January 20: International reinsurance companies have raised the rate of insurance premium owing to rise in insurance claims induced by the COVID-19 pandemic. The pandemic has not only led to a rise in the claims but the revenue of insurance companies has also declined. Also, the insurance business has slumped, making insurance companies increase premium rates.
Foreign insurance and reinsurance companies do not invest much in bank deposits as in Nepal. The scope of their investment is wider. Their investment areas have been affected by the pandemic leading to decline in their revenue.
In addition, the pandemic has increased mortality rates in most countries, resulting in increased mortality claims for insurance companies. That's why reinsurance companies have raised premium rates, experts say.
Besides, climate change is inviting major natural disasters, such as tsunamis, storms, landslides, floods, in almost all parts of the world. Such natural disasters have caused extensive damage to various projects, infrastructure and physical assets around the world and led to a rise in insurance claims.
However, the insurance business has not increased accordingly. In view of the current circumstances, foreign reinsurance companies have increased the premium rate, experts said.
Damodar Bhandari, assistant chief executive officer of Nepal Reinsurance Company, admits that companies have increased premium rates due to the pandemic and climate change.
"The pandemic has reduced the volume of revenue of reinsurance companies. On top of that, the claim ratio has increased due to the pandemic and climate change. But, business did not increase in the same ratio," he said, “Therefore, foreign reinsurance companies have increased the premium rate. The ratio of transferring risk through retrocession has also become more expensive."
He said that the rating of some reinsurance companies has shrunk. The rating of Indian reinsurance company GIC dropped from minus A to triple B. According to Bhadari when the foreign companies increase the premium rate, the insurance (life / non-life) done by the general people will become more expensive in the country.
“When the reinsurance companies raise premium rates, insurance companies must increase fees they charge on customers,” he said, "When the premium gets dearer, the number of prospective insurers will go down."
He said that the conditions set by the foreign reinsurance companies may be stricter than before. It is not as simple as before to reinsure in the international market.
Chunky Chhetri, president of the Nepal Insurers Association, also informed that the international reinsurance companies have increased the premium rate. "There has been a rise in incidents of floods and landslides leading to a rise in engineering insurance claims in the country,” said Chhetri, “But business has not increased at the same rate.”
Poshak Poudel, vice president of Life Insurers Association, said that insurance might be dearer in the country due to a rise in premium in the international market.