There are always lots of challenges for insurance industry in emerging markets. Most of the challenges are different with respect to the jurisdiction. Following are some major challenges insurance industry is facing in Pakistan:
- Skilled Human Resources
- Clear Rates
- Customers Access
- Political Pressure
- Economic Changes
- Halal and Haram conflicts
- Challenging Customer Behavior
- Inflation Effects
- Regular Growth
- Product Development
- Per Capita Income
- Technological Development
Low penetration and density shows that there is tremendous scope for expansion in insurance industry. Following are the opportunities an insurance company is likely to have in most of the conditions:
- Social Network
- Awareness Programs
- Use of E-Commerce
- Flexibilities in Resources
- Children Saving Plans
- Deteriorating health, education and rail/road infrastructure
- Acts of Terrorism
In emerging markets there are both challenges and opportunities. Customers’ demand and use of electronic media are the most important factors in setting long run objectives for any insurance company. Insurance companies with innovative team work and professional human capital can be very successful if other factors like economic and political pressures do not affect the big picture. For insurers and investors in emerging markets, the future middle class is a huge business opportunity based on potential customers and innovative solutions. As margins in the emerging markets are low, so operational efficiency is important. Operational excellence is a key for insurers and investors to come at par with developed markets.
The China-Pakistan Economic Corridor (CPEC) will provide new opportunities for the local insurance industry especially the non-life sector. Pakistan is expected to witness continued growth in almost all sectors of the insurance industry with significant growth expected in the Takaful segment. The operations and investment returns of the insurance industry are subject to market volatility and macro-economic factors. The insurance industry may face financial risks due to an adverse change in the capital markets.
One of the biggest risks that the insurance industry faces is concentration risk.The private insurance segment is dominated by two companies, though others are catching up with the market leaders. In addition to six life insurance companies, including the state-owned State Life Insurance Corporation of Pakistan (SLIC), operating in the country along, two family Takaful firms are also working in this segment.Though the market share of the Takaful operators remains small owing to lack of much public awareness about Shariah-compliant products and services, the opening of takaful windows by conventional life insurance companies is expected to help grow this segment.
The improved income and awareness of middle class households has also driven the demand for life insurance. Besides, life insurance is now being seen by customers as another investment vehicle, triggering greater public interest and participation. With a significant proportion of premium invested into the life insurance companies’ own managed funds, customers are able to earn a handsome return on their investments.
The current growth momentum is expected to continue in the future as more distribution channels are being explored. The use of information technology tools has also increased for back-end operations as well as for sales services to reach out to the customers.