Kathmandu, 30 June 2026: The proposed Nepal aviation liability insurance bill is set to introduce mandatory liability insurance requirements for domestic airlines, significantly increasing passenger compensation limits and establishing statutory minimum insurance coverage for the first time.
The draft legislation, currently under review by Nepal’s Ministry of Law, aims to strengthen the country’s domestic aviation regulatory framework by requiring airlines to maintain minimum third-party liability insurance based on aircraft weight while enhancing compensation rights for passengers affected by accidents, baggage loss, cargo damage, and flight disruptions.
If approved by Parliament, the bill will mark one of the most significant reforms in Nepal’s aviation insurance sector and align domestic airline liability rules with evolving international standards.
Nepal Aviation Liability Insurance Bill Introduces Mandatory Coverage
The proposed Nepal aviation liability insurance bill would require all domestic airlines to maintain minimum levels of third-party liability insurance according to aircraft size.
The proposed minimum insurance requirements include:
- Aircraft up to 10,000 kilograms: US$25 million
- Aircraft between 10,001 and 35,000 kilograms: US$35 million
- Aircraft above 35,000 kilograms: US$60 million
Currently, Nepal has no codified statutory minimum insurance requirements for domestic aviation operators.
The proposed legislation aims to strengthen financial protection for passengers while improving the resilience of Nepal’s aviation industry.
Passenger Compensation Set for Major Increase
One of the most significant features of the Nepal aviation liability insurance bill is the substantial increase in passenger compensation.
Under the proposal:
- Compensation for passenger death or serious injury would rise to US$100,000 per passenger.
- Current domestic compensation stands at approximately US$20,000.
- Existing compensation for airline crew members is around US$40,000.
The proposed increase reflects the government’s efforts to modernize passenger protection standards within Nepal’s domestic aviation market.
New Rules for Baggage, Cargo and Flight Disruptions
The proposed legislation also introduces detailed compensation rules covering baggage losses, cargo damage, and operational disruptions.
The draft bill proposes:
- Checked baggage compensation up to US$20 per kilogram, subject to a maximum payout of US$5,000.
- Cabin baggage claims capped at US$400.
- Cargo compensation based on weight unless higher declared values are submitted before shipment.
Airlines would also be required to notify passengers of flight schedule changes at least three hours before departure.
Passengers affected by overbooking would be entitled to:
- Alternative transportation
- Seats on another airline
- Full ticket refunds
These measures aim to improve consumer protection and airline accountability.
Nepal Aviation Liability Insurance Bill Strengthens Legal Framework
Nepal is already a signatory to the Montreal Convention 1999, which governs airline liability on international flights.
However, the convention does not apply to domestic operations.
The proposed Nepal aviation liability insurance bill would therefore establish a dedicated legal framework governing airline liability within Nepal.
Industry experts believe the legislation will provide greater legal certainty for airlines, passengers, insurers, and regulators.
Greater Reliance on International Reinsurance
The higher insurance requirements are expected to increase Nepal’s reliance on international reinsurance markets.
Domestic insurance companies across South Asia generally lack sufficient financial capacity to absorb large aviation losses independently.
Most aviation risks are therefore transferred to global reinsurers.
Industry observers note that stronger insurance frameworks improve financial resilience while ensuring adequate compensation following aviation incidents.
Safety Oversight Remains Under International Scrutiny
The proposed reforms come as Nepal continues working to improve aviation safety oversight.
The European Commission continues to prohibit airlines certified in Nepal from operating within European Union airspace due to ongoing safety oversight concerns.
Official aviation data also highlights continuing operational challenges.
Recent aviation safety reports recorded:
- Hundreds of aviation occurrences
- Multiple accidents
- Serious operational incidents
- Weather-related safety challenges
Nepal’s mountainous terrain, rapidly changing weather conditions, and complex airport environments continue to present unique operational risks for domestic airlines.
Key Highlights of the Nepal Aviation Liability Insurance Bill
The proposed legislation introduces several major reforms.
Key highlights include:
- Mandatory third-party liability insurance
- Higher passenger compensation limits
- Baggage and cargo protection
- Overbooking compensation rules
- Flight disruption obligations
- Periodic review of compensation limits every ten years
- Inflation-linked compensation adjustments
- Stronger consumer protection framework
The reforms are expected to modernize Nepal’s aviation insurance sector while improving passenger confidence.
Why the Bill Matters
The Nepal aviation liability insurance bill represents an important step toward strengthening aviation governance.
Improved insurance requirements benefit:
- Passengers
- Airlines
- Insurers
- Tour operators
- Aviation investors
- International aviation partners
The legislation also supports Nepal’s broader efforts to modernize aviation regulation and enhance public confidence in domestic air travel.
FAQ
What is the Nepal aviation liability insurance bill?
It is proposed legislation introducing mandatory liability insurance requirements and higher passenger compensation for Nepal’s domestic airlines.
How much compensation will passengers receive?
The proposal increases maximum compensation for passenger death or serious injury to US$100,000.
Will airlines require higher insurance coverage?
Yes. Airlines would be required to maintain minimum third-party liability insurance ranging from US$25 million to US$60 million, depending on aircraft weight.
Has the bill become law?
No. The draft legislation is currently under legal review before being presented to Nepal’s Cabinet and Parliament.
Conclusion
The proposed Nepal aviation liability insurance bill represents a major milestone in the country’s aviation regulatory reforms. By introducing mandatory insurance requirements, increasing passenger compensation, and strengthening airline accountability, the legislation aims to provide greater protection for travellers while supporting the sustainable growth of Nepal’s aviation sector.
As Nepal continues expanding its domestic aviation industry, stronger insurance regulations will play a vital role in improving passenger confidence and financial resilience. If enacted, the Nepal aviation liability insurance bill will establish clearer liability standards, enhance consumer protection, and align Nepal’s domestic aviation framework with evolving global best practices, benefiting airlines, insurers, and millions of passengers in the years ahead.
