CHAPTER 1

INTRODUCTION

Insurance is the equitable transIer oI the risk oI a loss, Irom one entity to another, in exchange
Ior payment. An insurer is a company selling the insurance; an insured or policyholder is the
person or entity buying the insurance policy. The insurance rate is a Iactor used to determine
the amount to be charged Ior a certain amount oI insurance coverage, called the premium. The
transaction involves the insured assuming a guaranteed and known relatively small loss in the
Iorm oI payment to the insurer in exchange Ior the insurer's promise to compensate (indemniIy)
the insured in the case oI a large, possibly devastating loss. The insured receives a contract called
the insurance policy which details the conditions and circumstances under which the insured will
be compensated.

1.1 History of Insurance

We can say that insurance appears simultaneously with the appearance oI human society. We
know oI two types oI economies in human societies: money economies (with markets, money,
Iinancial instruments and so on) and non-money or natural economies (without money,
markets, Iinancial instruments and so on). The second type is a more ancient Iorm than the Iirst.
In such an economy and community, we can see insurance in the Iorm oI people helping each
other. For example, iI a house burns down, the members oI the community help build a new one.
This type oI insurance has survived to the present day in some countries where modern money
economy with its Iinancial instruments is not widespread.

1.2 Growth of Insurance in Nepal

The insurance business that has nearly six-decade old history in Nepal and is a newly emerged
business Ior Nepal. Although there were some social and cooperative businesses providing
security to customer Irom ancient time, modern insurance business started by some Indian
insurance companies in the early times. They were mainly Iocused in providing insurance
Iacilities especially Ior import export business increased in India.
2

The Iirst insurance company, Nepal Mal Chalani tatha Bima Company Ltd. Was established in
2004 B.S. this insurance company can be taken as the Iirst step or milestone oI Nepalese
insurance history, with authorized capital oI Iive lakhs. It was lated converted into Nepal
Insurance and Transport Company Pvt. Ltd in 2016 B.S. this was again remaned as Nepal
Insurance Company Ltd in 2048B.S.

As a private insurance company with limited capital, the Nepal Mal Chalani Tatha Bima
Company Ltd was not successIul to provide all types oI insurance Iacilities all over the country.
Foreign large insurance companies were doing well business in Nepal through agents.

Considering the role oI insurance business in the expansion oI economic activities and alarming
outIlow oI money Irom the country the government oI Nepal Ielt the need oI large and well
organized insurance company within the country. Then immediately the HMG established
Rastria Bima Sansthan under the Insurance Act 2025.this company is totally Iinanced by the
government to provide all types oI insurance perils, which is essential Ior economic
development.

AIter reestablishment oI democracy, Nepal also implemented the policy oI privatization and
economic liberalization, the previous acts were amended and new Insurance Act 2049 was
introduced. As a result, number oI insurance companies have been established aIter this period
and can be considered as the golden period in the insurance business history oI Nepal.
According to the data provided by Insurance Board 2066 there are 25 insurance companies
established in the country.

1. Nepal Insurance Co. Ltd
2. The Oriental Insurance Co. Ltd
3. Rastria Beema Santhan
4. National Insurance Co. Ltd
5. National LiIe and General Insurance Co. Ltd
6. Himalayan General Insurance Co. Ltd.
7. United Insurance Co.
8. Premier Insurance Co.
9. Everest Insurance Co. Ltd
3

10.Neco Insurance Co. Ltd.

11.Sagarmatha Insurance Co. Ltd.
12.Alliance Insurance Co. Ltd.
13.N.B. Insurance Co. Ltd.
14.Nepal LiIe Insurance Co. Ltd.
15.LiIe Insurance Corporation (Nepal) Ltd.
16.American LiIe Insurance Co. (ALICO)
17.Prudential Insurance Co. Ltd.
18.Shikar Insurance Co. Ltd.
19.Lumbini General Co. Ltd.
20.N.L.G Co. Ltd.
21.Siddharatha Insurance Ltd.
22.Aaaa
23.Aaa
24.Aaa
25.aaa

1.3 Characteristics of Insurance:

1. Pooling of losses - it is the spreading oI losses incurred by the Iew over the entire group,
so that in the process, average loss is substituted Ior actual loss.

