Rabindra Ghimire
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Why we need the specialized courses of insurance in colleges and universities ?

There are three purposes of the insurance courses to introduce in curricula of universities. First, to serve the industry, second to serve the universities and colleges and third for the quality research and innovation. Insurance is complex and more technical subject. Graduate without deep knowledge on insurance cannot understand the nuts and bolts of insurance. Highly qualified and skillful human resources are required to insurance industry i.e. insurance regulators, (re) insurance companies, brokers and surveyors. Such human resources can be produced either from the universities or from the Insurance Institutes. Universities emphasize the more academic and theoretical perspectives while institutes focus on enhancement of the skill, and produces middle level managers.

Insurance industry is developed by the research and innovative activities. Highly knowledgeable human resources are required for the research which is possible from the university only. We can see some countries like Germany, UK, USA, and Japan invested huge amount on insurance research. Until 1904, there was huge gap of qualified human resources in insurance industry in USA. With the great efforts of Prof. SS Huebner, many universities started to teach insurance in graduate programs.

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Now, we can see the countries having good insurance market have insurance courses in the universities. Not only universities, special research institute and centre of excellences are also have been established to guide the industry, test the products and unmask the fraudulent activities in insurance business. Some of them are: Institute for Occupational Safety and Health of the German Social Accident Insurance, Singapore College of Insurance, China Center for Insurance and Social Security Research, Korea Insurance Research Institute etc.

In Nepal we have a training institute which does not produce qualified human resources but provides short term trainings, orientation and refreshment. We have not such universities program that produces insurance qualified graduates and carried out research in insurance related field. So, it is the urgent need to include the sufficient number of insurance courses of insurance so we are suffering from the quality manpower.

In Nepalese insurance market, how many types of insurance product did you observe ? Are these sufficient ? What are your suggestions?

It is quite complex to classify the insurance in different types. We classify it according to our purposes. Generally life and non-life products are easy to understand. According to the economic status of the policyholders products are classified as commercial and social (micro insurance) insurance.

Across the globe there are two types of products (genre): life and non-life. Under the life, again products are two types: Terms product that protects against the risk only and endowment product having saving components including risk protection feature. Term and endowment have different features and serve as per the need of the clients. Recently, term product is designed only for the foreign migrant workers. Micro insurance products are also introduced.

Another product is property and liability. Under the property, motor insurance is very popular. In Nepal, health insurance is being popular since two decades. Since, 2014, Reinsurance products is offered by Nepal Reinsurance company however, prior to that date, it was sold by the foreign re-insurers.

In the pandemic situation, we need the catastrophic insurance products. As we are living in the cyber age, we need cyber security products. We are suffering from the climate change risk which impact is global. The 25 percent Nepalese population lives below the poverty line. They need micro (small sum assured) products.

Insurance product should address various risk like: health, income loss, property loss, liabilities increment, disability, loan payment and payment to dependents etc. There are separate insurance for the separate risk. If a single product covers the entire risk, product is easy to purchase in a lower premium.

So, insurance companies and Board need to pay attention to design product to address the need of the current situation.

People even educated and wealthier also not interested to purchase insurance, what might be the reasons ?

There are so many factors that affect the demand of insurance. Studies show that risk perception, per capita income, religion, social phenomenon, and government policies, transfer of property based on kinship, family structure, and cultural aspects are major factors to determine the insurance demand.

Agents and insurers, even from the regulator expect more demand of insurance. Low demand of insurance is a problem for insurers. But, from the viewpoint of researcher and analyst, insurance buying behavior is just an issue but not a problem.

First, we should understand that insurance is a part of risk management tool. You can manage the risk by different ways among them, insurance is one of the tools. For example, risk of loss of the property can be recovered by different ways.

Second, the demand of the insurance depends on the risk taking behavior of the people. If you cannot ready to bear the risk, then you need to purchase the insurance. If you are ready to bear the risk (loss), no need to buy insurance.

Third is sensitizing about the risk. If society is more aware about the risk, then the demand of insurance automatically increases. Fourth, factor of the demand of insurance is the government’s policy. If government provides more subsidies, facilities to insured, and carry out awareness raising program to the potential insured, people may be attracted towards the insurance. Educated person if ready to bear any types of potential risk, he may not buy the insurance.

If government provides free of cost health facilities, education, and housing etc. than why need to purchase insurance? The demand of insurance is inversely related with the government run social security program but positively related to the various factors.

In Nepalese context, lack of insurance literacy, per capita income, joint family, property transfer from the parents to kids are the major barriers of the insurance demand. But, a rigorous study is required exploring the reasons behind the low demand in Nepalese society.

Rabindra Ghimire

What is your suggestion regarding the duration while buying the life insurance ?

