LIFE INSURANCE BUSINESS YET TO TAP VAST POTENTIAL

SADAF AURANGZAIB, Senior Correspondent
Dec 11 - 17, 2006

New Jubilee Life Insurance Limited is one of the leading insurance companies in Pakistan. The concept of life insurance is not quite clear in the minds of the people living in this part of the world. However, New Jubilee remained successful in paving its way in this tough environment of progression through making continuous efforts. In a span of a decade, New Jubilee has been able to make over 35,000 individual customers and over 650 corporate customers covering over 500,000 lives in total. Page had an exclusive interview with Syed Ali Ameer Rizvi, Head of Sales and Marketing (Individual Life) New Jubilee.

PAGE: Tell us something about NJI Life, when was it established, how it worked forward and what were its main achievements?

SAAR: New Jubilee Life Insurance Company Limited (NJI Life) is a subsidiary of the Aga Khan Fund for Economic Development (AKFED), Switzerland. It was incorporated in Pakistan on 29th June 1995 as a public limited company under the Companies Ordinance 1984. Its shares are quoted on the Karachi Stock Exchange.

The Company started its business on 20th June 1996. Paid-up capital of the company is Rs. 627 million, which is the highest amongst public listed insurance companies in Pakistan.

AKFED is active in the fields of Industry, Financial Services, Tourism Development and Infrastructure in South and Central Asia and Sub-Saharan Africa. Some of the sister concerns of NJI Life in Pakistan are:

The Aga Khan University Hospital New Jubilee Insurance Company (carrying out general insurance business), the Aga Khan Health Services Tourism Promotion Services (chain of Sarena Hotels), First Micro Finance Bank Limited, Habib Bank Limited, Aga Khan Education Services, etc.

NJI Life enjoys competitive edge over other players in the market because of the highest paid-up capital amongst public listed insurance companies in Pakistan. It has highest ratio of customer loyalty among all life insurance companies, uniquely designed plans for each individual customer, complete range of products for individual and corporate customers and backing of world's largest reinsurance companies.

NJI Life is engaged both in individual life insurance and corporate insurance business. Individual life insurance business is procured through two channels i.e. through company's own enthusiastic Branch Operations and through alternative distribution channels such as Bancassurance. NJI Life is proud to be the pioneer of Bancassurance in Pakistan. NJI Life is also the pioneer of many credit life insurance schemes prevalent in Pakistan.

The product lines of NJI Life for individual and corporate clients are as under:

INDIVIDUAL LIFE PRODUCTS:

Secure Life Plan, Secure Joint Life Plan, Secure Personal Accident Plan, Secure Education Plan, Secure Marriage Plan, Secure Investment Plan, Secure Sarmaya Plan, Secure Personal Pension Plan, Secure Level Term Protection Plan, Critical Illness Plan, Supplementary Benefits, Permanent Total Disability, Critical Illness, Accidental Death Benefit, Accident Death & Dismemberment, Family Income Benefit, Hospitalization Cash Rider for self, spouse and child.

CORPORATE PRODUCTS:

GROUP LIFE: Death Coverage, Additional Accidental Death Insurance Permanent Total/Partial Disability (due to accident), Temporary Total Disability (due to accident), Terminal Illness Benefit, Permanent Total Disability (due to natural causes), Accidental Medical Expense, Critical Illness Benefit.

GROUP HEALTH:

Hospitalization and Surgical Benefits, Maternity Benefits, Outpatient Expense Facility

GROUP PENSION:

A unique and innovative retirement income plan is available for employees of our corporate clients through defined contribution pension system.

PAGE: Pakistan has a population of 150 million, out of such a huge number of people how much of that market has been tapped by the insurance sector in general and NJI in particular?

SAAR: Traditionally, the life insurance industry in Pakistan has been characterized by an inadequate regulatory framework, few market players, limited types of business, lack of innovative products and the monopoly of State Life Insurance Corporation (SLIC). While the insurance reforms in the 1990s began the process of development of the life insurance industry but the actual impetus to the development drive came with the promulgation of the Insurance Ordinance 2000.

This was followed by the introduction of New Insurance Regulations by SECP in the form of Insurance Rules 2002, Takaful Rules 2005, prepared by a task force constituted by the Securities and Exchange Commission of Pakistan which has also been issued in September 2005.

State Life Insurance Corporation (SLIC), which was created from the consolidation of 41 Life Insurance businesses during the nationalization process in early 1970s, continued to dominate insurance companies. In terms of Gross Premiums, SLIC's share is around 76 percent of the combined Gross Premium, while the share of the rest of the companies range from 4 to 13%. Out of the currently operating 5 Life Insurance companies, one is State owned, with two private domestic and two foreign life insurance companies.

