7th October 2025, Kathmandu
The public notice from the Nepal Insurance Authority (NIA), the principal regulatory body for the insurance sector in Nepal, serves as an essential advisory for consumer protection.
Insurance Awareness by NIA
The message, centered on the correct procedure for purchasing an insurance policy, highlights the legal principle of Utmost Good Faith, which is the cornerstone of all insurance contracts. This awareness campaign is a direct action by the NIA to fulfill its core mandate: to systematize, regularize, and protect the rights and interests of policyholders. Understanding the details of this warning is crucial for anyone planning to buy insurance in Nepal.
The Critical Importance of Personally Filling the Proposal Form
The NIA’s primary instruction—that the insurance proposal form must be filled out personally by the insured—is perhaps the single most important defense against future claim rejection. This directive is deeply rooted in the legal nature of an insurance contract in Nepal, as outlined in the Insurance Act, 2079 (2022), which emphasizes mutual disclosure and good faith.
Why Personal Completion is Mandatory:
Affirmation of Utmost Good Faith: The proposal form is the legal basis of the insurance contract. By personally filling and signing it, the insured legally declares that all the information provided is true and complete to the best of their knowledge. This includes vital details about health, property, and risk exposure.
Mitigation of Misrepresentation/Concealment: In the event of a claim, if the insurance company finds that a material fact was misrepresented or concealed in the proposal form, the contract can be voided (cancelled from the beginning). This leads to the rejection of the claim, causing severe financial loss for the policyholder or their nominee. Often, issues arise when an agent fills the form and either misunderstands or deliberately misrepresents facts to secure the sale, without the insured’s full knowledge. The NIA’s directive prevents the insured from later claiming ignorance of the form’s content by placing the onus of responsibility squarely on them.
The Incontestable Clause in Nepal: While many international practices set an incontestable period (after which a claim cannot be rejected for misrepresentation) at two years, Nepal’s Life Insurance Guidelines, 2079 (2022) sets this period at one year. This provision benefits the insured, but until that one-year period is complete, any discrepancy in the proposal form, especially if intentional, can be grounds for policy cancellation. The initial act of personal completion is therefore a critical step in ensuring the policy’s long-term validity.
Provisions for Illiterate or Incapacitated Individuals
Recognizing the diverse literacy levels and physical capabilities of the population, especially in a developing economy like Nepal, the NIA provides a clear mechanism for those unable to personally complete the form: “If the person is illiterate or unable to fill out the form, it should be completed by a person authorized by them.”
This provision is a necessary safeguard for financial inclusion while maintaining legal security. When a third party is authorized to fill the form:
Documentation is Key: This authorization should be formally documented, ideally witnessed, and the third-party filler must clearly state that they have read and explained the contents of the form to the insured, and that the insured has agreed to the declarations.
The Insured’s Consent is Paramount: The final decision and the confirmation of the details rest with the insured, and their signature or thumbprint (duly witnessed) acts as the final legal consent. This process ensures that the fundamental principle of ‘informed consent’ is not bypassed simply due to illiteracy or incapacitation.
Due Diligence on the Insurance Company
The final, essential instruction from the NIA is for the insured to “understand the insurance company properly before purchasing any insurance policy.” This is an instruction for the consumer to perform their own due diligence, a task usually associated with large corporations but equally vital for individual financial security.
Elements of Consumer Due Diligence:
- Financial Stability (Solvency): The insured should check the company’s reputation and financial health. While the NIA regularly supervises insurers to ensure they meet capital adequacy requirements, a proactive consumer should look for evidence of a stable, long-standing, and solvent operation.
- Claim Settlement Ratio and Speed: A crucial indicator of a reliable insurer is its claims history. The consumer should inquire about the company’s claim settlement ratio (the percentage of claims paid out versus those received) and the average time taken for claim settlement. A high ratio and quick turnaround are signs of a consumer-friendly and efficient company.
- Customer Service and Complaint History: Checking the company’s track record for handling grievances, either directly or through the NIA’s Complaint/Grievance Handling mechanism (which the NIA has a strong mandate to manage), provides insight into their operational ethics.
The Role of the Nepal Insurance Authority (NIA)
The NIA, which was formerly known as the Beema Samiti and was officially established under the Insurance Act, 2079 (2022), acts as the central pillar of the Nepali insurance industry. Its duties encompass far more than just issuing warnings; it is responsible for:
- Regulation and Supervision: Monitoring the financial health (prudential supervision) and market conduct of all licensed insurance companies.
- Policyholder Protection: As mandated by law, the NIA acts as the protector of policyholders’ rights. It is also actively working towards the establishment of a Policyholders Protection Fund (PPF) to provide a safety net for consumers.
- Dispute Resolution: The NIA serves as a quasi-judicial authority for the settlement of disputes between the insured and the insurer, especially those concerning the determination of insurance liability.
By issuing these clear public advisories and providing a toll-free number (1660-01-56789) for public contact, the Nepal Insurance Authority is demonstrably upholding its commitment to public education and consumer protection, ensuring that the act of purchasing insurance is an informed decision rather than a transactional risk.
For More: Insurance Awareness by NIA