In non-life insurance, the duration of the insurance generally fixed for one year and some policies are bought for less than a year for the specific purpose for the specific time and automatically terminated. Sometimes the duration may be more than one year period that are project based policies to be purchased over the project period. The duration of life insurance policies are quite difficult to fix. Life insurance contract may be ranges from one year to 50 or more years based on the companies and type of policies. Most of the policies have the flexibility of the duration but some are already fixed and one cannot change its duration.

While determining the contract duration of the policy, insured should consider various factors viz. current age of policyholders or beneficiaries, cash flow in the future, fund requirement in the future, and objectives of the investment in life insurance. The participatory endowment policy gives more bonus than shorter policy, so investment view point, long term policy is better. If you need money after 10 years then 10 year policy is suitable. If you are buying term insurance, there is no bonus benefit so that no matter of the duration but your health condition may be matter. I suggest to buy as longer period policy as possible other things remaining the same.

People think that some insurers are better than others in terms of the benefits, is it correct ?

Life Insurance Company provides two types of benefits: one is maturity benefits and another is death benefits. Term insurance has no maturity benefits so that there is no difference on the death benefits among the different companies. Maturity benefit varies company to company based on income earning capacity of the company which is reflected in vested bonus rate of the company.

But the difference of the bonus rate is not so significant among the companies over the long period. Some policies do not provide bonus but pay the committed sum assured. If companies charge more premiums, obviously their benefits may higher than others. The riders provision also make the benefits difference among the companies. The rider charge also needs to compare among the companies.

Non-life insurance companies provide only compensation in case of loses, the loss valuation system and basis of compensation of all companies is almost same. The premium and compensation has no relationship. Some products have same premium among the companies within an economy fixed by Insurance regulator. All companies charge same premium for the same product.

Insurance is a risk management technique which is equally important to all economic groups of people. Poor are more vulnerable than rich. In case of financial hardship, a support from insurers is most important to them. Rich people may come to road if their property is not well protected by the insurance. So, insurance is equally important to all types of people.

For example, third party insurance premium of 800 CC car is same to be charged by all companies. Some products are non tariff which is also called cafeteria plan. It is fixed by insurer itself based on the coverage of risk, amount of total sum assured and other various factors. The premium and sum assured is negotiated between insurer and insured consultation with the experts. In this context, benefits may be vary among the non-life insurers.

What is the difference between putting money as fixed deposit in bank and buying endowment life insurance policy ?

It is not comparable between the services extended by insurance and banking since their core services are entirely different. Insurance is regarded as a risk management tool. The return on the investment from the insurance policy is the additional benefits. Bank provides interest on the deposit amount but does not cover the loss in case of the loss of property or health or lives. There is an emerging concept: buy term and invest the difference (BTID).

Endowment premium is bundle of two components: risk and saving. The premium for the risk is very few and saving is quite higher. BTID concept can be applied but it is difficult to say which option is better. It depends on interest rate of bank and return from the insurance companies. The concept can be understood by following example.

For example, premium of endowment is Rs. 10,000 comprising Rs. 1,000 for risk protection and Rs. 9,000 for saving, sum assured is Rs. 2,00,000 . There is the another option that to buy term insurance policy and pay only Rs. 1,000 for 20 years for the same sum assured. He can invest the remaining portion Rs. 9,000 in risk free instrument. The maturity benefits of the endowment policy assuming Rs. 60 bonus per Rs. 1000. Between two options, we can compare the return at the end of 20 years. Endowment policy provides Rs. 4,40,000 (Rs. 2,00,000 + Rs. 2,40,000 (Rs. 2,00,000 x 0.06 x 20 yrs.).

By investing in bank fixed deposit, the final income will be Rs. 3,16,800 ( interest @ 8% is Rs. 1,36,800 and principal Rs. 9000 for 20 years is Rs. 180,000). The difference between the two options is Rs. 123,200. The example shows that endowment policy is better than term. If bonus rate is higher, endowment policy is better and if the interest rate is higher, the term insurance is better. But in Nepal, term insurance is not popular among the individual except the organization and foreign migrants workers. There are several reasons of popularity. First is insurance consultants prefer to sell endowment policies and earn more commission, second is insurance is an investment alternative to the people who have no better idea to invest other investment alternatives.

What is the advantage of being insured ?

Insurance provides financial supports in the time of hardship but it does not support if you have not any accident or loss incidents. If you think that in the time of financial problems you cannot manage your life without the insurance, then you have to buy insurance. If you have alternative tool of risk management, then you may not buy the insurance.

Life insurance specially endowment insurance provides both financial security and return on investment. Psychologists claim that insurance brings one peace of fund removing weary and fear so that person may be healthier and happy. It is true to some extent since the burden of the financial risk is transferred to the insurers. People are becoming the slave of the financial burden.

