Regulating Bancassurance in Nepal: Nepal Rastra Bank’s Intervention and Its Implications for Financial Innovation and Financial Market Development

Bancassurance has played a significant role in expanding insurance penetration in Nepal by integrating banking and insurance services through banks' extensive branch networks and established customer relationships. During the period from 2010 to 2019, Nepal adopted a permissive multi-agency corporate agency model that accelerated premium growth and broadened insurance accessibility. However, weak regulatory coordination between the banking and insurance sectors, inadequate market-conduct supervision, and aggressive sales practices gave rise to widespread governance concerns, including coercive tied selling, product mis-selling, conflicts of interest, and compromised consumer choice. Recognizing these systemic deficiencies, Nepal Rastra Bank (NRB) prohibited Banks and Financial Institutions (BFIs) from acting as corporate agents for third-party insurance companies through the Monetary Policy 2019/20 and subsequent supervisory directives. This study evaluates the rationale, implementation, and implications of NRB's regulatory intervention within the broader context of financial innovation, consumer protection, and financial market development.

The study adopts an institutional governance perspective supported by agency theory and market-conduct theory to examine the causes and consequences of Nepal's bancassurance reform. It employs a qualitative case study approach based on the analysis of regulatory policies, supervisory directives, annual reports, industry publications, media reports, and other secondary sources. The findings suggest that the regulatory intervention addressed persistent governance failures, strengthened consumer protection, reduced unethical sales practices, and encouraged insurers to diversify their distribution strategies while prompting banks to refocus on their core financial intermediation functions and digital service delivery. The study concludes that a carefully designed, risk-based, and jointly supervised bancassurance framework—supported by professional certification, enhanced disclosure standards, consumer-centric safeguards, and coordinated oversight between Nepal Rastra Bank and the Nepal Insurance Authority—could enable Nepal to reintroduce bancassurance in a manner that balances financial innovation, market efficiency, and consumer protection.