Page 25 - The Insurance Times September 2025

Challenges and Preparedness Gaps This could trigger pressure to raise fresh capital, merge,
or exit certain high-risk product lines-shifting the
Despite its long-term benefits, implementing RBC in Nepal
will not be without challenges mentioned below: competitive balance of the market.
1. Data Limitations
7. External Environment
Many insurers don't yet have deep, reliable datasets on Nepal's broader financial system-limited capital
claims experience, persistency, mortality, morbidity, or
asset performance. markets, concentration of investment in fixed income
securities and a few asset classes-restricts insurers'
Without granular historical data, capital charges may ability to diversify risks, which RBC frameworks assume.
be based on approximations, which can distort true risk
exposure.
Addressing these gaps will require coordinated action by
insurers, industry associations, regulators, and academic
2. Actuarial and Analytical Capacity
institutions.
RBC requires advanced actuarial modeling, stress
testing, and scenario analysis. Nepal's talent pool in Benefits to Policyholders and the
these areas is still thin.
Economy
Heavy reliance on a handful of actuaries or consultants
can create bottlenecks and uneven implementation. Ultimately, the RBC regime is designed to serve
policyholders, the insurance industry, and the broader
Greater demand for risk management qualified
personnel economy. Key benefits includes:
1. Enhanced Policyholder Confidence
3. Technology Infrastru-cture Knowing that insurers are adequately capitalized relative to
Many insurers still operate with legacy IT and siloed their risk profiles builds trust in long-term commitments like
systems. retirement planning, children's education policies, or
RBC demands integrated platforms that can connect annuities.
underwriting, investments, and risk management to
produce timely solvency reports. 2. Lower Systemic Risk
By minimizing the probability of insurer failure, RBC
4. Awareness and Governance contributes to financial stability and reduces the need for
Boards and senior management need to fully grasp how bailouts or regulatory rescues.
RBC affects strategy, not just compliance.
3. Responsible Product Innovation
Embedding risk culture-so that business lines consider
capital efficiency in pricing, product design, and Insurers will be incentivized to develop capital-efficient,
investments-is still a work in progress. customer-centric products that align business sustainability
with policyholder needs.
5. Regulatory Transition
4. More Resilient Investment Portfolios
Clear rules, templates, and timelines are still being
Improved investment governance will ensure that insurers
shaped by the Nepal Insurance Authority.
funds are managed prudently, benefiting not just
A phased or parallel-run approach is essential, but in policyholders but also national capital markets.
practice this can create confusion and uneven
preparedness across insurers. Strategic Roadmap for Nepal's
The capital charges for available asset class seem to be Insurance Sector
on higher side in the scenario of limited instruments
To make the most of the RBC transition, stakeholders must
available which is impacting the solvency of the insurer.
act in concert:
6. Market Structure and Capital Pressure For Insurers:
Smaller insurers with limited capital buffers may Invest in actuarial talent, IT systems, and ERM
struggle to meet new requirements. frameworks.

24 September 2025 The Insurance Times