A comprehensive joint study by the Nepal Insurance Authority and the Tribhuvan University School of Mathematics and Science reveals that during the fiscal year 2080/81, a staggering 1,158,299 policies—valued at Rs 36.51 billion—lapsed without renewal. Compounding the issue, surrendered policies surged by 17.58 percent to 113,976, representing Rs 14.50 billion in forfeited coverage. Nepal Life Insurance recorded the highest volume of surrendered policies, highlighting that retaining long-term coverage has become a far greater challenge than initial sales.
Economic Hardships and Social Pressure Fuel Lapses
Financial distress is the primary driver behind the crisis. According to the survey, 78.9 percent of policyholders attributed their inability to maintain regular premium payments to job losses, business downturns, and inflation. Many individuals found themselves locked into costly plans that far exceeded their real income capacity, exposing flaws in agent assessments.
Social dynamics further distort the market. The study found that 76 percent of agents admit policies frequently lapse or are surrendered because they were purchased under peer or familial pressure. Furthermore, 71.8 percent of customers conceded they bought coverage to fulfill personal requests rather than out of genuine financial need.
Mis-selling and Emergency Cash Crunches
When confronted with medical emergencies, education costs, or sudden cash shortages, 61.2 percent of respondents opted to surrender their policies. The report noted a critical lack of awareness regarding alternatives, such as securing low-interest loans against policy collateral rather than forfeiting the contract entirely.
Mis-selling exacerbates the crisis. Roughly 69.6 percent of insured individuals reported that agents promised inflated returns while withholding crucial policy terms. Many agents subsequently leave the profession, stranding customers without after-sales support or renewal reminders. Additionally, 65.2 percent of respondents cited administrative delays, low bonus rates, and sluggish claims processing as major factors eroding public trust.
A Five-Point Roadmap for Sector Reform
To reverse rising lapse and surrender rates, the report outlines a five-point reform strategy for regulators and insurers:
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Mandatory Financial Capacity Testing: Insurers must rigorously evaluate a customer's true income and expenses before selling a plan.
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Flexible Insurance Structures: Companies should introduce temporary payment postponements during economic downturns or convert policies into reduced paid-up options.
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Dedicated Customer Protection Desks: Firms must establish branch-level desks to monitor at-risk policies and support customers who have lost contact with agents.
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Simplified Reactivation Processes: Bureaucratic hurdles for reviving lapsed policies should be streamlined with digital payment gateways and crisis-period penalty waivers.
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Enhanced Financial Literacy: Companies must educate the public on the pitfalls of premature surrenders while promoting awareness of alternative policy loans.
Industry experts emphasize that a healthy insurance market is measured by policy retention rather than aggressive new sales, noting that restoring consumer confidence requires aligning coverage with genuine financial capabilities and enforcing industry-wide accountability.
