Kathmandu: Micro-insurance companies in Nepal, originally established with the core mandate of serving low-income groups and backward regions, are increasingly deviating from their primary objectives. Despite receiving licenses on the condition that they would bring citizens from impoverished and remote areas into the insurance net, these companies are now drifting away from their target demographics by concentrating their operations almost exclusively in accessible urban centres.
When granting operating licenses, the Nepal Insurance Authority mandated that these companies maintain their central offices in their respective provinces. However, it has been observed that most Chief Executive Officers and senior management personnel have abandoned their assigned work areas to operate out of liaison offices in the Kathmandu Valley. This trend suggests a significant disconnect between the companies’ regulatory obligations and their actual administrative practices.
A recent study titled “Study and Analysis of Micro-insurance Business in Nepal” conducted by the Nepal Insurance Authority confirms that the presence of these companies does not align with the spirit of the conditions set during their establishment. The findings reveal that the majority of micro-insurance branches and their business activities are concentrated in Bagmati Province, particularly within the Kathmandu Valley.
The report notes that the presence of these companies remains extremely low in Karnali Province and other rural areas that are economically and socially disadvantaged. This tendency to prioritize accessible and financially robust regions is putting the very concept of micro-insurance at risk. Furthermore, the study points out that even in the non-life micro-insurance sector, companies are opting for the easiest path rather than the most impactful one.
Approximately 82 percent of total non-life micro-insurance business is currently limited to mandatory third-party motor insurance. Companies have shown relative indifference toward covering risks related to health, agriculture, crops, and residential property—sectors that are directly linked to the daily lives of the actual target group. Instead of introducing innovative and effective insurance schemes, companies seem content with mandatory business, resulting in a total lack of research and development.
Out of the seven micro-insurance companies currently in operation, only three have issued shares to the general public. The remaining four continue to be dominated by founding shareholders, which the study highlights as a challenge to corporate governance, financial transparency, and public accountability. Citing international studies, the report warns of “mission drift”, a phenomenon where an organization prioritizes commercial profit over its core social mission, stating that this is exactly what is happening in Nepal’s micro-insurance sector.
Despite these challenges, the report highlights some positive developments in the micro-life insurance sector. Growing interest in term life insurance, an increasing ratio of female policyholders, and the transition to digital claim payments are seen as factors that have helped bolster public trust in the insurance industry.
To address these issues, the report suggests necessary legal and policy reforms. While current guidelines set the maximum sum insured at Rs 500,000 for life and 5 million rupees for non-life insurance, there is a lack of clarity regarding the definition of “low-income” and “backward” groups. The Authority emphasizes the need for a clear definition of these target groups and the implementation of mandatory provisions that force insurers to expand specifically within their assigned provinces.
There is also a call for separate regulations regarding branch approvals for micro-insurers. To reach the ultra-poor, the report suggests that if physical branches are not feasible in remote areas, the government and regulators should establish clear provisions for alternative distribution systems. Additionally, the study recommends that micro-insurers be given concessions in risk-based capital and other regulatory requirements to encourage rural operations. To make premiums more affordable for the poor, it suggests that the government should consider exempting micro-insurance premiums from taxes.
Since non-life micro-insurance is currently over-concentrated in motor insurance, the Authority sees a need to set minimum business limits for agriculture, health, accident, and property insurance to ensure portfolio diversification. Furthermore, aligning with international best practices, the report suggests that bundling life and non-life micro-insurance could make the business more sustainable, simple, and affordable for the end-user.
To ensure the central offices function effectively, the report recommends making company boards accountable for ensuring that CEOs and top management work directly from the provincial headquarters. This would ensure that business expansion is prioritized in the provinces where the companies are legally based.
To protect the health of those in remote and low-income areas, micro-insurers must develop health insurance plans focused on hospitalization, accidents, and maternity at affordable rates
The study also emphasizes that micro-insurers should prioritize agreements with institutional agents to delegate risk assessment and claims authority, which would reduce costs and make insurance more accessible. It is now time to invest heavily in digital infrastructure to expand services through mobile banking, digital wallets, and telecommunications, making premium payments, renewals, and claim settlements seamless.
The report further suggests exploring community risk-sharing models. Based on this, local governments could lead the establishment of municipality-level funds that connect with micro-insurers for risk transfer. Given the risks posed by climate change in Nepal, there is a call for developing simple weather-index-based insurance policies, which should be integrated with the government’s agricultural insurance subsidy programmes.
To protect the health of those in remote and low-income areas, micro-insurers must develop health insurance plans focused on hospitalization, accidents, and maternity at affordable rates. Finally, to make the process user-friendly, the report suggests implementing digital claim settlement systems, online tracking, toll-free help lines for grievances, and providing policy terms and conditions in local languages.
Historically, micro-insurance in Nepal began under the 2014 guidelines through traditional insurers. Following the 2022 Insurance Act, seven specialized micro-insurers—three for life and four for non-life—were established, marking a new institutional era. Over the past three years, the number of branches has grown from just 3 to 209, and the workforce has increased from 28 to 640.
However, the distribution remains heavily skewed, with 22.01 percent of all branches located in Bagmati Province and only 6.22 percent in Karnali. Because all companies remain centred in the Kathmandu Valley, business decision-making has failed to decentralize. While the number of policies has increased significantly, with life insurance premiums reaching 859.5 million rupees and the sum insured reaching 255 billion rupees, the focus remains on term life and motor insurance rather than the vital needs of the target population.
On a positive note, gender inclusivity is high, with women making up over 60 percent of life insurance policyholders. Micro-life insurers have also paid out 312.4 million rupees in claims. While the required paid-up capital is set at 750 million rupees, four companies have yet to meet this target as they have not yet issued public shares. Ultimately, the Authority’s study concludes that mandatory branch expansion and portfolio diversification within a strict timeframe are essential to ensure micro-insurance truly serves the economically and geographically marginalized communities of Nepal.
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