In recent years, the global insurance industry has undergone significant transformation, with insurtech at the forefront of this revolution. Defined as the application of cutting-edge technologies like big data, artificial intelligence (AI), Internet of Things (IoT), and cloud computing within the insurance sector, insurtech has proven to be a game-changer worldwide. Nepal, an emerging economy, has also started embracing this shift, creating exciting opportunities and unique challenges for the insurance industry.

Transforming the Nepali Insurance Landscape

Nepal’s insurance sector, traditionally characterized by manual processes, limited accessibility, and low penetration rates, is poised to benefit immensely from insurtech innovations. According to the Insurance Board of Nepal, the market has grown steadily, with total gross written premium reaching NPR 30.6 billion in 2023, the insurance penetration rate (the total of life and non-life insurance as a percentage of GDP) in 2023 is 3.47% this represents the combined percentage of GDP that the total gross premium for both life and non-life insurance companies accounts for. This represents a vast untapped market for insurtech to make a meaningful impact. Technologies are enabling insurers to offer more personalized, efficient, and accessible solutions to customers. From streamlining claims processing through AI-driven automation to enhancing customer experience via mobile-based apps, insurtech is gradually redefining how insurance services are delivered in Nepal.

The Impact of Global Events

Despite the challenges presented by the recent global crisis, including the COVID-19 pandemic, the Ukraine-Russia war, and the ongoing global recession, Nepal’s insurance sector has shown resilience. According to the latest data, at the end of the fiscal year 2021/22, the total gross premium collected by Nepalese insurance companies increased by 16.48%, reaching NPR 177.81 billion. Furthermore, the sector’s contribution to GDP stood at 3.67%, with total investments amounting to NPR 553.27 billion. Insurance outreach also increased, reaching 38.26% of the population (excluding foreign employment). The number of direct employees in the insurance industry rose to 12,031, with 296,403 agents and 1,240 insurance surveyors. These figures reflect a gradual improvement in the sector, showing growth and stability despite the adverse effects of global events.

Opportunities for Growth

1. Increased Accessibility: Mobile-first solutions, driven by the growing penetration of smartphones and internet services in Nepal, are bringing insurance products to previously untapped markets, particularly rural areas. According to the Nepal Telecommunications Authority, mobile penetration in Nepal reached 156% in 2023, meaning there are more mobile connections than people, highlighting the potential for mobile-based insurance products.
2. Cost Efficiency: Automated underwriting and claims processes are reducing operational costs, enabling insurers to offer more competitive pricing. A study by McKinsey & Company estimates that insurtech solutions can reduce operating costs by up to 30%, resulting in more affordable products for consumers and better profit margins for insurers.
3. Enhanced Risk Assessment: With big data and IoT, insurers can now assess risks more accurately, providing customized products and improving profitability. By leveraging IoT devices, insurers can track real-time data, allowing for dynamic pricing models. For example, auto insurers can use telematics to track driver behavior and offer personalized premiums based on driving patterns.
4. Financial Inclusion: As per the Asian Development Bank (ADB), around 65% of Nepal’s population still lacks access to formal financial services, creating a huge gap for microinsurance solutions. Insurtech can play a crucial role in promoting financial inclusion by offering affordable, accessible insurance products to previously underserved populations.

Regulatory Developments

A significant step forward in the Nepali insurance sector is the enactment of the New Insurance Act, 2022 (Kartik 22, 2079), which grants the Nepal Insurance Authority (NIA) greater autonomy and authority. This new legislation also established provincial offices in Koshi, Madhesh, Gandagi, Lumbini, Karnali, and Sudhur Paschim Province, expanding the NIA’s reach and regulatory presence. The NIA is also actively pursuing mergers and acquisitions within the insurance industry to enhance the sector’s risk-bearing capacity and create healthy competition among insurers.

Challenges to Overcome

While the potential is vast, there are significant hurdles to the widespread adoption of insurtech in Nepal:

• Regulatory Adaptation: The existing legal framework must evolve to accommodate emerging technologies and ensure data security. The Insurance Board of Nepal has made strides in digital regulation, but more robust policies are needed to govern digital platforms, mobile payments, and cybersecurity concerns.
• Digital Literacy: Many Nepali consumers and businesses are yet to become fully comfortable with digital platforms, requiring robust awareness campaigns. According to a report by the Nepal Economic Forum, only 30% of Nepali adults are fully digitally literate, making it critical to build trust and educate consumers about digital insurance platforms.
• Infrastructure Gaps: Limited technological infrastructure in rural areas can hinder the scalability of insurtech solutions. A report by the World Bank states that only 30% of Nepal’s rural population has access to reliable electricity, which can restrict access to digital insurance solutions in these areas. Addressing these gaps is crucial to ensuring nationwide access.

The Way Forward

To harness the full potential of insurtech, collaboration between stakeholders—government, insurance companies, and technology providers—is crucial. Insurtech can help insurers adopt a customer-centric approach, foster financial inclusion, and drive the sustainable growth of the industry.

At Foneinsure, we are proud to be a part of this transformative journey. By partnering with leading Nepali insurers and leveraging state-of-the-art technology, we aim to bridge the gap between insurance and technology, empowering businesses to thrive in the digital age. Our partnerships and innovations aim to accelerate the digital transformation of Nepal’s insurance industry, helping both consumers and businesses unlock the full benefits of insurance.

By: Ranjana Aryal

Business Development Officer