Non-life insurance was one of the sectors that was the hardest hit by the devastating earthquakes of April and May. So far, claims worth around Rs 19 billion have been filed at different non-life insurance companies. Rupak D Sharma of The Himalayan Times caught up with Dip Prakash Panday, CEO of Shikhar Insurance Company, to discuss how insurers are coping with the situation. Excerpts:

The latest report of Insurance Board (IB) shows that almost 50 per cent of the claims have been settled. However, in terms of amount, hardly 15 per cent of the claim amount has been extended in the form of compensation. This shows insurers are focusing more on settling smaller claims, isn’t it?

Yes, that seems to be the case. But most of the bigger claims, like those related to stock of goods, have also been settled. This is because stock claim settlement process is not very complex: we just have to match the estimates provided by the client with our records and extend compensation accordingly. However, insurers seem to be taking more time to settle claims related to projects, like hotels and hospitals. One of the reasons for this is delay in assessment of losses due to various reasons, such as lack of engineers. Even my company has not been able to fully settle these cases. But to provide some relief to these clients, we are extending advance based on estimates of losses that they have provided.

But even some of the smaller cases have not been settled yet. Many standalone house owners are complaining that insurers have not sent surveyors to assess the damage.

This may be because they could not or did not lodge complaints on time. I have seen clients who have just started approaching insurance companies. So, this may have caused the delay. Well, I cannot talk about others, but my company is doing everything to expedite the claim settlement process. We have even asked surveyors to hand over cases that they have not been able to look into, so that cases could be settled as early as possible.

The latest IB report shows that around 13 per cent of the claims have been categorised as cases of ‘no-claim’. This means these clients will not get any compensation, isn’t it?

Yes, there were underinsured properties, and insurance companies will not entertain such cases. The case of underinsurance occurred because many clients bought insurance policies just to cover the portion of loan that they obtained from banking and non-banking institutions. Just recently, I came across a case in which a client, whose house was worth Rs nine million, had bought insurance coverage of only Rs 350,000 because he had obtained a credit of Rs 350,000 on the back of the house. So, this client will not get adequate compensation from the concerned insurance company.

But many who insured purely residential houses have not been able to recoup all the losses because they were sold fire insurance policy, in which deductible is high. Had they been sold household policy — in which there is no deductible — they could have received some compensation, isn’t it?

Household insurance policy provides coverage of up to Rs 10 million. But the policy does not only cover the physical infrastructure; it also covers contents inside houses, such as television, refrigerator, kitchen equipment, furniture, decorative items and jewellery. So, Rs 10 million may not be able to provide cover to all the assets, especially in places like Kathmandu, where the price of a house alone stands at over Rs 10 million. In this regard, the IB may have to revise the coverage of household policy upwards.

But it is said most banks do not accept any other policy other than fire. Also, banks tend to encourage borrowers to purchase policy just to provide cover to loan amount rather than the entire property, isn’t it?

Borrowers should also be careful in this regard. We thought the devastating earthquakes of April and May would teach them a lesson. But even today many borrowers are buying insurance policies just to cover the loan amount. Probably, people’s memory is short. However, lately, we have also started sending our staff to educate people on the importance of providing proper coverage to assets. But only 30 to 40 per cent of those clients, whom we talk to, listen to us. So, my humble request to consumers is that they should consider insurance as an investment and not as an expense.

But the weakness is also on the part of insurers, isn’t it? It is said non-life insurers are more interested in roping in big clients where commission is higher. And they don’t reach out to each and every household to educate them about the importance of insurance.

No, that is not the case. We have reached out to smaller clients as well. But many of those clients do not renew their policies every year. In this regard, we recently held a meeting with IB officials, and have decided to come up with a report, comprising findings of surveyors who appraised the damage and losses. Once the report is finalised, we will hold a meeting with bankers and officials of Nepal Rastra Bank and explain why many insurance clients failed to receive proper compensation. So, this document will provide an insight into what clients need to do to reap maximum benefit from insurance packages during disasters.

