EXPLORING THE DYNAMICS OF INSURANCE PENETRATION AND ITS INFLUENTIAL FACTORS IN NEPAL

Abstract

This study examines the key determinants of insurance penetration in Nepal. The primary objectives are to evaluate the current state of insurance penetration and examine the relationships between insurance penetration and various economic and demographic factors, including the inflation rate, foreign direct investment (FDI) inflow, education level, dependency ratio, and per capita income. The research employs a descriptive and causal research design, analyzing secondary data collected over a twenty-year period. The entire insurance industry in Nepal constitutes the study population, with data sourced from government and industry reports. Statistical methods, including descriptive analysis, correlation analysis, and regression analysis, were utilized to assess the impact of these variables on insurance penetration. Major findings indicate that insurance penetration in Nepal varies significantly, with a range from 0.40% to 7.03% and an average of 2.41%. The correlation analysis reveals strong positive relationships between insurance penetration and FDI inflow, education level, and per capita income. Conversely, negative correlations are observed with the dependency ratio and the inflation rate. The regression analysis shows that FDI inflow significantly increases insurance penetration, while education level and per capita income have unexpected negative impacts. The dependency ratio is also found to have a notable negative effect on insurance penetration. The study concludes that while FDI inflow positively influences the insurance market, other factors such as a higher dependency ratio and increased per capita income present challenges to expanding insurance coverage. The findings imply that policymakers should focus on creating a favorable investment climate to attract more FDI, consider diversifying insurance products to cater to a more educated population, and implement financial education programs to enhance understanding and utilization of insurance. Additionally, regulatory frameworks may need to be revised to improve access and transparency in the insurance market.