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Insurance Sector Strengthening in Nepal

Project Development Objective ( PDO )

This project aims to assist the Government of Nepal to strengthen the insurance sector by improving the legal/regulatory and supervision framework, and supporting market development.

Background

The 2015 earthquakes have brought to light the vulnerability of the financial sector, with only 3.5 percent of assets reported to be insured. Likewise, actual losses to the insurance sector from the earthquake are estimated very low as compared to losses incurred by the economy and individuals. This illustrates the low level of awareness about insurance being a risk management tool, thereby exposing the public and indirectly the banks as well.
 
The disaster highlighted the need for the Insurance Board of Nepal to strengthen the legal framework and introduce new regulations and methods of supervision to ensure effective enforcement leading to prompt reimbursement to clients and sound risk management practices. The new legal framework also needs to address the under-capitalization of the insurance sector and provide space for the introduction of new insurance products. 

Activities / Output

The objective is expected to be achieved through the following activities:
 
1.       Legal and Regulatory framework;
a.       Review and revise the draft Insurance Act to (i). Enhance the operational independency of the IB; (ii). Enable the innovation of new tailored insurance products and mechanisms; (iii). Improve market practice of the sector by raising capital requirements to appropriate levels; and (iv). Support an improved supervisory             framework; and
b.      Draft key implementing regulations for the new Insurance Act
 
2.       Strengthen supervisory effectiveness through enhanced supervisory review and reporting;
a.       Develop a new Supervisory Framework for off-site review and reporting, including manual on off-site monitoring and templates on off-site regulatory reports.
b.      Provide capacity building on supervisory review and regulatory reporting in relation to off-site monitoring to IB.
 
3.       Market and product development
a.       Conduct a demand/supply analysis on insurance products with a focus on earthquake risk;
b.      Provide recommendations on earth quake (EQ) risk management/insurance mechanism;
c.       Develop a Roadmap on Market Development in terms of products and distribution channels.

Expected Outcomes

The main expected outcomes of the project are as follows:
1.       Improved legal/regulatory environment for insurance sector in line with the globally accepted standards tailored to Nepalese environment, enabling the enhanced governance structure  of IB and space created for innovation of new tailored insurance products for Nepal
2.       Strengthened supervisory capacity and practices
3.       Increased availability/quality of new/improved insurance product(s)