Insurance Companies Instructed to take Climate Risk into Consideration while determining Premium

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Insurance Companies Instructed to take Climate Risk into Consideration while determining Premium

January 27: Life insurance companies will have to determine the insurance premium by taking into consideration climate risk factor from now onwards. The Insurance Board made such arrangement by issuing the 'Climate Risk Directive, 2078' on Monday. 

The regulatory body made such an arrangement after holding discussions with the World Bank. As the insurance sector of Nepal has also been affected by climate change, the board made such an arrangement. In addition, the directive intends to support the purpose of risk-based capital formation. 

However, this provision will be implemented 3 years after the issuance of the directive. According to the board, the insurance companies will have to include climate risk while formulating new insurance plans and determining its premium three years after the issuance of the directive. At the same time, the companies have to clarify on what criteria have the climate risk been included in the insurance premium. 

Executive Director of the Insurance Board Rajuraman Poudel said that climate risk should be included in determining the premium after three years. He said that such an arrangement has been made as the climate risk is increasing in the country.

"Climate risk has been increasing in Nepal. Therefore, we made such an arrangement after various rounds of discussions with the World Bank," he said, "The companies will have to determine the insurance premium accordingly after three years. However, the impact of climate risk on the business needs to be studied for the time being. And, its report has to be submitted to the board annually." 

Recently, natural disasters such as floods and landslides are increasing in Nepal due to climate change. As a result, physical infrastructures, such as hydropower projects have been damaged. Similarly, the agriculture sector has also been directly affected due to the impact of climate change and the change in seasonal temperature. And, their impact is seen on the insurance sector as well. 

 

 

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