Nepal insured losses stay low amidst weak penetration: AM Best

Commercial properties along the main trade route face concentrated damage.

Overall insured losses from the recent catastrophic flooding in Nepal are expected to be low compared to total economic losses, according to a report by credit rating agency AM Best titled Nepal’s Catastrophic Floods Pressure a Thinly Insured Market. 

The expected shortfall in covered damage is due to Nepal having one of the lowest insurance penetration rates in Asia.

Despite the low overall figures for the broader market, AM Best expects insured losses to concentrate in specific commercial sectors. 

The heaviest exposures involve hydropower generation facilities, infrastructure engineering projects, and commercial properties situated along the main trade route. 

Because these large projects carry high insured values, individual insurance firms and their reinsurance partners could face significant claims relative to their size.

Motor and marine cargo insurers are also set to face moderate claims resulting from cross-border trade delays, as the Gyirong border crossing remains closed.

In addition, travel insurance providers expect a rise in claims for emergency medical evacuations, trip cancellations, and early return arrangements, as the flood-damaged regions include prominent tourist destinations.

International reinsurers are anticipated to pay out a significant portion of the total claims, as local Nepalese non-life insurers depend heavily on global markets to underwrite disaster risks.

Victoria Ohorodnyk, senior director and head of analytics at AM Best, stated that whilst foreign reinsurers will absorb much of the cost, the progression of claims involving hydropower and engineering projects will require close evaluation over the coming months.