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A series of increasingly destructive floods and landslides has created a growing financial burden for Nepal’s non-life insurance industry, with hydropower projects emerging as the single largest source of insurance claims.

The latest disaster - the catastrophic Bhotekoshi flood of August 26 (Bhadra 10) - has resulted in preliminary insurance claims of Rs 25.87 billion as of September 1, according to industry estimates. This is believed to be the largest single wave of claims received by Nepal’s non-life insurance companies so far.

Of the total preliminary claims, Rs 22.84 billion has been reported under engineering, contractors’ risk and property insurance policies related to hydropower projects.

Insurers, however, expect the figure to rise further as the full extent of the damage remains unclear and several project operators and insured assets in the disaster-hit areas have yet to establish contact or complete detailed loss assessments.

The latest claims come on top of billions of rupees in liabilities already generated by floods and other disasters over the past two years, raising questions over whether Nepal’s existing hydropower insurance and reinsurance framework is adequate for a rapidly changing disaster-risk environment.

Three major hydropower insurance shocks in two years

The latest Bhotekoshi disaster is not the first major blow to hydropower insurance in recent years.

In the second week of October 2024, an unprecedented flood and landslide event damaged around three dozen hydropower projects across Nepal. Among the affected projects was the 456 MW Upper Tamakoshi Hydropower Project.

Non-life insurance companies received claims worth approximately Rs 11.39 billion under engineering and property insurance policies for hydropower projects affected by that disaster.

Before reconstruction work on several of those projects could be completed, another major flood struck in June 2025, when the Lhende Khola flood damaged another group of hydropower projects.

The disaster affected projects including the 111 MW Rasuwagadhi Hydropower Project, resulting in approximately Rs 1 billion in insurance claims.

Some projects damaged in the previous floods had only recently resumed operations when another catastrophic flood struck on August 26, 2026.

This time, the disaster damaged or destroyed around 12 hydropower projects, including both operating and under-construction projects.

The repeated disasters have effectively created a cycle in which insurers are facing major claims before earlier liabilities have fully disappeared.

Why hydropower is becoming an insurance headache

Hydropower projects are generally insured through engineering and contractors’ risk policies during construction and property insurance once projects enter operation.

These policies are designed to protect project developers and investors against specified physical losses arising from events such as floods, landslides, fire, equipment damage and other covered risks.

However, the scale and frequency of recent disasters are challenging assumptions that traditionally underpin the pricing of hydropower insurance.

A project may be insured, reconstructed and brought back into operation, only to suffer another major loss from a similar or even more destructive event.

That creates a problem not only for the primary insurer but also for the reinsurance companies that ultimately absorb a significant portion of major losses.

How does insurance actually pay such huge claims?

A major hydropower project is generally not left entirely on the balance sheet of a single Nepali insurance company.

Instead, insurers retain only a portion of the risk they consider manageable and transfer the remaining exposure to reinsurers through reinsurance arrangements.

The basic mechanism is relatively straightforward.

The hydropower developer pays an insurance premium to the non-life insurer. Based on the size and nature of the risk, the insurer determines how much of that exposure it can retain and how much should be transferred to one or more reinsurers.

When a covered disaster occurs, the project submits a claim to the primary insurer.

The insurer then carries out a loss assessment, generally involving engineers, surveyors and other technical experts, to determine:

- the physical assets damaged or destroyed;

- the cause of the loss;

- whether the event falls within the policy coverage;

- the estimated repair or replacement cost;

- applicable deductibles and exclusions;

- the amount recoverable from reinsurers; and

- the final claim payable to the insured.

The insurer pays the portion of the claim it is responsible for under its policy and recovers the reinsurer’s share according to the applicable reinsurance contract.

This means a multibillion-rupee hydropower claim does not necessarily translate into an equivalent financial loss for the primary Nepali insurer.

Reinsurance is the industry’s financial safety net

Nepal Insurance Authority Director Pujan Dhungel said insurers have indicated that they have sufficient capacity to meet the claims arising from the Bhotekoshi disaster.

“We understand that insurance companies have said they are capable of paying the claims arising from the damage caused by the Bhotekoshi flood,” Dhungel said.

However, she cautioned that the final amount of claims has yet to be established.

“Some insurance customers are still out of contact, so the exact details of the claims have not yet arrived,” she said. “But because there is reinsurance backing, there should not be a problem with claim payments.”

Reinsurance therefore plays a critical role in protecting Nepal’s insurance companies from catastrophic losses.

The primary insurer pays a premium to transfer a portion of its risk to the reinsurer. In return, the reinsurer assumes liability according to the terms, limits and conditions of the reinsurance contract.

For large hydropower projects, this risk-sharing mechanism is particularly important because the value of a single project can run into billions of rupees.

But repeated disasters are changing the equation

Although the reinsurance system provides a safety net, insurers say the frequency and severity of recent disasters are forcing the industry to reconsider whether existing arrangements remain sustainable.

NLG Insurance CEO Sunil Pant said the nature of the latest hydropower losses is fundamentally different from previous disasters.

