Affordable insurance tariff is important
By Syed M. Aslam
May 21 - Jun 03, 2001
Lets start with a blunt preamble — the insurance
industry of Pakistan is its own worst enemy miserably failing to
exploit the underlying potential in a thickly populated country of 140
million people. External factors included, it has failed to promote
insurance as a voluntary necessity, the least of which outdated
tariffs on the extremely high side by all international standards.
This is obvious from the rampant undercutting of mutually agreed, and
drafted, tariffs for all classes of non-life business by members of
Insurance Association of Pakistan?
While it's true that the successive policy makers
have never been inclined to accord insurance the priority which it
deserved, the insurance industry can hardly defend its share for the
failure. It keeps on selling almost the same products at more or less
the same prices. The relevant question is: What has stopped the
insurance companies, particularly non-life which remained untouched by
the nationalisation fiasco of the early 1970s, to offer new and
value-added products at affordable prices? Why did the insurance
companies, collectively as well as individually, fail to invest in
human resources resulting in the serious dearth of qualified and
technical staff today, expand its paid-up capital base, invest its
funds more prudently, and last but not the least to devise ways to
settle claims in a more satisfactory manner?
The importance of affordable insurance tariffs can
hardly be over-stated in a country like Pakistan where per capital
insurance expense remains pathetically low and where insurance expense
is considered good only to meet a legal requirement. A prime example
is the Third Party motor insurance — less than 5 per cent of some 4
million vehicles nationwide carry comprehensive cover while the rest
opt to buy the useless Third-Party cover which does not provide
protection whatsoever to the victims of road accidents.
What is also true is that insurance companies in
the private sector has never been allowed an access to the business of
public sector. The general insurance needs of the government, public
and autonomous organisations remain the exclusive domain of the
National Insurance Corporation, renamed Company last year. On the
other hand Pakistan Insurance Corporation, renamed Pakistan
Re-insurance Company recently, established to act as the sole national
reinsurer wasted no time in converting itself in to 'policeman'
instead of a professional and commercial organisation which it meant
to be. The guaranteed monopoly allowing PIC to get a fixed compulsory
cession of every single premium written in the country plus a fixed
obligatory cession offered to it, be it accepted it or not, turned PIC
into professionaly incompetent and commercially incompetitive organisation.
On the other hand, life insurance was nationalised
in the early 1970s allowing the state-owned State Life Insurance
Corporation to enjoy a complete monopoly till its deregulation in the
early 1990s. Since then four private life insurers, two local and two
foreign, have started operations. The country chief of CU Life
Assurance Moin Fudda said that life insurance companies can play a
vital role to mobilise the national savings — it was only 12.2 per
cent of the GDP in 1999-2000 which was significantly lower than other
countries in the region — provided the premiums paid by
self-employed persons should be allowed as income tax deduction.
However, insurance still much remains an
involuntary expense — only the new car buyers prefer to buy
comprehensive cover and that too for the first few years; only
negligible percentage of the population care to buy life and general
insurance like fire insurance ó industrial, commercial or personal.
It has become a general practice for the industry not to renew the
insurance policies on plant and machinery once they are few years old.
Less than one per cent of the population choose to buy household
insurance despite the persistently deteriorating law and order.
The year 2000 would be remembered as an eventful
year for Pakistani insurance industry. It was the year when the
Insurance Ordinance 2000 was promulgated to better regulate the
business, ensure better protection and interests of the policy holders
and promote sound development of the insurance industry. The life
insurance companies have to enhance the paid-up capital from Rs 60
million to Rs 150 million and non-life companies from Rs 1.5 million
to Rs 80 million by December 31, 2004.
The long standing demand of the insurance industry
to reduce and ultimately abolish the compulsory cession to PIC, now
PRC, has been accepted and the authorities have agreed to reduce the
compulsory cession by 5 per cent to 15 per cent recently and to
altogether abolish it in stages by 2004. Whether the 35 per cent
obligatory cession would remain in force beyond 2004 is not yet
In the final analysis, however, the insurance
industry of Pakistan comprising some five dozen private companies —
both life and general, local and foreign — have to play a much
greater role to promote and develop insurance business on professional
and technical lines of today. Blaming the past hardly deserve any
energies on their part which otherwise should be used to bringing
insurance tariffs at par with the international market so that a much
deeper penetration can be made in a huge market of Pakistan..