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Tariq Hussain

Pakistan needs financially strong insurance industry; prompt need to set up an independent regulatory authority

Interview with Mr Tariq Hussain — Expert insurance industry


Professional Qualification: FCMA, FCIS, FPA, CMILT-(UK) Academic Qualification: M.A. (Eco), MBA (Finance) Experience: Overall 25 years practical experience Worked on the following position: Currently working as an Executive Director/Head of Corporate Consulting Division at Damsel Consulting Previously – Director SECP – Group CFO- Manhill Group – CFO & Company Secretary at a leading pharmaceutical – Director Finance, SITE Ltd (Ministry of Industries – GS) – Head of Internal Audit-DHA Professional Activities – Vice President ICSP-2012 – Chairman Karachi Branch Council of ICMAP-2011 – Member National Council ICSP- 2006-2008, 2009-2011, 2012-2014 – Council Member Pakistan Insurance Institute (PII) SECP nominee 2009-2011 – 100 Plus Short courses attended during last three year which includes Accounting, Taxation, HR – More than 30 conferences/workshops arranged – At least 20 attended as Guest Speaker – Various articles published in the Management Accountant Journal, Journal of Corporates Secretaries, Business Recorder etc.


TARIQ HUSSAIN: First I would like to share on my views on general economic conditions and the issue facing by Pakistan and secondly would like to answer about my views on insurance sector in Pakistan.

Pakistan has a multicultural and multi-ethnic society. Pakistan is the sixth most populous country in the world and has a current population of approximately 200 million, with a growth rate of approximately 2.0%.There are a number of factors which are conducive to economic growth but the two most important factors, surpassing all others are law and order situation and provision of utilities at reasonable rates.

Pakistan has improved its ranking in the Fragile States Index from 10th position to 14th during the last three years, it is still in the list of high alert states. Out of total 12 indicators to measure state’s fragility, Pakistan is improving in few but most of the indicators are still making no improvement. According to a latest index issued by an international reputed institute Fund for Peace, Pakistan has improved its ranking this year as compared to the previous year, but this is a slight improvement. During 2016, Pakistan scored 8.9 in first indicator i.e. demographic pressure, 8.9 in refugees/IDPs, while depicting worst picture in group grievances, Pakistan scored 9.7.

Similarly, human flight showed improvement and Pakistan scored 7.3, it also showed improvement in poverty and economic decline and gained 7.4 score. In legitimacy of the state indicator, Pakistan scored 8.3 and 8.2 in public services whereas 8.2 in human rights indicators as well. The study further shows that although Pakistan has shown a very little improvement in security apparatus and external intervention as compared to previous year but even then the scores are worst as in security apparatus indicator Pakistan scored 9.3 and in external intervention the score is 9.6.

Similarly, Pakistan’s score in factionalized elite remained 8.9. It is pertinent to mention here that the first 10 fragile states who scored worst ever include Somalia at number 1, South Sudan 2, Central African Republic 3, Sudan 4, Yemen 5, Syria 6, Chad 7, Congo 8, Afghanistan 9, Haiti 10, Iraq 11, Guinea 12, Nigeria 13 and Pakistan at number 14. World Bank’s ‘Doing Business 2014’ report Pakistan at the 110th position in 189 countries for lack of reforms to ease business environment. Earlier, it was at 107th position and while it was at 105th position in terms of starting a business. According to findings of the report titled “Doing business 2014: Understanding regulations for small and medium-size enterprises”, six of eight economies in the South Asian region completed reforms simplifying the process of starting a business, strengthening access to credit, or easing the process of paying taxes.

In Pakistan, there are 10 procedures to be completed in 21 days while cost of starting business is 10.4 percent of income per capita. In terms of getting credit, the Business Doing report placed Pakistan at rank of 73rd, while it is ranked at 34 in terms of protecting investors. Malaysia and the United Kingdom remain tied at the top of the ranking on the ease of getting credit.

Now I am coming to the part of question related to the insurance sector in Pakistan. The current Insurance Penetration is less than one percent in Pakistan, it is about 0.8 percent of the GDP, which is lowest in the region as well as in the world. Pakistan needs a financially strong insurance industry; the insurance penetration in Pakistan is miserably low. The need of the hour is to increase the insurance penetration in Pakistan. “Now our focus is the micro insurance for the people from the low income groups, the significance of the insurance but regretted that awareness in this connection is quite low in this very respect. The insurance industry in Pakistan is relatively small compared to its peers in the region. The insurance penetration and density remained very modest as compared to other jurisdictions while the insurance sector remained underdeveloped relative to its potential.

