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Mitigation of emerging risks

In Pakistan, penetration of insurance is very low, which is evident from huge economic losses caused by various eventuality, but paltry claims paid by the insurance companies. This is not an exaggeration, but an expression of the harsh reality. Three of the most disastrous events in Pakistan’s history were earthquake of 2005, killing, looting and sabotaging after the assassination of Ms. Benazir Bhutto in 2007 and torrential rains resulting in unprecedented floods in 2010 and 2011.

It may be said that incidents of such magnitude are very rare. However, 9/11 has taught a lesson that people and properties are being exposed to new types of risks, which demand innovative ways of risk mitigation. Remaining immune to such incidents are just impossible because of global warming and geopolitical disputes leading to proxy wars. While getting terrorism cover has become almost mandatory in many countries, Pakistan continues to suffer due to apathy of the policy planners. The countries where insurance against terrorism is deemed necessary have been successful only because of the support of the government.

One still hears that insurance is not permissible in Shariah and feels completely astonished because of the presence of Takaful concept in Shariah. Some cynics say that people taking refuge behind non-permissibility of Insurance in Shariah can be termed ‘penny wise pound foolish’. They consider payment of premium an unnecessary expense, but regret the most when face an eventuality.

This could be best understood by the fact the life insurance can’t be a substitute for the head of the family or the bread earner. However, the claim received from an insurance company can help the family in bearing the trauma. Similarly, the destruction of a factory after a fire can render hundreds of workers jobless and the owners penniless. Even if the owners have acquired fire cover, but not included ‘Business Continuity Plan, the situation could become a nightmare for the owners and workers, buyers and suppliers.

Insurance companies not only play a major role in risk mitigation, but are also one of the largest investors’ group in the equities market as well as real estate business. Some of the biggest real estate owners in Pakistan are State Life Insurance Corporation, EFU and Adamjee. However, the government takes away a large chunk of their income by imposing huge taxes, i.e. tax on income of listed insurance companies and capital gains tax.

The reference to another segment of insurance business is also necessary that is health insurance. The governments, both federal and provincial, spend billions of rupees on the highly inadequate healthcare of the employees. Similarly, business entities also spend billions of rupees on the healthcare of their employees. Though, the concept of ‘health insurance’ was introduced more than a decade ago, it has not become common. This may be attributed to the massive misappropriation of ‘medical allowance’ and also because of poor service by the insurance companies which take nominal premium but also offer highly inadequate benefits. Ironically, the bulk of the government and corporate sector employees still remain out of the ‘health insurance’.

Reference to yet another business segment is also a must that is crop insurance, local farmers suffer in either of the cases, drought or flood. The lending to farmers by the commercial banks now touches Rs600 billion per annum now, but only a fraction of these loans is insured. This on one hand penalizes the government because on one hand it has to pay huge amount to the drought/flood affected farmers and on the other hand does not facilitate the country in achieving food security.

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