KATHMANDU

At a Multi-stakeholder Consultation on Inclusive Insurance and Risk Finance organized by UNDP Nepal on 7 February 2023, government, insurance companies, and development partners underscored the pressing need to promote inclusive insurance and risk financing in Nepal. Recurring disasters threaten the country's progress towards achieving the Sustainable Development Goals (SDGs).

Representatives from the public and private sectors emphasized that risk financing and inclusive insurance are essential tools to safeguard lives, livelihoods, infrastructure, and homes from the impact of climate change and disasters. They also highlighted that these tools can provide coverage to sustainably protect healthcare and education services, employment, and agricultural supply chains.

Globally, the growing risks from various disasters, including those induced by climate change, are compromising the development trajectories of many countries, particularly least-developed countries (LDCs) with low coping capacity that suffer a more significant impact. Disasters caused over US$260 billion in losses worldwide in 2021. In Nepal, government records show that disasters are increasing annually and eroding about 2% of national GDP each year.

The workshop aimed to explore ways of linking insurance with resilience-building measures and the policies introduced by the Government of Nepal to protect low-income and vulnerable households and achieve the SDGs.

The input from the workshop will feed into the inclusive insurance and risk finance diagnostic study that UNDP is conducting in Nepal. The diagnostic report will articulate the insurance supply side, a picture of the demand side, the gaps and opportunities in the enabling environment and the financial capacity of the insurance industry in Nepal.  

Welcoming participants, Bernardo Cocco, Deputy Resident Representative at UNDP Nepal said that recent global developments such as the COVID Pandemic have reignited the debate on the importance of risk insurance. In a world where uncertainty is a constant, this debate is particularly relevant in Nepal, which remains highly vulnerable to earthquakes and climate change-induced disasters, including floods and landslides. Here inclusive insurance can potentially add significantly to the country's risk management strategy. 

Cocco mentioned that the UNDP launched the Insurance and Risk Finance Facility (IRFF) to ensure that consolidated efforts are put in place to manage the evolving nature of various risks. While adding that partnership with the private sector is crucial to tackle these risks, he said that the diagnostic study on inclusive insurance and risk finance that the UNDP is conducting is aimed at making sure that its support to Nepal is need-based.

Under Secretary at the Ministry of Finance Indra Bahadur Devkota said that the government has given top priority to the insurance sector and that the issue of insurance has been incorporated in the federal budgets in the past few fiscal years. While mentioning that the new Insurance Act has opened up various avenues for risk financing in Nepal, Devkota said that the government is always positive to formulate new plans and policies to address the demands and concerns of the insurance sector. 

In her virtual remarks at the event, UNDP's Regional Specialist for IRFF for Asia Pacific Diana Almoro said that the UNDP has been engaging closely with the insurance industry to leverage their expertise and knowledge in risk analytics, modelling and financing. She mentioned that the work of IRFF is structured through five workstreams, namely integrating insurance into development, inclusive insurance, sovereign risk financing, insuring natural capital and insurance and investment. 

UNDP's IRFF grew out of the increasing realization that much more was needed to be done to build financial resilience of communities and countries, tackle the protection gap, and sustain development in the face of rising risks. It was also fuelled by the leadership work that UNDP undertook alongside other key partners, to build the necessary partnership infrastructure to jointly tackle these risks, threats and shocks. IRFF is also developing and delivering solutions based on a Tripartite Agreement among the UNDP, the German Federal Ministry for Economic Cooperation and Development and the Insurance Development Forum. 

Highlighting the various aspects of the diagnostic study, researchers Mariah Mateo Sarpong and Omkar Pandey said that the study in Nepal is being conducted to document factors that demonstrate and affect resilience of low-income and vulnerable populations, get key stakeholders behind inclusive insurance and disaster risk financing, inform UNDP work planning and stimulate conversation and coordination in the sector beyond UNDP. The scope of inquiry includes the underlying risk and development information, market conditions for inclusive insurance and risk finance, infrastructure investment and gender inclusion. The study is expected to produce recommendations for technical assistance  and future UNDP engagements in insurance and risk financing in Nepal that will build upon past and ongoing interventions of different development partners. 

The main disaster risks that Nepal experiences include earthquake, floods, landslide, debris flows, drought, thunderbolts, heat waves, cold waves, avalanche, hail, snowstorm, windstorm and non-natural disaster risks.

