Insurance to become mandatory for residential houses soon
Kathmandu, June 28
Owners of private residential houses will soon be required to purchase insurance products to cover damage or losses caused to their properties, as Insurance Board (IB) has started laying the groundwork to launch household insurance scheme in pilot phase in the Kathmandu Valley.
The mandatory insurance plan is being introduced by the insurance sector regulator 14 months after the devastating 7.8-magnitude earthquake completely destroyed over 500,000 houses in the country.
Since a majority of those houses were not insured, the government, through the budget of next fiscal year, has announced a plan to bring all private residential houses under the ambit of insurance.
“We believe the insurance scheme will provide protection to households against losses inflicted by natural disasters, fire and other incidents, such as theft,” IB Director Raju Raman Paudel told The Himalayan Times.
In the initial phase, the IB is mulling over introducing the mandatory household insurance plan in metropolitan city, sub-metropolitan city and municipalities inside the Valley.
“We will soon meet with officials of Kathmandu Metropolitan City, Lalitpur Sub-metropolitan City and municipalities located within the Valley to discuss arrangements that should be made to cover all the houses in the Valley,” said Paudel. “Also, arrangements need to be made to ensure households renew the policies that they have bought.”
Once the plan is successfully rolled out in the Valley, the IB will launch the household insurance scheme in other parts of the country.
Household insurance scheme, which not only covers damage or losses caused to physical structure of the house but to goods and other assets kept inside the house, however, is not new in the country.
Currently, non-life insurance companies are selling these policies for around Rs 1.75 per Rs 1,000 of sum insured. This means annual payment of Rs 1.75 provides cover to losses and damages worth Rs 1,000.
“We will try to make the premium even more affordable for households once we make all the arrangements to roll out
this plan,” said Paudel.
However, one of the downsides of household insurance policy being sold by insurance companies is coverage amount, which is fixed at Rs 10 million.
This means these policies currently do not provide coverage to damage or losses exceeding Rs 10 million. This provision has compelled people to look for other insurance products, such as fire, which provides coverage of unlimited amount based on premium clients pay.
“We will revise the coverage amount prior to launching the insurance plan because many houses in the Valley these days cost more than Rs 10 million,” said Paudel.
Also, IB is planning to bar insurers from deducting certain amount during claim settlement process. Currently, insurance companies selling household policies deduct up to Rs 2,000 during claim settlement process — albeit some companies do not deduct any amount.
However, insurance policies, such as fire, which also covers damage caused by natural disasters, including earthquakes, allow deduction of 2.5 per cent of the loss amount or Rs one million, whichever is lower, during claim settlement process.