What is the difference between the insurance market of advanced economy and Nepal ?

Nepalese insurance market is in infant stage while the market of the advanced economies is in matured stage. However, we have 40 companies, 100,000 agents, 500 surveyors; there is huge difference between Nepalese and mature markets. The foundation and requisites of matured insurance markets are strong regulatory framework, efficient regulators, qualified staffs, culture of good governance and wider insurance market. There are various components of insurance market: insurance regulator, insurance and reinsurance companies, agents, brokers firms, valuators, web aggregators, third party administrators, training institutes, higher education institute, research institute, journalist in insurance etc.

So we can say that due to lack of various components in insurance market, our market is still in the pre-matured stage. The Insurance Act has many deficits; the insurance board has lack of the many departments and efficient and skillful human resources. Categorically, to be a perfect insurance industry and a matured market we need a training academy, research institute, large number of brokers, reinsurance brokers, qualified agents, sufficient laws, and third party administrators. All of these components are not available in our market till date.

The strength of the market is measured in penetration and density. Nepalese insurance penetration (it is ratio between gross premium o GDP) is almost 2.5 percent which is quite below than the emerging economies (4%) and far below than the world average (6.5%). In Japan more than 90% of the population own insurance policy but in Nepal less than one fourth population has the life insurance (term and endowment) policy. We have to do hard work to bring our market in the level of international standard.

What is scope of career perspective of insurance agent in insurance industry ?

In insurance industry, marketing of the products is almost performed by the commission based agents. Currently more than 100,000 agents have got license out of them very few are actively engaged in marketing profession. The job is quite tough, competitive and challenging but is high rewarding also. The perception of the society towards agents is still not respectful.

There are both opportunities and challenges for the insurance agents. To increase the respect and faith of the society, Agents need to follow the code of conducts, have to acquire sufficient knowledge of the insurance, need to be update about the products offered by the insurers, and need to be a good personal financial advisor. Insurance Board need to take examination prior to provide the license and provide training regularly. We need to promote the Agency profession as a respectful and sustainable business.

Brokers are the backbone of the life insurance market. Currently brokers are not allowed to get the license but future of the broking profession is good enough. Similarly, the scope of the Third Party Administrator and Less Assessor, Risk evaluators and Risk Manager also very prospective. After expending the micro insurance business in rural area, large number of agents will get the opportunity to work with the poor and middle class people.

Insurance for whom ? Rich or poor ?

Insurance is a risk management technique which is equally important to all economic groups of people. Poor are more vulnerable than rich. In case of financial hardship, a support from insurers is most important to them. Rich people may come to road if their property is not well protected by the insurance. So, insurance is equally important to all types of people.

In this context, government needs to bring a national level policy with the slogan of “insurance for all”. If you have insurance for your health, life, property, liability, and pension, you can live freely and happily. The responsibilities / liabilities of the government can be transferred to insurance companies. In every country, certain population is ultra-poor which has no capacity to purchase the insurance. Government should provide protection for poor people through social insurance. The insurance need to be sold with subsidies on premium for those who can not afford.

There were 17 non-life insurers till 2017, additional 3 companies were entered into the market. These all companies are selling almost all types of non-life products. Very few have sold aviation policies. The portfolio of motor business is highest while an agriculture policy is lowest. There is the abundant scope of property insurance. If social health insurance program run satisfactory, the commercial health insurance market will not be expanded more.

Do you think insurance contributes for sustainable development ? How ?

Insurance is considered as a backbone of the economy, and the pillar of the society and family economy. Life insurance encourages for the savings while non-life insurance protects in case of loss of the property, increase in the liability and health treatment. Industrialization of the economy became possible due to the risk management by the insurance contract, foreign trade is conceivable due to the marine insurance. Big infrastructure development and construction, engineering works become possible by the insurance contract.

Without insurance, bank is not ready to release the loan to business, people do not ready to fly and even employers purchase the insurance before appointing the employees. Every step of the human life, and every second of the legal corporate needs the insurance services. We cannot imagine the life without the insurance. So, the contribution of the insurance is multifaceted. For the sustainability of the industries, agriculture, family and entire economy, insurance is required. It protects in the time of hardship, in the points of distress and period of suffering.

Everyone talks only positive thing regarding insurance. Do you see any disadvantage? Any misconception ?

Insurance itself doesn’t harm the people. Demerits of insurance are the byproducts of the malpractices of the insurance or misuse of the insurance contract or misseling. If we purchase the life insurance more then the own financial capacity, or purchase the non-life insurance less than the value of the assets, problems may arises. We may face trouble not due to the insurance but due to the wrong decision or wrong consultation by the agents or by the insurers during the contract or settlement of the claims. Sometimes, insured may face problems while settlement of the claims due to the misunderstanding or misconception of the contract? These things gradually decrease by the proper consultation, awareness and education.