The diagnostic study looks into the inclusiveness in the insurance sector exploring if micro-insurances products cater to excluded and underserved markets, especially low-income segments of the population. The study assesses the enabling environment, supply, distribution of and demand for inclusive insurance products. The discussion among the participants highlighted key progress in the industry which the insurance regulator initiated to improve market guidance, barriers to increasing inclusive insurance outreach and the importance of trust and consumer protection. 

In her brief remarks, Pujan Dhungel of Nepal Insurance Authority (NIA) said that building resilience of low-income people through disaster risk financing is one of their priority areas of action. "As a regulator of the insurance sector, we are ready to work further in the inclusive insurance and risk finance sectors," she said. 

Further elaborating on the works being carried out by the regulator of insurance industry, Sushil Dev Subedi of NIA said that they are in the process of formulating a new microinsurance  policy. "We are working to introduce some policy on non-life insurance as well," he said, while adding that investment guidelines of all five different types of companies are being revised to pave the way for the diversification of investment in a gradual manner. 

Subedi stated that the regulator will apply the rule of proportionality for insurance companies, whereby it is expected that microinsurance companies will be treated differently based on their expected smaller size and more simple business models. He also highlighted the role of subsidies and local level distribution for microinsurance. "Some 80%  of subsidies are currently given by the federal government, while a few local governments are providing the remaining 20% subsidies. Let's include local governments in the inclusive stakeholders," he said. 

Subedi also said that affordability, low trust factor as a result of the long time taken to settle insurance claims, lack of effective recourse mechanism and unserved consumer segments are main issues hindering the increased uptake of insurance products.

Sunil Kumar Das of UKAID/Karnali Water Activity said that the failure to ensure increased uptake of insurance products has to do with the dysfunctional distribution network. While stating that there is a good chance to collaborate with the WASH sector in this regard, Das argued that communities, local governments and insurance companies must work together to improve distribution channels.

As it is cumbersome to collect small amounts of premiums from clients in rural areas, participants argued that integration of digital payment systems with the face to face collection will help to increase uptake of the insurance of products. Currently, only a few payment service providers  are integrated with the insurance payment options and these options need to be embedded in the system to make it easy for clients to pay their insurance premiums.

Participants also emphasized that there is a huge prospect of leveraging microfinance companies, which employ more than 23,000 staff and mobilize over 6 million women at the grassroots level across the country. While noting that there is also lack of insurance literacy among a large majority of people, they also highlighted the need to include insurance literacy components in the microfinance literacy programs with the support of Insurance Institute and Nepal Rastra Bank. 

Participants argued that the Insurance Institute can not only work for capacity enhancement of employees of the insurance companies but also create awareness about insurance at the local level and conduct necessary research to feed into  new policies related to insurance.

The discussions urged insurance companies to design more inclusive products to increase uptake of insurance schemes and pointed to the crucial role of microfinance and cooperatives to improve distribution of said products. Offering bundled products, such as life insurance with savings components, were mentioned as an opportunity to promote good financial practices and minimize risks from unexpected financial burdens especially in rural areas.

Sarthak Raj Pandey of Shikhar Insurance Limited argued that the provision of subsidy-based insurance is a must to increase its uptake. There is also a need to design separate insurance packages based on the vulnerability of communities from natural disasters. Inclusive insurance can be promoted with the help of municipalities and rural municipalities and reinsurance should be considered by companies if capacities need to be expanded and risks shared. 

Yogesh Parajuli of the National Disaster Risk Reduction and Management Authority (NDRRMA) argued that disaster risk financing is only a tool to manage risk. Stating that Disaster Risk Financing Implementation Plan Guidelines is currently under preparation, it references the need for the government to consider insuring public infrastructures including schools, hospitals and bridges. This also needs a comprehensive hazard assessment to inform the appropriate insurance solutions for public assets. Awareness about insurance and its role in supporting public finance management and stability is critical.

The discussion moderated by Dharma Swarnakar, Economic Advisor at UNDP Nepal, ended with the concluding remarks by Under Secretary at Finance Ministry Devkota, who reiterated all possible support of the government to address the issue of inclusive insurance and risk financing. He also expressed confidence that the recommendations of the diagnostic report will pave the way to introduce new policy measures to address the issues related to risk financing and vulnerability in Nepal.