The total composition of insurance industry is as follows:


However, a bigger portion belongs to the state-owned life insurance company, to the tune of approximately Rs112 billion, based on its reported 70% market share. Currently, there are 42 non-life insurers operating in the market, including three general Takaful operators and one state-owned company. Approximately, 60% of the market share in gross written premium rests with the top four players. In addition, a government owned reinsurer continues to benefit from a mandatory minimum 35% share in the treaties of non-life insurers. There are nine life insurers, including two family Takaful operators and one state-owned corporation in the life insurance sector. At the moment, it is mandatory for any business firm 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 companies do not enjoy any state legislation, which is customary in most countries, whereby state possibly discriminates in favour of its own enterprise.

According to Dr Ishrat Husain, “the insurance and takaful industry has suffered due to benign neglect in absence of a strong champion and promoter in the government or the regulatory agency. It is time to consider setting up an independent regulatory authority for the insurance industry which should act both as a watchdog and promoter.”


My general position is for a strong regulatory role of state, which should facilitate the business and protect consumers, but not necessarily that of actual service delivery that has possibly induced inefficiencies and protectionism.


The call for a “promotional” role by the regulatory agency is fettered with great risks. The contribution of SECP in expanding insurance market in the country is highly questionable. With total insurance premium as percentage of GDP almost static over the last 15 years, as SECP gained more powers, there could hardly be two opinions about its promotional role. In fact, by increasing the minimum paid up capital requirements for insurance firms very recently, the SECP has increased the entry barriers, thereby indirectly curtailing competition.

Another aspect is that those who are responsible for the affair of insurance in the SECP not having requisite insurance education, knowledge and experience and clearly lack of regulatory direction exist. The sector is burdening due to over regulation without the clear cut objective and clarity of the regulator. There is clear one man show exist in the regulatory affairs.

The SECP focused should be on the following:

1- Development and facilitation of micro insurance and health product for low income people.
2- Allow existing struggling companies facing difficulty in managing the enhanced paid up capital and solvency requirements to opt micro insurance business model.
3- Work to eliminate unregistered insurance companies doing motor third party liability business.
4- Create terrorism pool for meeting future risk of the insurance companies
5- Regulate the conduct of insurance agents.
6- Facilitate new distribution channels which reduce the agency commission.
7- Revamping the bancassurace regime in Pakistan etc.

According to the State Bank of Pakistan, “there has been a consistent decline in the number of life insurance companies operating in this area mainly due to limited demand for life insurance on account of small urban market, [and] presence of state-owned corporation, which enjoys almost a complete monopoly in the market and thus leaves very little share for other companies.”

Nowadays, businesses are more or less dependent on technology and use of technology to increase outreach of business is paramount, various other channels of sales and marketing has emerged which not only reduces the fixed cost of the business but also increase the market size and provide the means and ways to increase the insurance penetration in the country which is currently very low. A huge untapped market is waiting like development of micro insurance products etc. A huge gap between the existing market size and the potential market size due to the lack of awareness and there is need that the insurance companies should joint hand to create the awareness to masses about the benefit of the insurance, and the Insurance Association of Pakistan (IAP) and Pakistan Insurance Institute (PII) can play the pivotal role in development the insurance market in Pakistan.

At the time of independence, Pakistan had five domestic and 77 foreign insurance companies. These companies were regulated under the Insurance Act of 1938. The government in 1948 established the Department of Insurance within the domain of the Ministry of Commerce to supervise the affairs of insurance industry and safeguard the interests of the insured.

The Act was amended in 1958 for the first time keeping in view the requirements of domestic market and to have effective control over the insurance premium rates. Since then, various amendments have been made in the Act.

In 1970s, the federal government nationalised all insurance companies 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 responsible for supervising the insurance business in the country.


TARIQ HUSSAIN: Yes, there is a need that the regulator should perform such other functions especially for the development of new products which is not only the dire need of the day but also necessary for the growth prospects of the industry and to meet the general need to the mass.

