Motor insurance down due to economic recession and growing EVs

KATHMANDU, AUGUST 23: Motor vehicles, once considered a luxury, have now become a basic necessity mainly in urban areas in the country.  They provide convenience for daily life, family trips, gatherings, etc in terms of mobility. Due to factors like road expansion, increasing urbanization, poor state of public transport, people have increasingly felt the need for their own automobiles. Additionally, easy loans provided by banks and financial institutions are just acting as a catalyst in this regard. 

Though owning automobiles is making life more convenient,  it, of course, is not free from risks.  The related owners may incur damages to their own physical well-being or cars due to untoward incidents like accidents, natural disasters, theft, etc.   So, in order to mitigate such losses, the government has already made motor vehicle insurance mandatory.

 However, Ashok Khadka, General Secretary of the Nepal Insurance Association and CEO of Neco Insurance bemoans that this is yet to be fully implemented. "There is a provision requiring an insurance policy to be presented when renewing a vehicle. However, some transport offices renew without the policy. Although third-party insurance is mandatory, it has not been implemented 100%."

Decline in Motor Insurance Business

Compared to the previous fiscal year, Nepal's motor insurance business declined by more than five percent last year due to the economic recession.

According to data from the Nepal Insurance Authority, non-life insurance companies earned 12.56 billion rupees in premiums from motor insurance in 2023/24. In 2022/23, the very kind of earning had been recorded at 13.3 billion rupees.

Last year, they also issued a lesser number of motor insurance policies numbering 1,645,906 motor compared to 1,744,953 issued in the previous year.

CEO Khadka explained that vehicle sales decreased last year due to the economic recession, leading to a decline in the motor insurance business. "The sales volume of automobiles went down in 2022/23 thanks to a slowdown in the national economy. As a result, a large number of people did not renew their motor insurance, affecting the motor insurance business," he reasoned.

According to him, the arrival of more electric vehicles (EVs) compared to the vehicles based on internal combustion engines (ICE) is also something stifling the business. "The insurance premiums of EVs are lower than that of non-electric vehicles.  So, the plummeting imports of the latter vis-à-vis the former has shrunk the premium collections," he said.

Motor insurance remains a significant part of non-life insurance companies' operations, accounting for a substantial portion of the total premiums collected by them. According to former CEO of the Insurance Authority, Rajuraman Paudel,  of the total premiums worth Rs 41.46 billion collected by non-life insurance companies last year, the share of motor insurance stood at as much as 30%.

What is Motor Insurance?

It is a type of insurance that protects the owner and his/her vehicle against financial losses in case of an accident, theft, or natural disaster. It covers the costs of any damage or injuries caused to the owner or other people and their property.

According to the Insurance Act, motor insurance covers motorcycles, private cars, taxis, trucks, tractors, passenger buses, microbuses, construction, ambulances, etc.

Under the Vehicle and Transport Management Act, 2049, vehicle owners or managers must insure each vehicle as specified. The Act  states that the registration certificate of an uninsured vehicle will not be renewed. It requires vehicle owners or managers to insure the related drivers, conductors, security personnel, and other employees. Every passenger must also be insured for a specified amount in case of an accident. Similarly, vehicle owners or managers must insure third parties for a specified amount to cover any damage to them or their property caused by a vehicle accident.

How to buy a Motor Insurance Policy?

To buy the policy, the interested individuals, at first, have to select a trusted non-life company. Then they need to prepare the necessary documents including the copies of the vehicle's bluebook or VAT bill provided by the showroom, identity proof, and a passport-size photo and fill out the policy-related forms provided by the company. ( If the vehicle is registered under an organization, one  must provide a copy of the organization's management rules, the identity proof of the organization head, and the identity proof of the person dealing with the insurance company.)

 After this,  the documents along with the forms shall be submitted to the company. This leads to the process of inspecting the related vehicles and taking photographs by its representatives.

With the completion of the process, a contract is reached between the company and the vehicle owners. It facilitates the latter to buy a motor insurance policy from the former.  Notably, if the vehicle does not meet with an accident within a year, a discount on the premiums for the following year is provided.

Types of Motor Insurance

Comprehensive Motor Insurance: This type of insurance covers all types of risks related to the vehicle. It includes damage to the vehicle in case of an accident, injury to the passengers, and damage to third parties. This type of insurance usually has a higher premium.

Under this insurance, for motorcycles, it covers the driver, one pillion passengers, and third-party injuries or disabilities, including the cost of treatment and damage to the motorcycle. If third-party property is damaged, the insurance pays up to a maximum of 2.5 million rupees.

For private vehicles, it covers the driver, and other passengers as per the number of seats mentioned in the bill book, third-party injuries or disabilities, treatment costs, third-party property damage, and vehicle damage. The maximum liability for third-party property damage is up to 8 million rupees.

For commercial vehicles, the insurance covers the driver, conductor, checker, helper, or other employees, passengers based on the number of seats mentioned in the registration certificate, third-party injuries or disabilities, treatment costs, third-party property damage, and vehicle damage. The maximum liability for third-party property damage is up to 5 million rupees.

Third-Party Insurance: This insurance covers the financial risk of causing damage to another vehicle, person, or property with your vehicle. According to this plan, if your vehicle damages another vehicle or property, the insurance company pays the claim. The vehicle owner does not bear the financial burden.

However, if there is no third-party insurance, the vehicle owner must pay for the damages caused by the accident. Failure to do so may result in penalties.

Third-party insurance pays up to 2.5 million rupees for injuries to third parties caused by motorcycle accidents, and up to 2.5 million rupees for property damage. For private vehicles, it pays up to 8 million rupees for injuries or property damage caused by accidents.

For commercial vehicles, it pays up to 5 million rupees for damages caused by accidents. Additional coverage can also be obtained by paying extra premiums.