is doing well the insurance is doing well"
By Syed M. Aslam
Dec 06 - 12, 1999
The important role the insurance plays in the lives, and the economy,
of people today could hardly be over-emphasised. Insurance is an inbuilt cost of all
imported as well as local commodities and products which are insured at all stages of
shipment. The ships, aircraft and the vehicles which transport them have to be insured and
so is all the inbound or outbound cargoes.
Despite its all pervading influence, the cost of which is ultimately
borne by the end consumers, insurance much remains a voluntary business to fulfil legal
requirements in Pakistan. This is obvious from the fact that majority of the vehicle
owners prefer to buy the Third Party insurance which hardly offers any protection to the
victims of accidents, either the personal injury or damage to property. The same is true
for all other classes of business marine cover without which no freight can be
lifted and fire business only if its absolutely necessary.
While general insurance was left untouched, the life insurance was
nationalised in the early 1970s which was deregularised in the early 1990s. Today, besides
the state-owned State Life Insurance Corporation four private life insurance companies are
operating in the country two of which are foreign. Some 57 private non-life companies,
including seven foreign operators, are catering to the general insurance needs of the
Pakistanis. In addition, state-owned Pakistan Insurance Corporation (PIC) provide
reinsurance facilities to the private general insurers who by law have to offer a fixed
percentage of their premium plus an additional fixed percentage of their business.
National Insurance Corporation (NIC), another public sector general insurer, provides
coverage to all government properties and assets.
The local insurance companies have come a long way from enjoying a
small portion of the business compared to their foreign counterparts till the late 1960s
to enjoy a much bigger share to reverse the trend at present. However, a number of foreign
general companies manage to keep a presence in the insurance market of the country while
the deregulation of the life business has also helped brought foreign investment in the
insurance sector. Today a total of four private life insurers are operating in the country
including two foreign insurers Commercial Union Life Assurance (CU Life) and American Life
Insurance Company (Alico).
Despite an overall growth, observers blame the absence of three basic
pre-requisites for the lack of any real growth in the insurance industry., particularly in
the general business. These pre-requisites are : the lack of new investments; expansion of
business to include all those who have not bought at least one or of many covers; and
increased valuation for a particular cover. The fact that these conditions remain
unfulfilled primarily as new investments came to a trickle, the declining purchasing power
made it difficult to sell insurance not only to the untouched segment of the society but
also to enjoy the continued business as those who already had a cover chose to cut down a
particular risk to reduce the insurance costs.
According to PAGE Mujeeb Khan, the chief executive of New
Hampshire Insurance, "basically we have to start from the fundamental that if economy
is doing well the insurance is doing well. The nominal growth in the general insurance
business during last couple of years show that the real growth is negative as it has
remained much below the inflation rate in the country. As the primary objective of a
foreign investor is making a profit, the business environment remains inconducive to
attract investment in the insurance sector as well as all other sectors of the economy.
Attributing the nominal growth of the general insurance, Mujeeb
emphasised on the need for the concentration of all energies towards the overall uplift of
the economy to increase the size of average disposable income to help generate more
He said that the foreign non-life insurance companies operating in
Pakistan enjoy a small portion of the business compared to their local counterparts,
particularly the big ones who have a much deeper penetration of the market. Despite their
insignificant share the foreign general insurers pay a much higher taxes and revenues to
the government compared to their local counterparts, he added.
In addition, he added, the slowing down of the post nuclear explosion
economy has taken a heavy beating on the profitability of the insurance companies,
particularly the foreign companies who enjoy a small share of the market.
A well placed source in one of the biggest local insurance company who
asked PAGE not to mention his name, slowing down of all economic and development
projects in the country as the major reason for the nominal growth in the insurance
industry during last two years.
M.I. Ansari, chief of Agro Insurance, said that insurance has remained
a neglected industry, fact which he said is obvious from the absence of technocrats in the
Department of Insurance and its supervising ministry of finance. He blamed the total lack
of self-discipline and rampant unethical practice of tariff-cutting which seriously
compromises the interest of the insurees.