The insurance contract is contingent contract, so the benefits to the insured are conditional. If any accident happens or any loss occurs then, insured is eligible to get the benefits otherwise, the premium is not refundable. Insurers need to pay the compensation to few victims which come from the many insured. Insurance business runs based on seven principles and theory of contribution from many to compensate to few.

There are sometimes misconception towards the insurance. People compare it with gambling which is not right. Insurance mitigates the risk but gambling always creates the risk so these two things are totally opposite. Some say that insurers deny to pay the claims. Actually, a claim is paid only if the loss occurs unintentionally or accidentally. There should not be any frauds or bad intention. Loss occurs but the loss is not occurred due to the agreed risk, insurers deny to pay the loss. If genuine claims is denied, this is the fault of the insurer. The remedy of the problems is filing the case to regulators.

How can we increase insurance awareness? Who are responsible (stakeholder)? What is the role of concerned authorities to increase the awareness ?

Insurance awareness is difficult to measure. Insurance awareness and insurance purchase are two different phenomena. One highly aware may not purchase insurance and unaware person may buy the insurance. If people aware about the risk management tools, they may adopt the insurance. Insurance awareness can be increased by various ways, including the curricula in different level of education. If some of the insurance policies make compulsory, automatically people are aware. Insurance Board, as a government authority, universities, training institute and insurance companies need to be responsible for the awareness of insurance.

Social health insurance program has been launched more than 50 districts but it is not compulsory. The insurance schemes also increase the insurance. If micro-insurance companies interfere in rural and remote places, the awareness will be increased more rapidly. If the benefits of insurance increases, people themselves purchase the insurance.

Please analyze the current situation of the non-life insurance market in Nepal? How it can be expanded ?

The ratio of life and non-life market is almost 70:30 in terms of premium collection. In advanced countries the market of both sectors is almost equal. There is massive scope of non-life insurance market in Nepal but insurance companies are not ready to grab the opportunities.

There were 17 non-life insurers till 2017, additional 3 companies were entered into the market. These all companies are selling almost all types of non-life products. Very few have sold aviation policies. The portfolio of motor business is highest while an agriculture policy is lowest. There is the abundant scope of property insurance. If social health insurance program run satisfactory, the commercial health insurance market will not be expanded more. Nonlife market is expanded with increase in industry and commerce, dynamic economic activities and awareness towards the risk.

Millions of government’s and public buildings and property are not covered by the insurance. Large population is not access of health insurance. Comprehensive motor insurance is not compulsory so very limited vehicles have such policy. Third party motor liability is compulsory but not implemented completely. Agriculture is very vulnerable and exposed to high risk, so there is urgent need of insurance for this sector. The scope of agriculture insurance is immense.

Non-life insurance market can be expended by the efforts of Insurance Board and companies. If government decides the health, motor and government property compulsory, the market will be expended. The market also can be wider and bigger by providing subsidies.

Insurers should invest certain amount on research, publication, training, workshop, seminar, conference and awareness related activities to promote the insurance industry.

Rabindra sir pu-pokhara

We have high rate of life insurance policy lapse (discontinuing) in Nepalese context, why?

Policy lapse has two aspects, first policy discontinue before two years and surrender (after two years). The lapse rate is calculated not renewed policies divided by the number of policies that were active at the beginning of same period. No recent study is found in this area in Nepalese context, so that difficult to get the statistic of the lapse ratio and surrender rate but we can guess that the current surrender and lapse (joint) rate is not less than 20 percent. A study showed that the surrender claims to total claims ratio was 34% in 2008 and decreased to 24% in 2012. Lapse and surrender increases the acquisition cost of insurance and decreases the profitability of company. It shows the lack of efficiency of the agents. There is no mechanism controlling of such lapse and surrender, regulator has no proper action plan and insurers are also not so serious on this matter because they also seeking the clients at any cost.

What should be done by Insurance Board to promote the insurance industry in Nepal ?

Beema Samiti has opportunity to perform many things to promote the insurance industry. Regulator is the guardians of the insurance industry. Insurance is a complex product, so we need more educated staffs, and consultant, we need updated and micro data. We need more and more regulations, more training and awareness for the stringent regulation. Research is another important task to be performed.

What is your observation on insurance market in future ?

Insurance market potential is high in emerging and developing economies than matured economies. USA, UK, Japan are matured economies so the growth of the insurance is not expected. The countries like Nepal has a good future since large portion of the population still has no insurance policies, property are not covered by insurance. So, every one who engage in the insurance industry as employees or consultants also has good career prospective. Companies also have good opportunity to operate the fair business.

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