This article discusses how the recent floods in the Trishuli and Bhote Koshi corridors will impact Nepalese insurance and reinsurance companies with billions in estimated claims.
The recent floods in Bhote Koshi and Trishuli corridors have caused massive damage to lives and property. Because of this, the insurance sector is also going to face a very big impact. The Nepal Insurance Authority have estimated around Rs. 25 arba in preliminary claims because of damages to houses, hydropower projects, vehicles, and business structures. However, risk management experts say this amount could go up as many people are yet to file their claims.
How to Claim If Property is Completely Gone
Udaya Raj Adhikari, who is the vice-president of Nepal Insurance and Risk Management Association, says that claims can still be made even if a house or shop is completely washed away by the river. In such cases, the owner first needs to prove that the property belonged to them.
Since policy documents might also be lost in the flood, people can use other proofs. Local government recommendations, police reports, bank loan documents, old valuation reports, and even old photos can be used. Insurance companies will also check their own computer databases to find policy details and then send surveyors to assess the loss.
Claim Amount is Not Always the Full Sum Insured
It is important to know that you do not always get the full sum insured amount. The main goal of insurance is to cover the actual loss, not to help you make profit. For example, if a house is insured for Rs. 50 lakh but its actual market value was only Rs. 40 lakh, the maximum compensation for complete damage will be decided based on Rs. 40 lakh. Also, the policy’s deductible amount which the insured person has to bear themselves is subtracted from the final payment.
But there are different rules if you have a reinstatement value policy. In this type of policy, you might get the cost to rebuild or repair the property without subtracting depreciation, but the property must be insured for its actual current value.
Huge Impact on Hydropower Projects
Out of the estimated Rs. 25 arba claims, the final amount is still not fixed because the assessment of hydropower projects is not complete. Many projects have suffered heavy damages in their headworks, powerhouses, and mechanical equipment, though tunnel structures have faced less damage.
For hydropower projects, the claim is not just for physical damage. It can also include loss of income. If the policy covers Advance Loss of Profit for under-construction projects or Loss of Revenue for running projects, the insurance companies will have to pay for the income lost during the shutdown period.
How Reinsurance Protects Insurance Companies
Local insurance companies do not keep all this big risk to themselves. They pass a large part of it to reinsurance companies in exchange for a fee. If a big disaster happens, the reinsurers pay a major share of the claim.
Nepalese reinsurance companies also do not keep all the risk. They transfer a portion of it to international reinsurance markets. This process of reinsuring the reinsurer is called retrocession. So, the entire financial burden of this flood will not fall on just one Nepalese company because the risk is shared globally.
Long-Term Worries for Nepal
Even though risk sharing helps, frequent natural disasters create long-term pressure. Before this flood, insurance companies had to pay huge claims during the recent Gen-Z protests and the 2072 earthquake.
Mr. Adhikari says that if such disasters keep happening, international reinsurers might make reinsurance very expensive for Nepal or might not want to take Nepalese risks. This could increase insurance premiums in the future. Therefore, instead of worrying that insurance companies will collapse right now, we need to focus on building safer infrastructures and improving risk management.
AI Disclaimer: This article was originally published on https://bajarkochirfar.com. It has been translated with the help of AI. For the best understanding and accurate facts, we recommend reading the original Nepali version.
