products while only 8.46 percent of the population has non-life products.

The survey also showed the gender gap in the uptake of insurance products. 34.62 percent of men hold insurance products and only 25.63 percent of women hold insurance products.

Though not microinsurance specific and perhaps differing from supply-side data available, the study findings highlight the prevalence of life insurance products and the gender gap regarding women policyholders.

In the context of protecting low-income and vulnerable populations against disaster risks, it appears there is much to be done, the report said.