Want to build a house in the city? Soon you’ll need an insurance policy first

One line buried in the FY 2026/27 budget can potentially change how cities in Nepal construct – and who pays when disaster strikes. A proposed budget provision would make insurance mandatory during building-map approval in urban areas, linking construction permission with risk protection.

The budget season in Nepal year after year follows a script. Income taxes, salaries, roads, hydropower, subsidies – these typically grab the headlines, and this year was no different. When Finance Minister Swarnim Wagle presented the budget to the Parliament on May 29, the newspaper headlines splashed with income tax rebates, an effort to promote artificial intelligence, reforms in the electricity sector, and a smaller civil service.

But one easy-to-miss line may end up being far more important to everyday city dwellers than perhaps half of all headline declarations put together: insurance is to become a pre-condition before a municipality approves the blueprint of building construction in urban areas. It is in the Budget Speech 2026/27, under section 60 ‘e’. Insurance, Securities, and Cooperatives. The exact provision says: “We will make insurance mandatory while approving building construction maps in urban areas.”

The thought behind it may sound very procedural. It is not. If subtle, this indicates a paradigm shift in Nepal’s risk perception – a move from being a reactive post-disaster cleaner-upper to a country attempting to put a price on danger before construction work begins. What does this mean for a hypothetical family?

Let’s say a family wants to build a home in a municipality; beyond obtaining land permits, engineering plans, municipality authorisation and a tax clearance, a policy that insures the building would become mandatory. This is not an insignificant obligation. It means one more added expense for homeowners before they even start constructing a home, one more criterion for municipalities to check for approving a building. It means a significantly larger market for insurers and, potentially, fewer government payout needs every time an unfortunate event such as a fire, flood, or building collapse destroys homes.

Not entirely new, but a step further

This is not a leap in the dark. The budget last year already hinted at plans to include natural disasters and accidents into property insurance and extended insurance to rural areas as well as proposing cybersecurity insurance. These were about spreading, extending an existing network. The budget this year takes it further, by tethering insurance to the building-map approval process. In other words, this isn’t simply about one more document to sign on the side – your ability to build will now have to first get an insurance stamp.

This is where the action is needed. Nepal’s cities are urbanising much faster than the structures designed to manage them. Houses rise on less and less space; roads shrink while climate risks grow, even as earthquakes, floods, fires and landslides keep erupting at ever greater cost in money and lives. Nepal continues to largely depend on disaster relief. It still means that when disaster strikes – and it will, and it does – the first casualty is families and their homes. Family help will come, perhaps then banks and cooperatives, then aid groups, local government, finally federal funds, if the scale of the damage warrants it.

Mandatory building insurance will turn the entire cycle around; risk is no longer addressed post-disaster, but is factored in like any other upfront construction cost.

The good part, and the catch

Done properly, insurance does something valuable: it spreads the cost of bad luck across many people instead of bankrupting one family. It can also push builders towards safer construction — if insurers actually do their homework, a poorly built structure should cost more to insure, which is a quiet but real incentive to follow the building code.

But housing in urban Nepal is already expensive. Land costs a fortune, materials keep getting pricier, and most middle-class families build their homes slowly — savings, a loan, money sent home from abroad, stitched together over years. Adding a mandatory insurance requirement adds another cost to that pile. And if it’s designed badly, it could turn into exactly the kind of thing Nepalis are used to seeing: a certificate you buy to get past a counter, not protection you can actually rely on when your house is underwater or on fire.

That’s really the question this whole policy comes down to — will it actually protect people, or just give them one more form to collect?

It’s bigger than just buildings

It’s not just the buildings on the line. The same budget increases third-party motor insurance cover to Rs 1 million, mentions plans to add accident-detecting devices to vehicles, and makes accident, critical illness and transportation insurance mandatory. Placed side by side, they are not small modifications – they show a government that wants to transfer more of the nation’s day-to-day risk to formalised insurance, rather than leaving it to be handled piecemeal, post-fact, in the informal sector. This is larger than it seems. 

For decades, the state, in effect, played insurance for citizens without collecting a rupee from them. When a house burns, a bus falls off a cliff, the season’s crop floods – the people go to the state for relief because nowhere else can they turn. But relief is fickle. It depends on a state subject to politicking, attention and the scrutiny of the public. Rarely does it compensate fully for the damage incurred. 

Insurance, provided all works as it ought, should be more predictable than relief. Provided all works as it ought – a key qualification – insurance covers people’s risks. But this is not the default for any developing country; it comes only if premiums are affordable, claims are paid smoothly and promptly, insurance policies are easy to read and understand, and people believe in the institution enough to sign up. That belief requires trust. That trust must be patiently built.

What still needs answering

To really do this, and do it in a way that doesn’t create yet another headache, there needs to be more clarity:

• What needs to be insured? Earthquakes?Fire?Floods?Just construction defects?
• Who will determine and enforce insurance rates?
• Is there a subsidy for smaller homeowners?
• Will a homeowner be assured their claims will actually be paid in a timely way?
• Will a municipal building inspector actually verify that insurance exists, or only that it is documented somewhere?

The government hasn’t even scratched the surface of those questions. Unless it does, the “reform” risk becoming an expensive piece of paper that doesn’t actually protect anybody when disaster strikes. But the underlying concept shouldn’t be dismissed. After all, Nepal’s a frequent site for natural disasters, so including insurance in its urban planning is not as out-of-the-box as it might seem; quite the contrary, it is somewhat overdue.

That one-liner on the budget might seem like nothing, but the question underlying it is anything but trivial: as Nepal’s cities continue to expand, who bears the ultimate financial risk? Traditionally, and historically, in much of the country the ultimate financial risk is borne first and foremost by individual households, then if, and only if, the government can absorb it. But this new proposal is a bid to shift that to a regime that insures before construction, not after the inevitable devastation. 

Do this correctly, and the government has in its grasp the means to effectively insure the homes of its citizens, stimulate Nepal’s largely stunted insurance industry to play a larger role in managing these risks and relieve the strain on long-term government spending when crises hit. 

Do it incorrectly and, like so many bureaucratic initiatives, the reform will amount to just another piece of paper in a cumbersome process that can barely cope as it is. Nevertheless, this sentence in the long budget speech is worth far more attention than it is likely to get because it goes beyond an insurance product and asks the real question: who really pays to live, build, and endure life in a Nepalese city?

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