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Insurance sector will mushroom in run-up to CPEC projects

According to Milliman the world’s largest providers of actuarial and related products and services Pakistan’s insurance sector has witnessed continued growth momentum in 2016 while similar growth is expected to be carried forward into 2018. With the appropriate regulatory environment and increasing awareness, there are significant future growth opportunities for insurance business in Pakistan, says Milliman.

In 2016, both life and non-life insurance sectors as a whole grew by more than 13 percent measured in terms of annual gross written premium (GWP). For the past five years, both life and non-life insurance sectors, measured by GWP, have been growing at an average compound annual growth rate of 13 percent.

There are nine life insurers, including two family takaful operators and one state-owned insurer. During 2016, the industry’s total premium revenue generated stood at PKR265 billion (US$2.54 billion), with total assets of PKR1, 165 billion. In 2016, the life insurance market GWP grew by 11 percent and the total 2016 GWP stood at PKR180 billion.

There are currently 41 non-life insurers operating in the market, including three general takaful operators and one state-owned insurer. In 2016, significant GWP growth of more than 18 percent was observed in non-life insurance, which may be mainly due to the China-Pakistan Economic Corridor (CPEC) and related infrastructure development. The total GWP of the non-life insurance sector in 2016 was PKR85 billion, excluding reinsurance.

PBIF wants insurance firms to be ready to support CPEC challenges

President, Pakistan Businessmen and Intellectuals Forum (PBIF) and Senior Vice Chairman of the Businessmen Panel of FPCCI, Mian Zahid Hussain are of the opinion that insurance sector is set to grow as economy is picking up. Insurance companies should prepare to handle the opportunities and challenges arising out of game-changing project of China-Pakistan Economic Corridor (CPEC).

Insurance business has a promising future as massive foreign funds under CPEC have started to flow. Insurance penetration is around 0.2 percent of total population and the size of the insurance industry is below one percent of the GDP because only rich and middle-class is targeted while the micro-insurance sector is conveniently ignored.

He said “government should establish a separate regulator for the micro-insurance sector and provide incentives to the private sector so that it can step in the segment as the poor that cannot afford proper insurance policies can be covered against risks.” “Poor should be offered life insurance, health insurance, and disability insurance while proper insurance cover to save their small businesses is a must for the insurance sector.”

CPEC projects will have to be comprehensively insured during construction as well as operational phases. Insurance of infrastructure projects has not become a norm in Pakistan, particularly in the public sector. It is hoped that Chinese will insure each and every project during construction phase. In this context EFU was the first ever insurance company to insure a bridge at ‘Natives Jetty’ (also known as KPT Flyover) constructed by Chinese.

The projects covered under CPEC face greater security risk, the common sense says that every project of national importance should be insured against all sorts of risks, including ‘terrorism’.

The CPEC investment of $46 billion is likely to benefit the non-life sector, and with increasing awareness and improving economic conditions, life sector growth is also expected to continue in the future. The government has really taken steps to increase insurance penetration by launching the National Finance Inclusion Scheme (NFIS) with the stated vision that “individuals and firms can access and use a range of quality payments, savings, credit and insurance services which meet their needs with dignity and fairness.”

CPEC will generate a large volume of insurance business. Most of this business will come from Chinese companies. Chinese have proved to be friends in need of Pakistan. In the past, government of Pakistan has announced its intentions of setting up reinsurance corporations in collaboration with Iran and Turkey governments.

 

The government should therefore approach the Chinese government and seek its agreement on the following objectives:

  • Chinese insurance companies should establish subsidiaries, or at least open offices, in Pakistan.
  • These subsidiaries should be real insurance centers and not just post offices for forwarding mail to the Chinese head offices.
  • Chinese insurance companies based in Pakistan should work in collaboration with local insurance companies (as well as PIC) in co-insuring CPEC related and other projects. This will really promote local industry and also help the Chinese investors who will come to Pakistan for CPEC related projects by regularly attending to their insurance needs.
  • There should be government to government level agreement on reinsurances of all Chinese investment in Pakistan in general and CPEC in particular.
  • It might be viable to create a joint re-insurance corporation with equity from Chinese as well as local insurers to handle such business. The proposed corporation can of course grow to cover other projects as well, e.g. at some stage all IPPs can also be asked to re-insure with this corporation.
Transport sector regaining importance for insurance industry

The transport sector was regaining importance for the insurance industry, especially after the China-Pakistan Economic Corridor (CPEC). A large number of trucks are being manufactured as well as imported in order to meet the transport needs of the country after the CPEC would become operational.

The transport sector was in full swing during the Musharraf regime earlier when car financing had given a sudden boost to the car sale in Pakistan.

The vehicle insurance had crossed 40 percent, which later on dropped by half. There is expectation of another rise in the transport sector against the fire and marine insurance in the backdrop of CPEC project.

It is agreed that the textile sector is no more the only attraction for the insurers in Pakistan now. Pakistan economy has expanded by large and a good number of other sectors have also witnessed huge growth over the last few decades that flourished the insurance industry as well.

Pakistan is expected to witness continued growth in almost all sectors of the insurance industry with significant growth expected in the Takaful segment. Businessmen say that insurance sector is all set to grow as the economy is picking up. Insurance companies should prepare to handle the opportunities and challenges arising out of game-changing project of China-Pakistan Economic Corridor (CPEC).

Insurance business has a promising future as massive foreign funds under CPEC have started to flow. Insurance penetration is around 0.2 percent of total population and the size of the insurance industry is below one percent of the GDP because only rich and middle-class is targeted while the micro-insurance sector is conveniently ignored.

The government should establish a separate regulator for the micro-insurance sector and provide incentives to the private sector so that it can step in the section as the poor that cannot afford proper insurance policies can be covered against risks.

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