Insurance Coverage Expands in Nepal, but Policy Surrenders and Non-Renewals Remain a Growing Concern

Nepal’s insurance sector has expanded steadily in recent years, yet regulators and industry experts warn that the growing tendency of policyholders to surrender policies or avoid renewal could undermine long-term stability. The concern comes at a time when insurance penetration is rising, but still leaves a majority of the population outside the safety net.

Currently, 37 insurance companies operate in Nepal across four categories: 14 life insurers, 14 non-life insurers, two reinsurance companies, and seven micro-insurance companies—including three life and four non-life providers. Each category operates under clearly defined mandates set by insurance regulations, with paid-up capital requirements tailored to the nature of their business.

Life insurance in Nepal is increasingly viewed as a dual instrument—offering both risk protection and long-term savings—while non-life insurance plays a crucial role in safeguarding property and assets. Reinsurance companies, meanwhile, spread risk by reinsuring both life and non-life policies domestically and internationally, helping stabilize the broader insurance ecosystem.

Data from the Nepal Insurance Authority up to mid-September show that life insurance coverage—covering term, endowment, foreign employment, and other policies—has reached 42.92 percent of the population. This marks a significant improvement driven by government incentives and growing public awareness. However, the figures also reveal a major gap: 57.1 percent of Nepalis remain outside the insurance system, highlighting substantial untapped potential.

Regulators attribute the rise in coverage to awareness campaigns and policy incentives that have enabled insurers to expand into remote areas. Yet, industry insiders caution that headline growth masks structural issues. Policy surrenders and non-renewals—often triggered by short-term financial stress, lack of understanding of policy benefits, or aggressive sales practices—are emerging as persistent challenges.

To address these issues and guide sectoral development, the Insurance Authority has rolled out its Second Strategic Plan (2023–2027). The plan prioritizes expanding insurance access, strengthening corporate governance within insurance companies, and enhancing the sector’s contribution to overall economic growth. It also underscores the need for sustainable policy retention, rather than growth driven solely by new sign-ups.

Experts argue that stopping the culture of early surrender and non-renewal is essential. High lapse rates weaken insurers’ balance sheets, reduce consumer trust, and limit the sector’s ability to mobilize long-term funds for the economy. They stress that improving financial literacy, ensuring transparent sales practices, and aligning products with customers’ income realities are as important as expanding reach.

As Nepal pushes toward broader financial inclusion, the insurance sector stands at a crossroads. Expanding coverage is only one side of the equation; ensuring that policies remain active and meaningful over time will determine whether insurance can truly serve as a pillar of social protection and economic resilience.