The Role of the State in Expanding Insurance Access

Insurance penetration in Nepal has made significant strides in recent years, but the true accessibility of insurance remains limited. Although official reports claim that insurance penetration has reached 43%, the reality is closer to just 17-18%. A large portion of this growth can be attributed to the influx of foreign employment and short-term insurance policies, which have made a significant impact. However, this figure is somewhat inflated, as the sector has been presented in an overly optimistic manner. In reality, much of the growth is limited to basic forms of coverage and does not fully reflect the depth of insurance access across the population.

One of the key measures to further expand insurance coverage in Nepal is the role of the state in facilitating growth. A crucial step in achieving this is enhancing the tax relief on premiums, which currently stands at 40,000 NPR. Raising this to at least 100,000 NPR would incentivize more people to purchase insurance and ultimately increase market penetration. As the insurance sector expands, the state would also benefit from increased corporate taxes, as a larger pool of insured individuals will contribute more to the economy. Therefore, expanding insurance coverage would not only be beneficial for individuals seeking financial security but also for the state's economic growth.

Furthermore, there is a pressing need for more sophisticated financial tools to support the insurance market in Nepal. Life insurance companies in the country typically offer long-term saving schemes with maturities of 15-20 years. However, the companies face limitations in terms of investment opportunities, particularly in asset management. Although there is some activity in the equity market, insurance companies cannot fully invest their funds in this market due to its volatility. The insurance sector requires access to more diverse financial instruments, such as bonds, to help increase its capacity for growth and provide more stable returns for investors.

To meet these challenges, there is a strong need for hybrid financial instruments that can offer both regular cash flows and the possibility for conversion into equity. These tools would help create a more dynamic and sustainable insurance market, while also supporting the state's infrastructure and economic growth. By creating a solid regulatory framework, the state can help insurance companies navigate these challenges and thrive in a more competitive environment.

The state has a crucial responsibility to facilitate the expansion of the insurance sector. This can be achieved through careful regulation, tax incentives, and the introduction of new financial instruments that can support the industry's growth. In doing so, the state would not only help increase insurance penetration but also contribute to the broader economic development of the country. The future of insurance in Nepal hinges on the state's willingness to take responsibility and introduce necessary reforms to ensure a more accessible and prosperous insurance landscape.

This perspective underscores the importance of state intervention in expanding access to insurance and the broader financial market in Nepal. The growing insurance market is not just about providing coverage for individuals but also about creating a more stable and diversified economy that benefits all sectors.