When veteran insurance expert Indra Prasad Karmacharya was doing a course at the College of Insurance in London in 1972, the professor gave him an assignment: calculate the total loss if two fully-loaded 727s crashed into the Empire State Building. Karmacharya remembers thinking that such imaginary insurance risk assessments were unrealistic. Thirty years later, 11 September happened and the total losses were nearly $80 billion. The terrorist attacks shook the entire insurance world and played havoc with premiums.
The aftershocks of 11 September were felt half a world away in Nepal, with a dramatic increase in insurance premium. Karmacharya, who is now with Neco Insurance, estimates that rates are going to increase even more. The Nepal Bank Limited and the Rastriya Banijya Bank used to pay up to Rs 1.4 million in premium every year, they now pay Rs 5 million.
Things here have been made worse by the Maoist insurgency. The cost of insurance in Nepal has gone up seven times. That in turn has affected civil aviation the most. Insurers who used to calculate war- or terrorist-related risk as 0.01 percent of the value of the aircraft, now use a seven percent formula.
When the Maoists started attacking helicopters, the premium load on helicopter operators has suddenly shot up. So far the Maoists have destroyed or damaged helicopters belonging to Air Ananya, Asian Airlines and the Royal Nepal Army. Airlines have received a double whammy: premiums have gone up, but turnover has plummeted. They are therefore looking for re-insurance, and here they are drifting away from expensive European re-insurers who charge up to seven percent premium, towards African and Indian ones who take half that. Fishtail Air received prompt reimbursement from its Indian re-insurer after a helicopter went down in Rara lake last November, and this has encouraged other operators to shift away from the Europeans. Says Deep Prakash Pandey of Everest Insurance: We now see that re-insurance is possible through India, for the first time we got paid in American dollars through an Indian company.
