Demonstrations on September 9 led to the torching of public property, various commercial buildings, hotels, and homes resulting in damages worth tens of billions of rupees.
This has raised a significant question: Who will bear the cost of this damage, and how?
First, let's talk about public property.
This time, the protests caused damage to numerous public assets, including Singha Durbar, the Parliament building, the Supreme, and many High, and District Courts, as well as municipality and ward offices and various departmental offices. Billions of rupees were invested in building these structures.
However, public property in Nepal is not insured. Although there have been calls to insure public property for a long time, government apathy has prevented it from happening. Therefore, the damage to public property will not be compensated.
Now, let's discuss private property.
A significant amount of private property was damaged in Kathmandu and districts across the country.
Large businesses like Bhat-Bhateni Superstore, Hilton Hotel, Chaudhary Group's industries, Labim Mall, and car showrooms were damaged. In addition, the offices, homes, and vehicles of prominent businesspeople like Binod Chaudhary, Shekhar Golchha, and Dhruva Thapa were also affected. Numerous medium-sized businesses across the country were also damaged, as were the private homes of political leaders and high-ranking officials.
Although a precise figure is not yet available, initial estimates suggest that the damage to private property amounts to billions of rupees.
According to Executive Director of the Nepal Insurance Authority Sushil Dev Subedi, the estimated damage from this protest is greater than that caused by the 2015 Earthquake.
"In the earthquake, insurance companies paid out Rs 20 billion in claims. It is estimated that the claims now could be several times higher," he said.
Hotel owners have already stated that the damage to hotels alone amounts to Rs 25 billion.
The Hilton Hotel was built with an investment of more than Rs 8 billion. The hotel, which was destroyed by arson, was insured for approximately Rs 7 billion.
According to insurance regulations, damage caused during a demonstration or protest is considered "damage from rioting." The Insurance Authority has mandated that property insurance, home insurance, and engineering insurance must cover damage from riots.
Motor vehicle insurance comes in two types: third-party and comprehensive. Third-party insurance does not cover damage from rioting; it covers compensation for people who are injured or killed in a motor vehicle accident.
Comprehensive insurance, on the other hand, covers damage to the vehicle itself, including damage from rioting.
This means that if a commercial building, private home, or vehicle damaged during the protests was insured, the owners are entitled to a claim, according to Subedi.
The Insurance Authority has already instructed companies to start collecting insurance claims. The companies must then submit their data to the Authority every Wednesday, which will then make the information public.
How does an insurance claim Work?
Generally, to file a claim, property owners must inform both the police and the insurance company they are insured with. In the current situation, however, it is sufficient to only inform the insurance company.
After being notified, officials (surveyors) are dispatched to the site for an inspection.
The surveyor must submit a report within 60 days. This time limit, however, does not apply to reports for engineering insurance claims for buildings and industries that are under construction.
After the report is submitted, the insurance companies will pay the claim amount.
According to CEO of Shikhar Insurance Dip Prakash Pandey, the company has provided insurance for the Hyatt Hotel and Bhat-Bhateni at some locations.
"We don't expect the claims to be very large. We will process the payments quickly as per the rules," he said.
Some claimants have had positive experiences with insurance companies paying on time.
According to Shawant Jung Sijapati, General Manager of Sipradi's Passenger Vehicle Business Division, the authorized dealer for Tata vehicles in Nepal, insurance companies have always paid on time.
"We haven't faced any significant problems with our insurance claims after the earthquake or the recent floods. We are confident that we will not have any issues this time either," said Sijapati.
The protestors vandalized the Tata car showroom in Thapathali.
Will all the burden fall on insurance companies?
Non-life insurance companies handle the insurance of physical property and vehicles. Companies may have full or partial insurance on a property. The policyholder cannot receive more than the amount for which the property was insured.
Generally, insurance companies do not bear the full risk of riots and similar incidents.
According to Subedi, companies typically retain only 30 to 35 percent of the risk themselves. They transfer the remaining risk to Nepali reinsurance companies.
For example, if someone has a Rs 100 insurance policy and a claim is filed, the insurance company will bear a Rs 30 burden, and a reinsurance company will bear the burden of remaining Rs 70.
Currently, Nepal has two reinsurance companies: Nepal Reinsurance and Himalayan Reinsurance. These companies also bear some of the claim burden themselves and transfer the rest to foreign reinsurance companies.
Although it's assumed that these companies transfer a portion of the claim burden to foreign insurance companies, the Insurance Authority does not have information on the specific proportion.
Nevertheless, the Authority has stated that the companies are capable of paying the claims that arise.
"In the insurance business, the burden is not borne by a single company or even by the companies within the country. The burden is also transferred to reinsurance companies around the world. Therefore, the companies do not face a major risk," said Subedi.
What Happens to the money lent by banks for damaged structures?
The burden on banks that have lent money for property (buildings or vehicles) also largely falls on insurance companies. Subedi explained that while insurance companies do not directly insure loans, they do insure the collateral placed for a business or a loan.
The use of the claim payment is determined through discussions between the business owner and the lending bank.
"Whether the business owner or the bank receives the payment is decided by mutual consent," said Subedi. "The business owner may choose not to pay off the entire loan right away and instead continue with regular installments. The claim amount received can then be used to restore or expand the business."
This issue is resolved through a discussion between both parties. If an agreement cannot be reached, the insurance company will pay the bank directly.
If the property is insured for a lower amount than its value, the insurance claim may not cover all the damages.
In such a case, the bank may also have to bear the risk for the remaining amount, said CEO of Nabil Bank Manoj Gyawali.
"If the insurance amount received by the business owner or property owner is sufficient to pay off the entire loan, banks won't have a major problem. If the amount is not enough, the banks might have to bear the loss," he said.
If a bank is unable to bear such a loss, it could put pressure on deposits (savings).
"The capital fund of banks is currently Rs 60 billion. If the risk we have to bear becomes Rs 61 billion, the remaining Rs 1 billion could put pressure on deposits," CEO Gyawali said.
However, he stated that such a situation is not likely to arise from the current destruction.
"The business sector in Nepal is currently experiencing psychological distress. Compared to the pressure from this damage, the pressure on insurance companies or banks is normal," Gyawali said.
