ABDUR RAHMAN KHANDIA
is a Chartered Insurer. He is Executive Director (Southern Zone), EFU
General Insurance Limited. He was born in 1957 in Myanmar. His family
migrated to Pakistan in 1967. He got his education in Karachi. He did
B.Sc. (Statistics) from University of Karachi. Khandia joined EFU in
1982 as Executive Officer. In 1991, he completed his A.C.I.I. For a
number of years he was member of Fire and Marine Committee of Insurance
Association of Pakistan (IAP). He has attended a number of seminars and
workshops on insurance locally as well as abroad.
insurance has not become a norm in Pakistan?
ABDUR RAHMAN KHANDIA: In
Pakistan, most of the insurance business is out of compulsion and not by
choice. Bulk of the business originates from international trade and
banking sector. Moveable and immovable properties are insured due to
mandatory requirement of financial institutions. Vehicle insurance
business has grown due to law and order situation (lifting and snatching
of cars at gunpoint) and increase in vehicle leasing business. Most of
the people are not aware of the benefits of hedging the risk through
insurance cover. A large percentage of people consider even general
insurance in contravention with teachings of Islam. Some times, I feel
extremely sorry for those, who loose their assets due to fire breakout
or any other calamity. Had they acquired insurance cover, they would
have not faced doomsday. In all wisdom one must make the best effort to
protect his life and business and then leave it at Allah.
What are the other reasons for not acquiring insurance cover?
from the general perception, the two other factors impending the growth
of insurance business in Pakistan are lack of awareness about the
benefits of insurance and affordability. Only large corporations and
medium-size businesses acquire insurance cover, as they are able to
treat the premium paid as an expense in profit and loss account. Whereas
most of the smaller entities consider insurance 'waste of money'. They
often say that they never had fire or any other incidence in the past.
Therefore there is no need to acquire insurance cover. However, they
tend to forget that any loss emerging in the future may leave them
Are the tariffs affordable?
prevailing tariffs were developed many years back and have lost
relevance. Therefore, there is an urgent need for revision and
rationalization of tariffs to make them competitive in the international
market. This can only be done with the joint effort of all the
Most of the insurance business in Pakistan comes under 'Tariff segment'.
What are the reasons for non-uniformity of tariff?
are dozens of insurance companies operating in Pakistan but over 75% of
total business goes to less than 6 companies. Some companies are able to
solicit business because of their size and quality of services they
offer. Others draw business being the 'captive' insurance companies.
However, smaller companies try to solicit business by offering higher
rebates. Therefore, the margins become so lean that these companies are
often unable to make timely payment of claims. Not only that the clients
become frustrated but often tend to develop the perception, 'no fun in
paying the premium because I never get the claim'.
PAGE: What are the reasons for proliferation
of captive insurance companies?
KHANDIA: In my
personal opinion the single largest reason for proliferation of captive
insurance companies has been the minimum paid-up capital requirement for
establishing an insurance company. Many large business groups, most
probably, consider establishing their own insurance companies a better
business proposal than paying millions of rupees premium to insurance
companies. The advantages of having a captive insurance company are
numerous, the largest being transfer of funds from one pocket to
another. You may find it surprising that annual profit after tax of some
of these captive companies is even higher than their paid-up capital.
PAGE: What role the regulators have been
playing for strengthening insurance companies?
the entire focus of SECP has been on enhancing paid-up capital of
insurance companies. Many industry experts believe that increase in
paid-up capital alone cannot improve financial health of insurance
companies. The effort should be to enhance premium retention capacity of
insurance companies. The premium retention capacity of insurance
companies can be improved through strict monitoring of pricing factor
and unhealthy competition. Some of the companies manage to get business
by charging below their trash hold price resulting in weakening of their
financial strength, which reduces their ability to settle claims