The Insurance Board Nepal has been hesitant to remove the mandatory minimum insurance premium for hydropower projects, citing the high risks associated with the sector, even though hydropower operators and insurance companies have reached an understanding to transition to a competitive pricing model.

Four months ago, hydropower operators and insurers agreed to abolish the minimum premium rate, and requested the Insurance Board to implement the change. However, despite formal correspondence in July, the regulator has yet to commit to removing the minimum premium. Insurance Board Executive Director Poojan Dhungel stated that discussions are ongoing to determine specific areas where de-tariffing—allowing market forces to decide premiums—can be applied. This has delayed the implementation of the new pricing structure.

In 2021, the Insurance Board introduced the "Minimum Premium Rate for Non-Tariff Insurance Business" directive, which fixed premium rates for hydropower project insurance to ensure adequate coverage for risks. This move faced opposition from the Independent Power Producers' Association of Nepal (IPPAN), prompting the formation of a joint committee to explore solutions. Representatives from both IPPAN and the Nepal Insurers' Association in the committee recommended a de-tariff regime to enable competitive pricing.

However, Nepal Insurers' Association Chairperson Chanki Chhetri argued that a minimum premium is essential due to increasing risks linked to climate change and natural disasters. He stated that competitive pricing mechanisms already exist within the market. This, he argued, functions effectively as a de-tariff system.

Hydropower projects in Nepal have been increasingly vulnerable to natural disasters. In late September, floods and landslides caused losses exceeding Rs 3 billion for 26 projects. Similar events last year inflicted damages worth Rs 8.5 billion on 30 projects, according to IPPAN. These incidents have heightened concerns about adequate risk coverage and the importance of robust insurance policies.

While hydropower operators continue to lobby the government for a shift to a non-tariff system, insurers remain cautious. During discussions at the Insurance Board, an informal agreement was reportedly reached to align premiums with reinsurance rates. However, insurers have highlighted the challenges of transitioning to risk-based pricing, citing a lack of skilled manpower to evaluate individual project risks.

Adding to the complexity, reinsurance companies have increased premiums for Nepal’s hydropower projects following a dam explosion in Sikkim, India. This has further delayed consensus on implementing a competitive pricing structure, leaving hydropower operators and insurers at a stalemate.