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Insurance sector penetration remains low, use of 3g/4g technology essential

Pakistan’s Insurance sector is relatively small compared to its peers in the region. The insurance penetration and density stayed very modest as against to other jurisdictions while the insurance sector remained underdeveloped relative to its potential.

As of December 2014, the sector’s total premium revenue reached at over Rs108 billion, which is 0.80 percent of GDP. In the year closing 2014, the sector received Rs60 billion in premium in the non-life segments spread over 39 firms, Rs48 billion in the life sector, spread between 5 firms of the private sector. However, a bigger portion belongs to the state-owned life insurance firm, to the tune of about Rs112 billion, based on its recorded 70 percent market share.

At the time of independence, Pakistan had 5 domestic and 77 foreign insurance firms. These firms were regulated under the Insurance Act of 1938. The Government of Pakistan in 1948 organized the Department of Insurance within the domain of the Ministry of Commerce to supervise the affairs of insurance sector and safeguard the interests of the insured. In 1970s, the federal government nationalized all insurance firms and created a large state-run conglomerate, today called the State Life Insurance Corporation of Pakistan.

The Department of Insurance further created the controller of insurance for the same purpose that was abolished in 2000 when SECP was made accountable for supervising the insurance business in Pakistan.

Presently, there are 39 non-life insurers operating in the market, counting 3 general Takaful operators and one state-owned company. Approximately, 65 percent of the market share in gross written premium rests with the top 5 players.

In addition, a Government of Pakistan owned reinsurer continues to benefit from a mandatory minimum 35 percent share in the treaties of non-life insurers. There are 9 life insurers, including 2 family Takaful operators and one state-owned corporation in the life insurance sector.

At the moment, it is mandatory for any business company with 5 or more employees to register with the EOBI, however, contribution to private pension funds and other similar schemes is not mandatory in general. This means that private pension funds and insurance firms do not enjoy any state legislation, which is customary in most states, whereby state possibly discriminates in favor of its own enterprise.

More recently, the proposed Insurance Bill, 2016 has set a minimum paid-up capital requirement of Rs50 million for insurers registered exclusively to undertake micro insurance business in the country, and special requirements for Takaful (Islamic insurance) business and regulations/registration for firms to undertake reinsurance business. No person other than a public firm formed and registered under the Companies Ordinance, 1984, and a body corporate, as defined in the Act, shall be eligible to undertake micro insurance business in the country.

Industry experts have mentioned that there is a vast potential for insurers to cater to evolving customer demands, a growing 3G/4G penetration in Pakistan has paved the way for insurance firms to offer services by mobile applications. In the country, with the advent of 3G/4G technology, the number of mobile Internet users has grown sharply over the past couple of years, while out of the total broadband subscribers; a majority of them use Internet services on their cell phones. It is also said that the concept of up-selling and cross-selling via online mediums should be adopted through insurance firms to ensure that the concept of insurance penetrates well into the market, and that individuals find it easy and quick to buy insurance strategies.

The ease of paying premium could be offered by introducing new payment solutions that should aim at easing the process of premium collection via credit cards by accepting the payment anywhere — even at clients’ doorstep.

Introduction of payment via easypaisa provides easy means of transferring and receiving money without availing conventional banking options and can be utilized by insurance industry for transfer of premiums. Point of Sale (PoS) is yet another development that could be capitalized by the insurance firms.


Although insurance penetration remains negligible in the country, the number of complaints lodged by policyholders against insurance firms has grown exponentially over the last couple of years.

The percentage of cases lodged during 2015 was 120 percent in comparison to the preceding year. During 2016, the complaints received till May show a 200 percent rise over the corresponding period of 2015 and 350 percent rise over 2014. It is received 839 complaints against majority of the firms operating in Pakistan during FY2015-16.

Surprisingly, 70 percent of those were lodged against life insurance companies. The second and third highest number of complaints was against general insurance and auto insurance firms, respectively. The complaints included an insurance firm making only 8 monthly claim payments against the committed 12 after a policyholder (a PIA pilot) was temporarily disabled in 2011.

In another case, insurance firms changed the address of an insured factory in policy documents after it caught fire to avoid making payments and eventually did not make payments against the property damaged. Majority of the policyholders lodged complaints from Karachi. Islamabad and Lahore were the two other big cities from where the policyholders filed complaints.


No doubt, the insurance penetration and density in the country is still at the lowest level compared to similar states in the region. The ratio of insurance penetration in Pakistan reaches at 0.5 percent of GDP compared to 2.6 percent in India. It is expected that understanding the depths of demographic structure of Pakistan for growing penetration of insurance business is the main to development of this important sector.

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