Auto insurance awaits better policy
Himalayan News service
Kathmandu, April 7:
Thanks to retail lending schemes laid out by commercial banks, the insurance market related to automobiles is also finding it easy to grow.
Mandatory insurance of vehicles purchased under retail lending schemes has contributed largely to the growth of auto insurance market. But impractical insurance policies and lack of awareness in people are continuing to be constraints in the development of the insurance market. In developed countries, auto insurance has a very big market. But in Nepal, it is still considered a loss-making business.
The insurance policy act 2052 has made it mandatory to insure commercial vehicles but no hard and fast rules have been imposed for privately-owned vehicles. The density of vehicles and accident ratio is increasing at exponential rates but the lack of awareness and an unfavourable insurance policy continue to mar the growth of insurance market in Nepal.
An auto insurance is a contract between an owner and the insurance company in which the owner pays a premium and in exchange, the insurance company promises to pay for specific car-related financial losses during the term of the policy.
Auto insurance covers nearly 20 per cent of the total insurance business and more than 15 companyies, alongwith a state-owned one are in a stiff competition for the market share.
Comprehensive and third party insurances are popular in Nepal. Basic insurance under comprehensive insurance covers theft and accident. Additional coverage for riot damage and terrorist attacks could also be made. Third party insurance insures against damage caused to a third party by a vehicle.
Shai Raj Chettri, development officer at Alliance Insurance Company said that, less than 25 per cent of privately-owned vehicles are insured. People are unaware of the benefits they could get by insuring their vehicles. Depending upon the type and cost of vehicles, National Insurance Committee has made a tariff rate. Generally, the yearly premium is two per cent of the value of the vehicle, which could be further reduced, depending upon insurance policy a customer will buy, said Chettri.
“The ratification of the insurance policy is needed for the smooth growth of insurance market. Some articles in the insurance act needs change. No specific amount fixed for some conditions like third party insurance has kept both insurers and insurance companies in confusion,” said Nidhi Raj Lamichanne, manager, vehicle insurance department, National Insurance Corporation (NIC).
The regulatory body of National Insurance Committee has fixed a premium tariff and all insurance companies are bound by its laws. However, the lack of monitoring and supervision by the National Insurance Committee has attributed to unfair competition among insurance companies, said Laxman Adhikari at the motor insurance department of NIC.
Adhikari also said that the insurance companies have to pay one per cent of their collected premium to the National Insurance Committee. But the committee is not utilising its resources for the development of the insurance business.
NIC collects about Rs 55 million premium under vehicle insurance, which could increase ten folds if good laws and practice are imposed, Adhikari felt.
Kumar Bahadur Karki, chief manager at Nepal Insurance Company said that consumers lack awareness regarding the benefits they could reap by insuring their vehicles. Though the recent boom in consumer loans has contributed to the growth of insurance market, prevailing impractical laws and practices need to be changed to generate more premiums.