PROF DR FATTA BAHADUR KC
Chairman
Beema Samiti (The Nepali regulator of Insurance Sector)
 

What is the size of the aviation insurance market in Nepal?

Aviation insurance is one of the important portfolios in the insurance sector. So far as the size of the aviation insurance is concerned, it has been increasing every year. There are altogether 17 non-life insurance companies registered. But only seven of them are into the aviation insurance business. The annual premium collection from aviation insurance in Nepal is about Rs 3 billion.

It is said that some insurance companies are trying to form a pool to handle the aviation insurance claims collectively. What is the latest progress in this regard?

I, too, have heard that some insurance companies are trying to tie  up to form such a pool. But this is yet to get a concrete shape, as far as I know. I think the main objective behind forming such a pool is to reduce insurance risks in the aviation sector. We hope the pool will come into operation in the near future.

What future do you see for the aviation insurance business in Nepal?

The future of aviation insurance business is bright. As the government has already adopted a liberal economic policy, many new airliners have entered Nepal. Aviation insurance as a business has grown in Nepal with the growth in the domestic aviation sector.  Air travel has become convenient and affordable for many Nepalis today. This has ultimately helped the aviation insurance business grow in the country.

Almost whatever the insurance companies earn from the aviation segment goes to the reinsurance companies abroad. Some are even said to be making losses in the aviation segment. It is said that the companies know that they are not going to make profits from the aviation segment. But they do aviation insurance just to show high amount of premium collections. What do you say?

It is obvious. Though, insurance companies should have retention capacities to bear the risks by themselves, most of them lack this. This is one of the reasons why they transfer their risks to the re-insurance companies. Consequently, Nepali insurance companies have to pay a high volume of premium to them. The margin between the premium collected from the airlines companies and the premium paid to the re-insurers is very small. It shows that they are not able to save even the cost to transfer their risks. They need to transfer funds to reinsurance companies. It is a very serious problem.

How can we lower the high insurance premium?

First of all, the airlines should try to be safe from different risks. Other stakeholders like CAAN should also maintain the runways properly and other technical aspects, information dissemination practices etc. The pilots, too, should be well-trained. All other stakeholders in the aviation sector should take this matter seriously, work on it together and make careful collective efforts to avoid risks.

Aviation insurance premium in Nepal is said to be among the highest in the world? Why is it so high?

Yes it is true. Since the premium is always determined by risks; a high risk ultimately draws a higher premium. This risk is mainly associated with aircraft accidents; the more the accident, the more the risks. We have been trying to reduce the risks in this sector which is known as mitigation of the risks.

The annual claims payout in the aviation sector has been constantly rising. Some people say this could further increase the already significantly high aviation insurance premium. How are we going to address this problem?

It is a compulsion for the aviation insurance business in Nepal. Generally, if the premium is high, the practice of insurance is low but in aviation insurance, if the premium is high you need to reinsure with other big companies because of the risk factor. You need to find reliable reinsurers, pay premium and transfer your risks to them. There is a direct and positive relation between the increasing rate of premium and the business of aviation insurance. However, if all these measures are properly adopted then the premium rate will be low.

There are various types of aviation insurance policies in the world. Are all of them available in Nepal?

We have only few aviation policies which basically cover the aircraft, crew-members and passengers. It also covers the sky, and if both the parties agree, grounded risks are also included in the aviation insurance. Generally, an insurance policy depends on the requirement of the policy holder. Therefore, the requirements of the airliners play a key role in the agreement between the insurance companies and the airliners.

The country’s first-ever aviation insurance summit was organized in the capital recently. How helpful was this summit?

The summit was a milestone in Nepal’s aviation sector. It’s  definitely a positive development. It helped the stakeholders in the aviation business to know each other and, at the same time, provided a platform to share their experiences, views and problems. I think the re-insurers, the under-writers and other stakeholders who participated in the programme knew the actual situation of Nepal and the aviation insurance business here. The summit was successful and the Nepali stakeholders have succeeded in addressing some of the key issue of the aviation insurance business in Nepal.