Insurance is a means of protection from the financial loss which is caused by different risk events in people’s lives. It is particularly crucial to protect low-income people’s lives and assets. Without such protection, an unfortunate event can push the low-income people into or further into poverty. This need is particularly acute in Nepal, where insurance has believed to reach about 10% of the total population.
High distribution cost, lack of awareness on insurance are considered as some of the major obstacles to expand the reach of insurance product to the low-income households. Due to these factors, insurance companies mostly focus on reaching higher income individuals in urban areas.
In an effort to expand insurance to the low-income households by reducing distribution cost and increasing insurance awareness, UKaid Sakchyam initiated a discussion among stakeholders of insurance sector in Nepal. After several rounds of discussions, associations of insurance and microfinance industries represented by Nepal Insures’ Association (NIA) and Nepal Microfinance Banker’s Association (NMBA) agreed to distribute insurance products via microfinance institutions (MFIs). NIA and NMBA signed a Memorandum of Understand (MoU) to distribute microinsurance products to MFI clients. This is the first time a partnership between these associations has been established to expand the reach of microinsurance to the low-income households.
As part of the partnership, NIA has formed a pool of all 17 non-life insurance companies working in Nepal, where Shikhar Insurance Company Ltd. has been appointed as the pool manager. A management team at NIA and Shikhar Insurance will coordinate with MFIs and other insurance companies to distribute insurance products (the modality of the partnership is shown in Figure 1). NIA will offer ranges of microinsurance and agriculture insurance products via this partnership and will further develop tailor-made microinsurance products to meet the insurance need of MFI clients as per their feedback.
Sakchyam has provided financial and technical support to NIA to materialize this partnership and expand the reach of insurance in rural and the low-income people. Sakchyam’s support will mainly be utilized to run operation of NIA, train MFIs and conduct different awareness campaigns.
The aim of this initiative is to expand the reach of microinsurance in rural parts of the country. Therefore, NIA aims to reach more than 400,000 beneficiaries within the three years of its partnership with NMBA. To do so, NIA will launch nation-wide awareness campaign to increase the level of awareness on the products. In addition, this will also minimize the instances of offering informal in-house insurance products which are currently offered by some MFIs.
As of March 2019:
- More than 14,300 beneficiaries have purchased insurance policies
- 20 MFIs have received agency license
- More than 800 MFI branch staff have been trained