Insurance market lacks innovative products

Sunil Devkota, the general manager of United Insurance Co (UIC) Nepal, holds a Master of Business Administration degree from Kathmandu University. Devkota, 31, is also a chartered accountant and has already worked in a committee constituted to draft an on-site inspection manual for the supervision of insurance companies. He recently talked in details with Prabhakar Ghimire of The Kathamandu Post about the prospects and problems of the Non-life Insurance sector of Nepal.


Excerpts:

Tell us about the performance of UIC Nepal over the years.

We performed very well during the initial years after UIC started operation in 1993 due mainly to a low level of competition as there were very few players at that time. However, we had to face a tough time afterwards for a few years. Nevertheless, we have been able to perform satisfactorily in the last two fiscal years. UIC earned a profit of Rs. 5.8 million during Fiscal Year 2006/07 while the profit volume increased by almost three folds to Rs. 16 million in Fiscal Year 2007/08. Turnover also shot up to Rs. 189.2 million during Fiscal Year 2007/08 from Rs. 151.4 recorded a year earlier. We are planning to increase our paid up capital to Rs. 100 million from the existing Rs. 60 million by distributing bonus shares and rights issues.

Over the period of a year, we have added branches in Birgunj and Hetauda bringing the total number of branches to five. We are planning to open five more branches, in Damak, Birtamod, Narayanghat, Nepalgunj and Dhangadhi.


How is the Non-life Insurance business growing in Nepal?

There are currently 18 Non-life Insurance companies in the market. Annual growth of this sector stands at about 20 to 30 percent in terms of insured amount. However, only a small section of the insurance market's potential has been explored due to lack of awareness among people about the importance of insurance. Insurance companies are also not smart enough to bring innovative products. We (Non-life Insurance companies) are unnecessarily concentrated in certain markets thereby breeding unfair competition there. Fighting for a piece of this small pie has kept us so busy that we have not been introducing new innovative products that can contribute to the expansion of the existing market. Huge chunk of potential market is untapped as a majority of the population is still unaware of insurance products.

Do you see any prospect of expansion?

Definitely, there is a good prospect for insurance companies in Nepal. We can see a 100 percent annual growth rate in insurance business if the government comes up with concrete policies that encourage people toward insurance products. We also need to explore new markets in addition to expanding the existing ones in urban areas with innovative products.


What do you think should be done to widen people's access to insurance services?

The government should instruct insurance companies to expand their services to rural areas to ensure access for the larger chunk of people to insurance services. Insurance companies themselves should explore new markets and introduce new products as per the changing market trend. For example, Household Insurance in Kathmandu Valley is at a very low scale, even though this area falls under the seismic zone. Consumers are not aware of this nor have insurance companies been able to boost up this policy among the Valley's residents. Likewise, health insurance, cattle insurance and crop insurance are also areas that can be expanded by raising awareness among people. For this, the Insurance Board should grant permissions without hassle.

What are the major problems seen in this sectors?

It is difficult to convince reinsurers about the viability of new insurance products due to lack of convincing data about the insurance market. On the other hand, insurance companies have to go through a lengthy process to get permission from Insurance Board to introduce new products. Disobeying directives from the board is becoming a trend among insurance companies. If Non-life Insurance is to be expanded among the poor masses, VAT should be waived like in life insurance policies.

The trend of business houses opening insurance companies to insure their own businesses has proved detrimental, as it has discouraged the growth of the insurance sector. We need a strong regulation to bar insurance companies from insuring clients who are directly related to the promoters' companies.

Do you have any plans for introducing new products for UIC?

On the back of the growing number of shopping malls in urban areas including Kathmandu Valley, we are coming up with Parking Insurance Policy which will cover cases of accidents and thefts inside underground parking areas.

Customers of such malls are in need of insurance of their vehicles and properties kept in such parking areas, as concerned parking service contractors and malls refuse to own the responsibility of theft or damage of vehicles and compensate the customers.
Source: eKantipur