2. Payment of accidental losses - An accidental loss is one that is unIoreseen and
unexpected and occurs as a result oI chance.

3. Risk transfer - it means that the pure risk is transIerred Irom the insured to the insurer,
who typically is in a stronger Iinancial position to pay the loss than the insured.

4. Indemnification - it is one oI the most important characteristics oI insurance.
IndemniIication means that the insured is restored to the approximate Iinancial position
prior to the occurrence oI the loss. Thus, the insurer should reimburse aIter loss occurred
by particular risks Ior premium received Irom the insured against the risks.

4

1.4 Legal principles of insurance

1. Indemnity the insurance company indemniIies, or compensates the insured in the case
oI certain losses only up to the insured's interest.

2. Insurable interest the insured typically must directly suIIer Irom the loss. Insurable
interest must exist whether property insurance or insurance on a person is involved. The
concept requires that the insured have a "stake" in the loss or damage to the liIe or
property insured. What that "stake" is will be determined by the kind oI insurance
involved and the nature oI the property ownership or relationship between the persons.

3. Utmost good faith the insured and the insurer are bound by a good Iaith bond oI
honesty and Iairness.

4. Contribution insurers which have similar obligations to the insured contribute in the
indemniIication, according to some method.

5. $ubrogation the insurance company acquires legal rights to pursue recoveries on
behalI oI the insured; Ior example, the insurer may sue those liable Ior insured's loss.

6. Causa Proximate or Proximate Cause the cause oI loss (the "peril") must be covered
under the insuring agreement oI the policy, and dominant cause must not be excluded













3

CHAPTER 2

METHODOLOGY/ LIMITATION


2.1 Research Methology:

O The research has been carried out with the help oI secondary data available.

O The secondary data includes:

- Annual Report oI Rastriya Bima Samati
- Journals
- Magazines
- Published data
- Web sites oI insurance companies.

2.2 Limitation of the $tudy

As the insurance business in Nepal has both liIe and non liIe insurance companies. The study
has not involved in depth research to the two types oI companies, but the research has been
carried out a macro level covering both the type oI companies.












6

CHAPTER 3

DATA ANALY$I$ AND INTERPRETATION

The insurance market in Nepal is still growing but at a very slow pace. The reason behind
this slow growth can be the lack oI awareness in the Nepalese people regarding the
beneIits associated with the insurance. The Nepalese people in the rural area are
uneducated and not aware that their risk related to their liIe and business or property and
that this risk can be mitigated to some extent by the insurance policy purchased Ior
mitigating that speciIic risk.


The analysis regarding the lack oI awareness about Insurance in Nepal can be done
through the key indicators study, which includes:

O Amount oI Premium collected

O Investment through liIe and non-liIe insurance

O No. oI insurance policies

O No. oI insurance companies.

1. Amount of Premium collected :

The premium amount collected over the past years is Iluctuating. In the year 2008/09 the
increase in premium collected is 27.58, in 2007/08 it was 15.96, in 2006/05 it was
14.14, aIter which in 2004/05 it was 21.08.


This shows that the awareness among the general public in 2008/09 related to the
importance oI insurance has considerably increased in comparison to the previous years.
LiIe insurance has been able to collect considerably more premium in comparison to non-
liIe; this is mainly due to the recent launching oI non-liIe insurance in Nepal.



7

ig 1: Trend of Premium collected



0
00
200
300
400
300
600
700
2002/03 2003/04 2004/03 2003/06 2006/07 2007/08 2008/09
P
r
e
m
i
u
m

i
n

C
r
o
r
e
Time period
llfelnsurance
nonllfe
lnsurance
Premium
Amount in crore
2008/09 2007/08 2006/07 2005/06 2004/05 2003/04 2002/03
Life Insurance 650 483.87 412.35 335.55 272.48 215.28 163.12
Non-life
Insurance

440

370.45

324.36

285.46

271.62

234.04

241.31
Total Premium 1090 854.32 736.71 621.01 544.10 449.36 405.53
Percentage
increase in total
premium

27.58

15.96

18.63

14.14

21.08

10.81

19.10
8

2. Investment through Life Insurance and Non Life Insurance:

The investment through the premium collected Irom liIe and non-liIe insurance has
considerably increased Irom the past Iew years.


