Research Proposal

Title: Claim Settlement Practices in Nepal's Non-Life Insurance Sub-sector: Problems, Determinants and Policy Measures

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a) Symptom of the Problem (Statement of the Problem)

Nepal's insurance industry has expanded rapidly over the last few decades. The number of insurers, however, fell from 41 in March 2022 to 36 in March 2023 following the regulatory directive on merger, while a few re-insurance companies have also been established. Growth in volume, therefore, has not been matched by growth in service quality. The most visible symptom is the rising volume of grievances of policyholders — particularly individual policyholders — over claim settlement, and this grievance is more acute in non-life insurance (motor, fire, marine, health, crop, property) than in life insurance. Complaints cluster around:

• Delay in settlement beyond the period stipulated in the policy and in the directives of the Nepal Insurance Authority (Beema Pradhikaran).
• Under-settlement or part repudiation of claims without adequate, written, and reasoned justification.
• Disputes over surveyor's assessment, loss valuation, and deduction on depreciation.
• Awkward and non-transparent behaviour of insurance employees and agents, absence of a single-window claim desk, and poor communication at the time of loss.
• Weak grievance-handling mechanism within companies and low awareness of the complaint route among rural and small policyholders.

These symptoms suggest a gap between the claim service the policyholder expects and the claim service actually delivered, and possibly a weakness in the regulatory and internal control mechanisms. The problem is not merely administrative; it erodes public trust in insurance and defeats the very purpose of risk transfer. No systematic, evidence-based study covering the post-merger structure of the industry has been carried out to identify the determinants of poor claim settlement. This study is proposed to fill that gap.

Research Questions

1. What is the present status of claim settlement (speed, ratio, amount, and mode of disposal) in Nepal's non-life insurance sub-sector?
2. What are the main causes of delay, under-settlement and repudiation of non-life insurance claims?
3. How do policyholder awareness, employee behaviour and the regulatory/institutional mechanism affect claim settlement?
4. What policy and managerial measures can improve claim settlement in Nepal?

Objectives

1. To examine the status and trend of claim settlement in non-life insurance companies of Nepal.
2. To identify and analyse the factors responsible for delay and dissatisfaction in claim settlement.
3. To assess the effectiveness of the existing regulatory and internal grievance-handling mechanisms.
4. To recommend evidence-based policy measures for prompt and fair claim settlement.

Hypotheses (to be tested)

• H1: Delay in claim settlement is significantly associated with the size/type of the insurer and the type of policy.
• H2: Policyholder awareness of claim procedures significantly reduces perceived settlement problems.
• H3: Employee behaviour and documentation practice significantly affect policyholder satisfaction with claim settlement.

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b) Basic Research Design (8 marks)

1. Research approach and design. The study adopts a descriptive and exploratory design with a mixed-method (quantitative + qualitative) approach. Descriptive design is used to portray the status of claim settlement; exploratory design is used to uncover the causes and the regulatory gaps. The mixed approach allows triangulation — statistical evidence is cross-checked against the lived experience of policyholders and the views of regulators.

2. Nature of data/information required.

3. Sources of data/information.

• Primary sources: policyholders who lodged a non-life claim within the last three years; claim-department employees and branch managers of non-life insurers; licensed surveyors/loss assessors; agents; officials of the Nepal Insurance Authority; officials of the Insurance Board's grievance cell; consumer-forum representatives.
• Secondary sources: annual reports and insurance statistics of the Nepal Insurance Authority; Economic Survey and NRB reports; annual reports of non-life insurance companies; Insurance Act, 2049 and its regulations; claim-related directives and circulars; published research articles, theses and newspaper reports.

4. Population and sample.

• Population: all individual and corporate policyholders of the 36 non-life insurers who lodged claims in the last three years, together with the employees and regulators concerned.
• Sample size: for policyholders, Cochran's formula at 95% confidence level and 5% margin of error: $n=\frac{z^{2}pq}{e^{2}}=\frac{(1.96)^{2}(0.5)(0.5)}{(0.05)^{2}}=384.16\approx 385$ A sample of about 400 policyholders will be taken to allow for non-response. In addition, 20 employees/managers, 10 surveyors, 5 regulators and 2 FGDs of policyholders will be covered.
• Sampling technique: stratified random sampling for policyholders — strata formed by type of insurance (motor, fire, marine, health, crop) and by province; purposive (judgement) sampling for key informants and FGD participants.

5. Instruments/tools for gathering data.

• Structured questionnaire (5-point Likert scale plus closed and a few open-ended items) for policyholders — covering claim procedure, time taken, amount received, staff behaviour, satisfaction and awareness.
• Semi-structured interview guide for employees, surveyors and regulators.
• FGD checklist for policyholder groups.
• Document/record review checklist for claim registers, complaint files and annual reports.
• Observation of claim counters and grievance desks where feasible.