In this respect, following products need to be developed:

– There is a dire need to develop new micro insurance product includes low cost health insurance product.

– Third party liability insurance product, which currently offering by unregistered insurance companies insurance product which as demand.

– Some of the ways personal lines insurance is changing. The auto insurance proposition will need to address potential fragmentation of risk as consumers drive their own cars as well as utilize alternatives such as ride sharing.

While developing should consider the two types of innovation — sustainable and disruptive:

– Sustainable innovation takes something that exists today and makes it better. Insurance product features may be added or fine-tuned, processes streamlined or distribution channels expanded upon. There is tremendous value in consistent, targeted change that occurs over time.

Disruptive innovation is a game changer, something that completely alters the way an industry operates. Four examples of insurance industry disruptors that have occurred in recent years include: predictive analytics, usage-based insurance (UBI), insurance-linked securitization and micro-insurance (see box).

Micro-insurance. A vast new market was created by customizing low-premium insurance products that insure risks for impoverished peoples of the world with no prior access to insurance. The World Bank estimates that one billion people worldwide live in extreme poverty. This poverty is exacerbated by a lack of financial protection against death and natural disasters. The micro-insurance market is expected to double by 2017.


TARIQ HUSSAIN: Total four non-life insurance companies including one from the government sector, the NICL having 100% owned by the federal government and the remaining four from the private sector .i.e. Jubilee, EFU and Adamjee enjoying the 99% share of the total insurance market. So all the competitions majorly rounding upon among the three private sector company, while the NICL still enjoying privilege under section 66 of the IO 2000 and having secured business form the public sector entities without facing any competition of the corporate sector.

So without amending the Insurance Ordinance and deleting the section 66 of the Insurance Ordinance 2000 not possible to provide level playing field and the insurance sector cannot boost properly.

Another impediment in this respect is that the apex regulator of the corporate sector (SECP) despite the recommendation of the world bank and other international regulatory agencies not willing to provide level playing field to private sector and have no intention to the private sector just for the sake of gain of sympathy blessing of the ministry of Commerce(MOC).

SECP is also not interested to make proper laws and regulation to safe guard the interest of small scale insurance companies as most of the small companies regularly blaming SECP that they are only protecting the interest of the large insurance companies. SECP being the apex regulator should listen the problems of the of the small scale companies to create level playing culture for the insurance sector in Pakistan.

Another drawback is that the top leadership of the SECP particularly in the insurance division not placed on merit and the people are always nominated by the ministries just to fulfill the political commitments.


TARIQ HUSSAIN: Takaful is the Islamic alternative to insurance t is based on mutuality. The Shariah Scholars believe that conventional insurance is unlawful due to involvement of Riba (interest) , Maisir (gambling) , Gharar (uncertainty ).

The Takaful partners (policy holders) pay subscription and indemnify each other and share the profit earned form business conducted by the company with the subscribed funds, hence the risk is not transferred but shared by the participants who form a common pool. The Company acts only as the manager of the pool (Takaful Operator).

The element of ‘uncertainty’ i.e. ‘gharrar’ is brought down to acceptable levels under Shariah by making contributions as “Conditional Donations” (tabarru) for a good cause i.e. to mitigate the loss suffered by any one of the participants.

We can say that Takaful is a participatory form of insurance based on risk sharing by customers on co-operative principle instead of risk transfer to the third party. The risk pool is managed by the company is run on commercial basis with corporate responsibilities towards its stake holders.

Takaful has contributed marginally; the sector represents about five percent of the total insurance market, although this is expected to change in the coming year. Pakistan’s conventional insurers have been barred from offering Islamic products since the first Takaful rules were introduced in 2005, but regulators have been keen to increase overall insurance coverage in the country. Pakistan introduced new Takaful rules in 2012, allowing the use of Window Takaful operations to the conventional Insurance companies , which enables insurers to offer Shariah-compliant and conventional products side by side, provided client money is segregated.

The regulator expects at least half of Pakistan’s of the conventional insurers will eventually offer Takaful products through their Widow operations and expected that by the end of the year 2017 the penetration go into double digits, The regulator, the Securities and Exchange Commission of Pakistan (SECP), has granted two window Takaful licenses, “In another one year we are expecting at least 10 new Takaful window operators in the market. Competition will increase, but also the size of the market.”