The investment through liIe insurance in the year 2008/09 is 2651.62 crores whereas that oI
non-liIe is 500.79 crores. The investment has increased Irom both the liIe and non-liIe
insurance.


The table below shows that the investment through both liIe and non-liIe has increased due to
the increased awareness among the Nepalese people relating to the insurance, the increase in
premium collection has led to the increase in the investment Irom all the liIe as well non-liIe
insurance companies in Nepal.






Investment
Amount in crore


2008/09

2007/08

2006/07

2005/06

2004/05

2003/04

2002/03
Through Life
Insurance
2651.62 2034.99 1839.76 1520.11 1180.20 1025.95 946.25
Through Non-Life
Insurance
500.79 418.31 344.75 321.10 303.23 266.09 256.51
9

ig 2: Investment through Insurance Companies

3. No. of Insurance Companies:

O The no. oI insurance companies in Nepal is continuously increasing every year.
O





0
300
000
300
2000
2300
3000
2002/03 2003/04 2004/03 2003/06 2006/07 2007/08 2008/09
I
n
v
e
s
t
m
e
n
t

i
n

C
r
o
r
e
Time period
lnvesLmenL
Lhroughllfe
lnsurance
lnvesLmenL
Lhrough
nonllfe
2008/09 2007/08 2006/07
No. of insurance
companies
25 21 18
0

ig 3: No. of Insurance Companies


4. No. of insurance policies:

In the year 2004/05 the no. oI insurance policies was 544000 but in the year 2008/09 the no. oI
policies has reached to 777,000. This increase in the no. oI insurance policies shows that the
awareness among the common people relating to the insurance has increased which has led to
the increase in the no. oI policies.

2004/05 2005/06 2006/07 2007/08 2008/09
No. of
insurance
policies

544,000

534,000

596,000

659,000

777,000



8
2
23
0
3
0
3
20
23
30
2006/07 2007/08 2008/09
n
o
.

o
f

i
n
s
u
r
a
n
c
e

c
o
m
p
a
n
i
e
s
Time period
nooflnsurance
companles

ig4: No. of insurance policies

5. Comparison of percentage increase in Nepal`s premium collection and rest of the
world:

II we compare the percentage increase in premium collection oI Nepal with the rest oI the world,
we can see that in the year 2002/03 the percentage increase in premium oI Nepal was 19.10 but
that oI the world was only 2.5. Similarly, in the year 2008/09 the percentage increase in
premium oI Nepal is 27.58 and oI the world is 3.19.

The table shows that Nepal has considerably better position than India and World in the
percentage increase in premium collection.


increase
in
premium
collection

2002/03

2003/04

2004/05

2005/2006

2006/07

2007/08

2008/09
World 2.5 2.9 2.5 4.2 3.6 3.44 3.19
India 17.38 16.52 24.99 49.95 27.40 8.18 5.67
Nepal 19.10 10.81 21.08 14.14 18.63 15.96 27.58

344000 334000
396000
639000
777000
0
00000
200000
300000
400000
300000
600000
700000
800000
900000
2004/03 2003/06 2006/07 2007/08 2008/09
N
o
.

o
f

i
n
s
u
r
a
n
c
e

p
o
l
i
c
i
e
s
Time period
noof
nsurance
9ollcles
2

ig 5: Comparison of percentage increase in Nepal`s premium collection
and rest of the world



6. Premium collected per person in the world:
The premium collected per person in Nepal is very less in comparison to the world and India.
The premium collected per person in Nepal in the year 2002/03 is $2.39 and that oI India is
$16.40, similarly in the year 2008/09 in Nepal it is $5.07 and that oI India is $49.
So, the Iollowing table shows that the premium collected per person is very less in comparison to
world and this is because oI less no. oI people purchasing the insurance policies and so the
premium collected per person in the country has decreased considerably.