6. Reliability and validity. The questionnaire will be pre-tested on 20–25 respondents in one district; ambiguous items will be revised. Cronbach's alpha will be computed and a value of 0.70 or above accepted as reliable. Content validity will be ensured through review by the supervisor and insurance experts; triangulation of methods and sources will strengthen validity.

7. Data collection procedure and period. Secondary data will be collected first, then field survey, interviews and FGDs will be conducted over a period of about three months. Trained enumerators will be used; respondents will be assured of anonymity and confidentiality. Prior consent of the insurer and the regulator will be obtained. Ethical clearance, voluntary participation and non-disclosure of company-specific confidential data will be strictly observed.

8. Limitations. Findings will be based on the perception of respondents; memory bias and non-response bias may exist; company-wise confidential data may not be fully available; the study is confined to non-life insurance and to the post-merger period.

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c) Data Analysis Tools/Methods (4 marks)

1. Quantitative analysis.

• Descriptive statistics: frequency, percentage, mean, standard deviation, and cross-tabulation to describe the status of claim settlement and respondent profile.
• Graphical presentation: bar charts, pie charts, trend lines and box plots for claim settlement ratio and average settlement days.
• Inferential statistics:
• Chi-square test — to test association between delay in settlement and type of policy/insurer (H1).
• t-test / ANOVA — to compare mean satisfaction across categories (life vs. non-life perception, urban vs. rural, insured amount groups).
• Correlation and multiple regression — to measure the effect of awareness, employee behaviour and documentation on satisfaction (H2, H3).
• Logistic regression — to identify the determinants of the probability of a claim being delayed or repudiated.
• Factor analysis — to reduce service-quality items into interpretable dimensions (e.g., promptness, fairness, communication, accessibility).
• Software: SPSS/STATA for statistical analysis; MS Excel for tabulation.

2. Qualitative analysis. Interview and FGD transcripts will be transcribed, coded and analysed thematically (content analysis) using NVivo, and representative quotations will be used to explain the statistical findings.

3. Triangulation. Quantitative results, qualitative insights and secondary records will be compared to arrive at evidence-based conclusions. Findings will be presented in tables, figures and narrative form.

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d) Chapter Plan of the Report (4 marks)

Chapter 1: Introduction — background of the insurance industry in Nepal; statement of the problem; research questions; objectives; significance; scope and limitations; definition of key terms; organisation of the report.

Chapter 2: Literature Review and Theoretical Framework — concept and functions of insurance; claim settlement process and its legal/regulatory basis (Insurance Act, 2049; directives of the Nepal Insurance Authority); service-quality theory (SERVQUAL, gap model); review of empirical studies on claim settlement in Nepal and abroad; research gap; conceptual framework.

Chapter 3: Research Methodology — research design and approach; population and sample; types and sources of data; instruments and their reliability/validity; data collection procedure; data analysis tools; ethical considerations; limitations of the methodology.

Chapter 4: Data Presentation and Analysis — respondent profile; status and trend of claim settlement; causes of delay, under-settlement and repudiation; testing of hypotheses; factor and regression results; qualitative findings from interviews and FGDs; discussion and triangulation.

Chapter 5: Summary, Conclusion and Recommendations — summary of major findings; conclusion; policy implications for the Nepal Insurance Authority and insurers; managerial recommendations for prompt and fair claim settlement; scope for further research.

Bibliography and Appendices — references in APA style; questionnaire, interview guide, FGD checklist, and supporting statistical tables.

Part 1: Existing legal framework for corporate governance in Nepal's insurance sector (10 marks)

Main instruments

Assessment: adequate in text, weak in substance

1. Rules exist on paper, yet news of breaches keeps appearing: window-dressed profits, excess management expenses, delays in claim payment, abuse of related-party dealings, and fights between promoters and management.
2. Enforcement is weak. Penalties are small compared with the gains from violation, and the regulator has limited staff, actuarial and inspection capacity.
3. Independent directors are often nominated by promoters, so true independence is doubtful. Audit and risk committees can be formalities.
4. Policyholders have no voice on the board or in the general meeting, although they carry the risk. Grievance handling and claim standards are not firmly enforced.
5. Overlaps and gaps exist between the Companies Act, the Insurance Act and the SEBON rules. There is no clear provision on whistle-blowing, board evaluation, succession planning or executive pay linked to performance.
6. Disclosure is often late or incomplete. Actuarial valuation, reserving and claim-ageing data are not published in a useful form.
7. Fit-and-proper tests and cross-holding limits are not applied uniformly, which allows concentrated control by a few promoter groups.