“The nature of the damage suffered by hydropower projects this time is completely different from what we saw earlier,” Pant said.

According to him, projects affected by earlier floods were able to begin reconstruction relatively quickly.

“This time, it is not even certain whether reconstruction will be possible,” he said.

Pant warned that repeated extreme events could eventually make it difficult for insurers to continue assuming such risks under the existing framework.

“Unprecedented disasters have increased the risk tremendously. If such disasters keep recurring, insurance companies may not be able to pay claims,” he said.

He argued that relying solely on reinsurance capacity is not enough.

“We cannot simply say that reinsurance will cover everything. It is time for the government to change the reinsurance policy itself,” Pant said.

Rising risk could push up insurance premiums

The growing frequency of hydropower-related claims could also affect the cost of insurance for future projects.

Hydropower developers and insurers have already been engaged in negotiations over insurance rates, with developers seeking affordable premiums while insurers attempt to price the increasingly complex risks they are assuming.

Repeated catastrophic claims could force insurers and reinsurers to reassess the probability of loss and the amount of capital required to support hydropower coverage.

That could eventually translate into:

- higher insurance premiums;

- higher deductibles;

- tighter policy conditions;

- more exclusions;

- lower insurance limits;

- additional technical requirements before coverage is issued; and

- greater scrutiny of project locations and disaster-risk exposure.

For developers, higher insurance costs could increase the overall cost of hydropower construction and financing.

For insurers, however, underpricing the risk could threaten their ability to meet future claims.

Insurers may become more reluctant to cover hydropower

The issue has implications beyond insurance companies.

Hydropower is one of Nepal’s most important infrastructure sectors, with billions of rupees invested in projects across mountainous areas.

But many projects are located in steep river valleys, where exposure to floods, landslides, debris flows and other geological hazards is inherently high.

Energy entrepreneur Anand Chaudhary said increasingly unpredictable floods are destroying projects and creating major losses for developers.

“Unprecedented floods in recent years have been devastating hydropower projects. Projects are suffering huge losses,” Chaudhary said.

He said the government needs to help address the situation in which reinsurers may increasingly become unwilling to assume hydropower-related risks.

“If reinsurance companies refuse to take the risk, the government needs to facilitate a solution,” he said.

According to Chaudhary, Nepal needs to reconsider the entire insurance structure for hydropower.

“The government should change the insurance policy for hydropower projects. Instead of leaving the risk concentrated only on developers, mechanisms should be explored to transfer and distribute the risk across other sectors,” he said.

A growing systemic risk for Nepal’s energy ambitions

The issue is becoming particularly important as Nepal accelerates hydropower development.

If insurance becomes significantly more expensive - or if insurers and reinsurers become reluctant to provide coverage - developers could face higher project costs and greater difficulty securing financing.

Banks and other financial institutions generally require major infrastructure projects to maintain adequate insurance coverage. A reduction in insurance availability could therefore affect not only developers but also lenders and investors.

At the same time, repeated disasters could create a feedback loop:

More extreme disasters → higher insurance claims → higher reinsurance costs → higher premiums → higher project costs → greater financing pressure.

The challenge is therefore not simply about whether insurers can pay the current Rs 22.84 billion in hydropower-related claims.

The bigger question is whether Nepal’s insurance and reinsurance system can continue supporting hydropower investment if catastrophic events of this scale become more frequent.

From claim payment to risk management

The latest disasters are also forcing the industry to look beyond traditional insurance.

For hydropower developers, insurance can compensate for covered physical losses, but it cannot eliminate the underlying hazard.

Experts and industry stakeholders are increasingly likely to focus on risk mapping, project-site selection, flood modelling, early-warning systems, stronger design standards, emergency access and disaster-resilient infrastructure.

The government may also need to examine whether certain catastrophic risks require broader risk-pooling mechanisms or public-sector participation.

For insurers, better project-level data will be crucial to accurately price risks.

For developers, stronger disaster-resilient design could become increasingly important in determining whether affordable insurance remains available.

The cost of an increasingly unpredictable climate

The successive disasters of 2024, 2025 and 2026 demonstrate a growing problem for Nepal’s hydropower industry: the risk profile of projects is changing faster than traditional insurance assumptions.

The October 2024 floods generated around Rs 11.39 billion in hydropower-related insurance claims. The June 2025 Lhende Khola disaster generated another approximately Rs 1 billion. The August 2026 Bhotekoshi disaster has already produced an estimated Rs 22.84 billion in engineering, contractors’ risk and property insurance claims related to hydropower.

The figures underline how quickly disaster-related liabilities can accumulate.

For now, insurers say reinsurance arrangements provide sufficient backing to meet the latest claims. But the industry is warning that the model cannot be taken for granted if increasingly destructive floods continue to strike Nepal’s hydropower infrastructure.

The immediate task is to assess the damage, verify claims and compensate affected developers. The longer-term challenge is much larger: how Nepal can build, insure and finance hydropower infrastructure in an era of increasingly unpredictable extreme weather and geological disasters.