8th October 2025, Kathmandu
The data showing a modest but significant year-over-year decline in motor insurance’s share, from 28.05 percent in FY 2023/24 to 27.81 percent in FY 2024/25 for the first two months, is the central theme.
Motor Insurance Share Declines
While the change of 0.24 percentage points may seem slight, its importance lies in its break from a historical trend of dominance, indicating a structural headwind rather than a temporary fluctuation.
1. Macroeconomic Contraction and Auto Sales
The primary factor cited is the national economic slowdown, directly correlating with a slump in the automobile market. The non-life insurance sector’s reliance on motor business (historically close to or above 30 percent, as suggested by prior data from the first nine months of FY 2081/82 which was around 29.95 percent according to search results) makes it highly susceptible to import restrictions and dampened consumer spending on vehicles. Reduced new vehicle sales directly shrink the pool for new motor Own Damage (OD) and Comprehensive policies, while renewals for older vehicles often have declining insured values, naturally limiting premium growth. This macro-level constraint forces insurers to seek stability elsewhere.
2. The Electric Vehicle (EV) Conundrum
The rise of Electric Vehicles (EVs) presents a classic innovation dilemma for the insurance sector. While EVs represent the future of mobility in Nepal, particularly given the government’s push for sustainability and tax incentives, the current insurance framework is ill-equipped to handle their unique risk profile.
The Regulatory Gap: The lack of a formal update to the Motor Insurance Tariff Directive 2073 (2016) to include EV-specific provisions creates ambiguity. Insurers are thus forced to apply conventional policies designed for Internal Combustion (IC) engine vehicles.
Risk and Pricing Discrepancy: The main issue revolves around the battery. As highlighted in related industry commentary (search result [4.3]), an EV battery can account for a significant portion of the vehicle’s cost. Applying a standard depreciation rate, such as the 50 percent on the battery from day one—a measure reportedly used by some insurers—can lead to underinsurance, customer dissatisfaction, and higher claims ratios for the insurer, as the replacement cost is often disproportionately high.
A “Loss-Making” Product: Industry figures have suggested that current premium levels, which were initially concessionary to promote EVs, may not adequately cover the high-cost, high-risk nature of battery damage, especially considering exogenous factors like flood damage (search result [4.3]). This reluctance to underwrite at current rates or the use of unfavorable depreciation rules naturally slows the growth of the motor segment as EV adoption accelerates.
Property Insurance: The New Growth Engine of Non-Life
The most compelling aspect of the sector’s transformation is the emergence of property insurance as the leading segment, surpassing motor insurance’s contribution.
1. Market Leadership Shift:
The data confirms a critical change: property insurance premium collection of NPR 2.51 billion now accounts for 30.32 percent of the total non-life business for the first two months of FY 2082/83. This is a noticeable increase from the 29.68 percent recorded in the same period last year, demonstrating its clear lead over motor insurance’s 27.81 percent share.
2. Factors Driving Growth:
Increased Infrastructure Activity: The expansion of industrial, construction, and commercial activities in urban and semi-urban centers creates a higher demand for essential property and fire insurance coverage, often mandated by banks for secured loans.
Regulatory Mandates and Risk Awareness: Government and financial institution mandates for property coverage, combined with a growing public and business awareness of disaster risk (such as earthquakes and floods), bolster demand for comprehensive property policies.
Diversification Strategy: As new motor business slows down, non-life insurers are strategically shifting their focus and resources to the property segment, which offers stable, large-ticket premiums. This deliberate diversification is what is accelerating its growth trajectory. Data from the end of the previous fiscal year, FY 2081/82, already showed property insurance’s share growing to 25.53 percent of the total non-life business (search result [3.3]), and the current two-month figures confirm this momentum has continued and strengthened.
Broader Industry Diversification and Future Trajectory
The shifting market shares indicate that Nepal’s non-life insurance industry is entering a vital phase of diversification, moving beyond its traditional dependence on the motor segment.
1. Expanding Portfolio Focus
Besides property insurance, non-life companies are also expanding into other segments to stabilize their portfolios:
Engineering and Construction Risk: This segment remains strong, likely due to infrastructure spending, contributing substantially to the overall premium pool (over 17 percent in FY 2081/82 according to search result [3.3]).
Health and Micro-insurance: The focus on health and micro-insurance products is crucial for penetrating underserved segments and improving overall insurance density and penetration. The micro-sector, while small, is growing, contributing over 2 percent of the business (search result [3.3]), signaling its potential for future scale.
2. The Regulatory Imperative
The long-term health and stability of the motor insurance segment—and its ability to support the EV transition—hinges critically on regulatory action. The Nepal Insurance Authority (NIA/Insurance Board) must prioritize the revision of the Motor Insurance Tariff Directive 2016.
EV-Specific Policy Design: A clear directive for EVs should address battery depreciation (e.g., separating the battery from the vehicle body for depreciation calculation), fire risk, and charging-related liabilities. This would allow insurers to price EV policies accurately, ensuring both profitability for the companies and fair compensation for consumers, thereby restoring confidence in the segment.
Modernizing Pricing: The current shift may also necessitate a move towards more sophisticated pricing models, such as Usage-Based Insurance (UBI) or telematics-based policies, to better align premiums with actual risk, which is especially pertinent for new technologies like EVs.
Conclusion and Outlook
The decline in motor insurance’s market share, though numerically small, serves as a powerful indicator of a fundamental change in Nepal’s non-life insurance landscape. The sector is actively decoupling its growth from the performance of the automobile industry, primarily due to economic headwinds and the complexities of electric mobility. Property insurance, fueled by infrastructure growth and greater risk awareness, has successfully taken the lead.
The future resilience of the non-life sector will depend on two key factors: the continued success of diversification efforts into segments like property, engineering, and health, and the timely intervention of the Nepal Insurance Authority to provide a dedicated, modern regulatory framework for Electric Vehicle insurance. This structural evolution towards a multi-pillar revenue model is ultimately a positive development, signaling a more mature and robust insurance market capable of navigating economic shifts and technological change. The ongoing 0.24 percentage point decline in motor’s share marks not a crisis, but a necessary and dynamic market realignment towards broader, more sustainable growth.
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