Conclusion: the legal framework is only partly adequate. The basic structure is present, but its clarity, enforceability and implementation fall short of good-governance standards (OECD principles, IAIS Insurance Core Principles).

Part 2: Suggestions for improvement (10 marks)

1. Consolidate and update the law. Align the Insurance Act, the Companies Act and the SEBON rules. Issue one binding governance code with comply-or-explain reporting.
2. Strengthen the regulator. Give the Nepal Insurance Authority more staff, actuarial and IT skills, and risk-based supervision with on-site inspection and early-warning indicators.
3. Stronger penalties. Use graded sanctions: heavy fines, removal of directors or CEO, suspension of licence and publication of offenders' names, applied without political interference.
4. Real board independence. Appoint independent directors through a transparent panel and fix their term limits. Separate the roles of chair and CEO. Make the audit and risk committees chaired by qualified independents. Evaluate the board every year.
5. Transparent fit-and-proper tests. Screen directors, promoters and senior managers for integrity and competence, and cap holding and cross-holding by one group.
6. Policyholder protection. Fix claim-settlement timelines with automatic interest on delay, set up an independent insurance ombudsman and a public grievance system, and publish each insurer's claim-settlement ratio.
7. Disclosure and audit. Require timely publication of actuarial valuation, solvency, claim ageing and related-party transactions. Rotate external auditors and separate audit from consulting work.
8. Whistle-blower protection and a code of ethics, with a compliance officer reporting directly to the board.
9. Risk management and internal control: an independent internal audit, an enterprise risk framework, and limits on investment concentration.
10. Capacity and culture: governance training for directors, awareness among shareholders and policyholders, and a digital reporting system linking insurers with the regulator.

Data check

Company B shows a quick ratio (3.20) higher than its current ratio (1.3). This is impossible, since quick assets are a part of current assets. So B's figures contain an error or inconsistency, and the data must be verified before any decision is made.

a) Underlying problems (5)

b) Financial health (5)

• Liquidity: A and C are very strong (current 3.92 and 3.28). D is adequate but the weakest (1.84, quick 1.40). B is doubtful because of the inconsistent data.
• Leverage: all four are low-geared, since total debt/equity is under 1. D is the most leveraged at 0.73; A is the least at 0.28.
• Coverage: interest is covered 3.25 to 5.2 times. C (5.2) and A (4.9) are safe; D (3.25) has the least cushion.
• Overall ranking: C is best, then A, then B (subject to a data check), and D is the weakest.

c) Profitability and long-term solvency (5)

• Profitability: C leads with ROA 11.32% and ROE 15.15%. A follows (10.12% and 14.85%). B is moderate (9.52% and 12.32%). D is lowest (7.5% and 9.11%).
• ROE exceeds ROA in each case, which shows positive but modest leverage effect. For D, the gap is small (9.11 against 7.5), so borrowing adds little value.
• Long-term solvency: the long-term debt/equity ratios (0.03, 0.13, 0.26, 0.34) and total debt/equity ratios show that all four can meet long-term obligations. A and B are the safest, C is comfortable, and D carries the most risk as its debt grows and its interest cover falls.
• For an insurer, solvency must also be tested against the regulator's solvency margin, and claim reserves (technical provisions) must be checked, because leverage ratios alone do not capture insurance liabilities.

d) Improving financial health (5)

• A: deploy surplus liquidity into higher-yield investments (government bonds, quality equity, fixed deposits) within regulatory limits, and use its safe leverage to grow.
• B: check and correct the accounts, improve working capital, and raise operating efficiency and underwriting profit.
• C: keep the performance, cut dependence on long-term debt, and keep liquidity balanced.
• D: cut costs and claim leakage, price products on actuarial basis, repay costly debt, raise fresh equity or retain more profit, and improve the quality of the investment portfolio.
• All: improve claim-settlement speed, control management expenses, diversify products and use digital channels.

e) Advice to investors (5)

1. Company C is the top choice: best profitability, strong liquidity and coverage, and moderate debt.
2. Company A is a safe second choice with a stable base. Expect steady rather than high returns until it deploys its idle funds.
3. Company B should be avoided or approached with caution until its reported ratios are verified.
4. Company D is not advisable now because of low returns, higher gearing and thin coverage. Reconsider only if its results improve.
5. Before buying, also check price-earnings ratio, EPS, dividend record, book value per share, solvency margin, claim-settlement ratio, and the company's governance and news. Diversify across more than one company, and read the latest NEPSE and Nepal Insurance Authority data.