Bancassurance vs. Traditional Agents in Nepal

In many countries, "bancassurance" — banks selling insurance products to their customers — is a booming distribution channel. In Nepal, it's a different story. This post explains exactly what banks in Nepal are and aren't currently allowed to sell you, why the rules changed, and how this compares to buying through a traditional insurance agent.

What Is Bancassurance?

Bancassurance refers to banks selling insurance products directly to their customers, leveraging their existing branch networks and customer relationships as a distribution channel for insurance companies. Globally, it's a major channel — in parts of Europe, bancassurance accounts for roughly a third or more of life insurance premium income, with countries like Spain and France seeing even higher shares.

The Current Reality in Nepal: A Restricted Channel

Unlike many other markets, bancassurance in Nepal has been significantly restricted by the country's central bank. Banks and financial institutions previously acted as institutional agents, selling insurance policies to their customers — a practice formalized by a directive from the then-Insurance Board in 2021. However, Nepal Rastra Bank (NRB), the central bank, moved to ban this broad practice through its monetary policy for fiscal year 2019/20, following growing complaints that banks were pressuring or compelling customers to buy insurance policies as a condition of getting a loan.

What Banks in Nepal Can Still Do

Following the restriction, NRB has narrowed the role banks can play in insurance to two specific, loan-linked situations:

• Collateral insurance: Banks are required to insure property pledged as collateral for a loan — but critically, the borrower chooses which insurance company provides that cover during the loan disbursement process, not the bank.
• Life insurance for unsecured personal-guarantee loans: For loans issued without collateral, NRB has directed that borrowers obtain periodic (term) life insurance for the duration of the loan.

Outside of these two specific, loan-linked cases, banks in Nepal are not currently permitted to broadly sell insurance policies to customers as a general product offering the way they might sell a savings account or fixed deposit.

Why the Restriction Happened

The core concern behind the NRB's decision was that some banks and financial institutions were compelling customers to purchase insurance policies as an informal condition of loan approval — a practice that undermines genuine customer choice and blurs the line between banking and insurance sales incentives. Industry voices, including the Nepal Life Insurance Association, have pushed back on the blanket restriction, arguing that isolated misconduct by some banks shouldn't end the model entirely for the whole industry — but the restriction remains in place.

What's Replaced Bancassurance: Cooperatives as Institutional Agents

Following the bancassurance restriction, insurance companies have shifted focus toward partnering with cooperative associations and organizations as institutional agents instead, signing agreements to insure cooperative members directly. Cooperative leaders have noted that having the association itself act as an agent is often simpler and more convenient for their members than the previous bank-based model.

Bancassurance vs. Traditional Agent — Side-by-Side (Nepal Context)

What This Means for You as a Borrower

• You have the right to choose your insurer for collateral insurance tied to a loan — a bank cannot force you to buy a specific policy from a specific company as a loan condition.
• If you're taking an unsecured personal-guarantee loan, expect to be required to hold periodic life insurance for the loan term — confirm the terms and choose a policy that fits your needs rather than accepting the first option presented.
• If a bank representative pressures you to buy an unrelated insurance product as a condition for a loan or account service outside these specific rules, that pressure itself may not be aligned with current NRB directives — you're entitled to push back or seek clarification.
• For any insurance need outside these loan-linked scenarios, you'll need to go through a licensed agent, broker, or the insurer directly — not your bank.

Frequently Asked Questions

Can banks in Nepal sell insurance policies directly to customers?

Not as a general retail channel. Nepal Rastra Bank has restricted this practice, and banks are currently limited to loan-linked insurance — collateral insurance (with the borrower choosing the insurer) and life insurance for unsecured personal-guarantee loans.

Why did Nepal restrict bancassurance?

Nepal Rastra Bank introduced the restriction after receiving complaints that some banks were compelling customers to purchase insurance policies as an informal condition of loan approval.

Who chooses the insurance company for collateral insurance on a bank loan?

The borrower chooses the insurance company for collateral insurance during the loan disbursement process — not the bank.

If banks can't sell insurance broadly, who has taken over that role?

Insurance companies have increasingly partnered with cooperative associations and organizations as institutional agents to reach customers, alongside traditional individual agents and brokers.

Final Thoughts

If you've read about bancassurance as a major insurance-buying channel elsewhere, it's worth knowing that Nepal's regulatory environment currently keeps this channel narrowly limited to loan-related insurance — and even there, you retain the right to choose your own insurer for collateral cover. For everything else, a traditional licensed agent, a broker, or the insurer directly remains your practical route to buying a policy in Nepal.