So, what needs to be done to reap maximum benefit from insurance packages?

Currently, many clients purchase policies based on depreciated value of property. This reduces their chances of getting adequate compensation to restore the property to its original form. So, these types of policies do not serve the purpose. That’s why I suggest clients to go for reinstatement policy. This policy entitles clients to adequate compensation to purchase the materials used before to build the property. This way they can reinstate the damaged property to its original form without digging into their pockets. Well, we were lucky this time and the quakes did not cause much damage. In fact, the quakes did not hit the industrial belt. But we may not be lucky all the time. So, we have to be prepared.

Were domestic non-life insurers prepared to weather the shock that could have emanated from damage caused to the industrial belt?

Well, it depends on the type of reinsurance or catastrophic package purchased by companies. In my case, I had bought catastrophic package to provide cover to damage worth Rs two billion. In other words, losses of up to Rs two billion caused by one-time catastrophic event were covered in my case. In the current fiscal, I have raised the coverage amount to Rs 3.5 billion as I have plans to expand my business. I don’t exactly know catastrophic coverage of other companies, but from what I have heard they have bought package of as little as Rs 150 million to Rs 500 million. I think the IB should take a lead in this regard and tell companies the size of the package that they should purchase to protect themselves against catastrophic events. Also, a separate fund could be created for catastrophic protection. We can create the fund by parking a portion of premium levied to provide protection against riots, strike and malicious acts. This way we will not have to transfer the cost to clients. If not, Nepal Reinsurance Company can also purchase packages for the entire market.

Are you in any way trying to imply that insurers will raise premium amount to better protect themselves against catastrophic events?

Well, premium rates may not have to be jacked up immediately because losses that we have suffered were below our expectations. My company had initially estimated losses to reach Rs 1.75 billion. But now it appears it will hover around Rs one billion, including portion that has to be provided by reinsurance companies. So, the situation is not that alarming.

So, no company will go bust?

Well, revenue of many companies is expected to go down. This is also because commission from reinsurance companies has gone down. At the same time, our expenses have also jumped because premium on catastrophic coverage has gone up by up to three times. But the good news is that each non-life insurance company has received around Rs 78.60 million as dividend from Nepal Reinsurance Company. So, in my opinion, fourth quarter balance sheets of most of the companies will look good. And I don’t think any company will go bust.

The quakes have provided lots of opportunities for non-life insurers. But it appears many companies have not changed their marketing strategies to reap benefit from this situation?

Unfortunately, a big chunk of claims are yet to be settled. As a result, we have not been able to fully win the confidence of many people. So, companies should change their attitude and show willingness to pay. But many companies also did not have adequate human resources to deal with the situation, so there were delays in claim settlement process.

So, the businesses of companies will not grow drastically in the coming days because you have not been able to win the confidence of many.

I think the business of non-life insurers will grow by 20-25 per cent in the current fiscal year, as against around 15 per cent in the last fiscal.

We are not that optimistic at the moment because many people have not fully understood the importance of insurance. Also, we have stopped providing cover to buildings that have failed to comply with government regulations, which will affect our cash flow. For instance, we have stopped providing cover to buildings that have received permission to go up to three storeys but have gone up to six storeys.

Lastly, what about high-rise buildings, especially apartment buildings? How are you settling those claims?

We adopted a totally wrong strategy while providing coverage to apartment buildings in the past. Currently, many insurance companies have provided coverage to individual apartment units. So, different units in a complex have insulated themselves using policies sold by different insurance companies. This means every insurance company’s liability is only towards the unit owned by its client. But in the case of apartment buildings, clients, who have purchased insurance policy for their unit, are also responsible for damage caused to common areas, such as corridors, parking areas and gardens. So, insurance companies have now decided to provide cover to the entire apartment building, meaning we will stop selling policies to individual unit owners. That’s our plan for now.