Premium
collected
per
person

2002/03

2003/04

2004/05

2005/2006

2006/07

2007/08

2008/09
World 469.6 511.5 518.5 554.80 607.70 633.90 673.40
India 16.40 19.70 22.70 38.40 46.60 47.4 49
Nepal 2.39 2.59 2.86 3.19 3.72 4.22 5.07


0
0
20
30
40
30
60
2002/03 2003/04 2004/03 2003/06 2006/07 2007/08 2008/09

i
n
c
r
e
a
s
e

i
n

p
r
e
m
i
u
m

c
o
l
l
e
c
t
i
o
n
Time period
World
ndla
nepal
3

0
00
200
300
400
300
600
700
800
2002/03 2003/04 2004/03 2003/06 2006/07 2007/08 2008/09

i
n
c
r
e
a
s
e

i
n

p
r
e
m
i
u
m

c
o
l
l
e
c
t
i
o
n
Time period
World
ndla
nepal
4

CHAPTER 4

I$$UE$/CHALLENGE$

O The reach oI insurance to rural population is yet to grow even though insurance business
is growing in the urban centers.

O Little access oI rural population to insurance. As the insurance companies are only
concentrating and Iocusing the urban population as the target group.

O The insurance companies are indulging themselves in the unhealthy competition with
each other, rather than working harder Ior making the common people aware about the
importance oI insurance in any person`s liIe and property.

O Less spending by the insurance companies on marketing oI their product and awareness
related program Ior the common people.
,
O Unawareness among the rural population relating to the importance oI insurance to
minimize the risk in their liIe and property.

O Lack oI training to the agents regarding the premium collection, the insurance policies,
the importance oI insurance to the common people, which leads to the communication
gap between the insurance companies and common people relating to the insurance.

O The Nepalese culture is also a challenge Ior the insurance companies in Nepal. The
Nepalese people do not have the culture oI mitigating the risk they Iace in their liIe
through the purchase oI insurance policies.

O The knowledge relating to the importance oI insurance in ones liIe is very limited and
insuIIicient among the students in their academic qualiIication

CHAPTER 5

$UGGE$TION

O The common people should be made aware about the importance oI insurance in their
liIe, through proper communication between the common people and the insurance
companies through the insurance agents.

O The insurance agents should be provided proper training relating to how the insurance
would help the common people to minimize their risk in liIe, by opting Ior proper
insurance policies.

O The insurance companies should motivate and organize the reward based perIormance oI
the insurance agents, so that the agents try harder in the rural areas Ior selling insurance
policies to more and more people.


O The academic qualiIication given to the students at school level should provide suIIicient
knowledge regarding to the insurance and its importance in ones liIe.

O The insurance companies should invest in marketing oI their insurance policies, to make
the common people aware about their insurance products which cater to the diIIerent risk
level oI the diIIerent group oI people.

CHAPTER 6

CONCLU$ION

O The insurance business has nearly six-decade old history in Nepal has witnessed a
signiIicant growth in the recent years.

O Over 16 companies are providing non-liIe insurance service while eight companies are
providing liIe insurance service. Rastriya Beema Sansthan provides both liIe and non-liIe
insurance services.


O The Rastriya Beema Sansthan began its business in 2024 BS and it has expanded its
services to all 75 districts. It has been providing liIe insurance service to over 75,000
employees. From both liIe and non-liIe insurance, the company has been earning around
Rs 350 million premium every year.

O The little access oI rural population to insurance, the Beema Sansthan is launching
diIIerent insurance schemes like health insurance, crop insurance and livestock insurance.


O With awareness about the accidents and risks associated with industrial sector and risks
posed by natural disasters, many people have started understanding the importance oI
insurance.

O In the last Iiscal year, diIIerent insurance companies registered a total transaction oI Rs
14.4 billion, according to the Insurance Committee.

O In the previous Iiscal year, the 25 companies had registered a total transaction oI Rs 10.9
billion including Rs 6.5 billion in non-liIe insurance and Rs 4.4 billion in liIe insurance.



7

O Lack oI positive attitude about insurance while it has also not been on government`s
priority and insurance is yet to come within the reach oI commoners. Besides, the lack oI
transparency also hampered monitoring in the sector in the past.


O The analysis shows that the insurance market in Nepal is growing, which can be seen
through the increase in premium collected every year by the insurance companies, the
increase in investment Irom the both insurance companies. Increased awareness among
the people about the risks associated with liIe and goods has been leading to a growth in
insurance business in Nepal.The reach oI insurance to rural population is yet to grow
even though insurance business is growing in the urban centers.