Nepal Life's Credibility in Crisis: Policy Surrenders Outpace New Business Growth
In five years, Nepal Life Insurance collected NPR 42.04 billion in first-year premiums while surrender claims reached NPR 26.29 billion, which is 63% of first-year premiums. In fiscal year 2081/82, surrender claims surged by 78.59% to NPR 8.10 billion, while first-year premiums grew by only 37%. This indicates serious challenges to the company's business continuity and policyholder trust.
Kathmandu. The surrender value (surrender claims) at life insurance company Nepal Life Insurance has been rising rapidly. The growth rate of policies being forfeited before maturity or policyholders withdrawing money mid-term is more than double the growth rate of business acquired through issuing policies.
According to data published by the Nepal Insurance Authority, in the five years from fiscal year 2077/78 to 2081/82, the company collected a total of NPR 42.04 billion in first-year premiums while paying NPR 26.29 billion as surrender value. During this period, surrender claims accounted for 63% of first-year premiums. While collecting new (first-year) premiums is crucial for the company's business continuity, the fact that surrender claims occupy nearly 63% is a concerning situation.
According to data published in the insurance statistics book by the Nepal Insurance Authority, the company's surrender claims in fiscal year 2081/82 amounted to NPR 8.10 billion. This amount is 74% of the first-year premiums collected by the company in the same year. Not only that, in the same year, while the company's first-year premium income increased by only 37%, policy surrender claim payments increased by 79%.
The surrender value, which was NPR 3.85 billion in fiscal year 2077/78, rose to over NPR 5.01 billion in fiscal year 2078/79. In subsequent years, it fell to NPR 4.78 billion in fiscal year 2079/80 and NPR 4.53 billion in fiscal year 2080/81, but in fiscal year 2081/82, this amount increased massively to over NPR 8.10 billion.
Looking at the five-year data, Nepal Life has seen significant fluctuations in both policy surrender amounts and new premium collection. From fiscal year 2078/79 to 2079/80, while new business acquisition declined, surrender value claims remained at a high level, causing an amount equivalent to 71.83% of new business premiums to flow out as surrender value payments in fiscal year 2079/80.
In fiscal year 2081/82, although the company achieved business growth by collecting NPR 10.98 billion in first-year premiums (income from new business), the surrender amount in the same year increased by 78.59% compared to the previous year, exceeding NPR 8.10 billion.
The financial statements published by the company mention that the surrender value amount also includes amounts from policy forfeitures. Policyholders who have taken loans against their policies have unknowingly lost rights to their policies because the company did not notify them in advance to pay the loan interest on time.
The company's five-year data shows that although new business has grown, the rate of surrender of old policies remains very high. In insurance companies, policy surrenders increase when agents sell policies with amounts exceeding the policyholder's purchasing capacity, when they do not suggest purchasing policies according to the policyholder's needs, or when policyholder trust in the life insurance company weakens.