Conventional insurers are bigger in size and have operated for longer, whereas Takaful companies are on average six to seven years old, but Shariah-compliant products can have greater appeal to consumers and we can say that the Takaful will grow many folds in the year to come and in this new emerging situation, the fully dedicated Takaful companies may be the real beneficiaries.

Islamic finances and Takaful have continuing to grow steadily over the year. The fact that Takaful is relatively new should be seen not as an obstacle, but rather an opportunity to invest in the financial equivalent of a sleeping giant.

The first of these involve the fundamental way that Takaful is perceived both by its operators and its participants. In Takaful, the operator or company is usually considered a mere facilitator or manager and it is the participants who are themselves helping one another in time of need. This perception can raise the awareness of the participants to take better care of themselves and indirectly raise the overall profit levels of the system , Also due to the company’s status as manager, Takaful systems can potentially be more transparent than their conventional counterparts.

Another feature of Takaful is that it only engages in investment that are free from vice and usury. This is a fantastic side benefit to Takaful for those who want the moral high ground. The overall benefits to society from investing only in activities that actually promote growth as opposed to dubious activities that profit at others’ expense, cannot be overstated. A person who is more concerned with personal returns may see this as a limiting factor, but there are several arguments against this.

Note that the kind of people attracted to Takaful’s high morality may very well incur less risks overall and in that way increase the overall profits of the system. Another important argument is that the investments that are associated with vice are often inherently unstable and risky. The same can be said of interests or usury which indirectly contributes to the kind of manic-depressive cycles of extreme bulls (rise) and bears (fall) of economies throughout financial history. It is worth noting that many prominent economists have remarked on the relative stability of Islamic finances due to their emphasis on stability and avoidance of extreme risks.

At the present, many Muslims do not have an avenue of investment that they are comfortable with. One out of every five persons in the world is a Muslim and that number seems to be growing. There are also a number of increasingly wary non-Muslim and Muslim investor alike who has a desire for more stable source of investment and insurance. These factors taken together makes Islamic finance and especially Takaful, a potentially lucrative investment as the sheer size of funds from the Muslims alone will give Takaful operators lots of capital to manage.

One last general benefit of Takaful involves the Takaful operators themselves. Due to the emphasis on morality in their investments and dealings, Takaful operators may have greater pressure to live up to the ideals of virtue themselves. This can be beneficial in many different ways and can contribute to a greater amount of profits overall.

In conclusion, Takaful is in many ways similar to a conventional insurance system, which focuses on stability rather than quick growth at the expense of extreme risk. The emphasis on morality and mutual help provides stability and attracts participants who may have a lower risk profile. The number of these future participants is huge considering the interest in Takaful from Muslims and non-Muslims alike. Each potential investor is of course liable to check the background of a particular Takaful operator just as he or she would a conventional insurance company.

Nevertheless, Takaful is certainly a rising financial system that can offer a surprising number of benefits to those who prioritize on stability and morality.


TARIQ HUSSAIN: Both, the role of regulator and the insurance industry itself is important for the growth and development of insurance market share in country.

Regulator is responsible to provide level playing fields, transparency and appropriate enforcement so that the shareholders and policy holders will invest in confidence , similarly various new avenues are also available like micro insurance , ban assurance , third party administrator (TPAs), Window Takaful operations etc.

The responsibilities of insurer to educate the uninsured and the insured about the need of insurance, rights, obligations of policy holders etc. through various media channels viz. print, radio and television. All the insurance companies under the umbrella of Insurance Association of Pakistan (IAP) should pool a sizeable budget to the activity of publicity through various means of communication.

Banc assurance is increasingly becoming acceptable to customers than the traditional channels.

Insurers should invest in systematic training, technological capability and seamless process of integration.

Allowing window Takaful operations to conventional insurance companies also open the vide opportunities for the conventional and dedicated Takaful companies to play vital role and tap the huge untapped market.

I hope that if the proper marketing strategy will be developed by considering the need of the consumer and consumer protection and gain the people confidence on conventional as well as on Takaful Insurance by satisfying the insured about their protection by creating efficient mechanism of policy holder grievance will rapidly increase the insurance penetration in Pakistan.

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