Out of over 150 million population, less than 10 million lives have been insured by the major insurance companies in Pakistan both on account of individual life insurance and group life insurance by 31st Dec 2005. The percentage of Pakistani population with 18 years and above is 51.25%. This means that we have a huge market of around 70 million people whom insurance companies can tap for individual life or group life covers.

The main players i.e. EFU, NJI Life and Alico usually make comparisons of market share, business achievements, etc. between themselves, leaving out SLIC for it is illogical comparison of decade old companies with a giant whose monopoly remained firm in Pakistan for over two decades. According to our own comparison, the market share during 2005 was as under:

EFU 54.7 percent , NJI LIFE 30.2 percent, ALICO 15.1 percent

Despite being the last entrant in the market, NJI Life has made a steady progress over the years as far as market share among private life insurance companies is concerned.

NJI Life is the pioneer company to introduce Bancassurance in Pakistan in 2002. It is constantly exploring avenues to increase the number of distribution channels through a variety of distribution patterns, particularly given the rapidly changing customer profile. Like in the European market, Bancassurance can be an effective channel. In the face of strong profitability pressures in their traditional banking services, banks will likely to seize upon opportunities to expand their offerings by including Bancassurance products.

NJI Life is looking forward to diversification and innovation in distribution channels to tap the very potential Pakistan market has for its life insurance products.

PAGE: Why do people are not insurance prone in our society?

SAAR: In my opinion, some of the major factors for people not being insurance prone in our society are illiteracy, unemployment, unawareness of insurance, lack of knowledge and understanding of general purposes of life insurance, ignorance of benefits of life insurance and religious thoughts against life insurance.

PAGE: What positive role insurance sector has played in the economic growth of the country?

SAAR: Life insurance companies play a very important role in the economic growth of the country. A few of the positive effects towards the economic growth that we can see are:

SAVINGS:

Life insurance companies develop the good habit of savings in people. The funds in the shape of insurance premium from people are invested in business and industry to operate and expand. Naturally the economy booms bring a number of privileges and benefits for society. Currently, the assets under management of Life insurance companies exceed Rs.150 billion.

MAINTAINING THE STANDARD OF LIVING:

Saving aspect coupled with financial protection in the event of any tragedy in a family, the life insurance helps people maintain the standard of living.

EMPLOYMENT OPPORTUNITIES

Life insurance companies provide numerous job opportunities and thus play a positive role in society to reduce unemployment. A life insurance company is a huge project where recruitment process never stops. While qualified personnel are required in principal offices, the sales force of different levels and categories are required to run the branches and field offices.

As far as NJI Life is concerned, it has so far provided respectable, dignified and honorable job openings with good earning opportunities to around 1500 families in almost every major city of Pakistan.

CONTRIBUTION TOWARDS GDP GROWTH:

According to a recent report of State Bank of Pakistan, real GDP remained at its long-term growth path in financial year 2006 with a growth rate of 6.6%. While this growth is marginally lower than the 7.0% annual target, this is quite impressive given the aftermath of the earthquake, the relatively poor harvests of key crops, the impact of high oil prices and rising domestic interest rates. The greater contribution to this high growth rate is by the services sector, which exhibited a remarkable 8.8% growth during financial year 2006 as compared to the 4.3 % growth of the commodity - producing sector in the same period. In the services sector, the highest growth was seen in finance and insurance (23.0%) followed by wholesale and retail trade (9.9%).

PAGE: Are we getting re-insurance cover from international re-insurance companies?

SAAR: In case of life insurance, there is no domestic arrangement for re-insurance and all the life insurance business i.e reinsured by the foreign reinsurance companies. There is a number of reinsurance companies doing business in Pakistan, the most reputed are Munich Reinsurance Company, Swiss Reinsurance Company and Scotish Reinsurance. Though international reinsurance firms have their own criteria to accept risks but generally Pakistani life insurance companies, including NJI Life, get reinsurance coverage on mutually acceptable terms and conditions.

PAGE: How much effective AKFED is for this company?

SAAR: AKFED is effective to this country; it is doing tremendous job for this country. It has brought in foreign investment and one can see their brilliancy in the kind of entities they posses like Aga Khan Hospital, NJI Life, Habib Bank, Aga Khan Education Board, etc. They have their own fibre line from Karachi to Gilgit.

PAGE: What sort of education do you think is needed to aware people about life insurance?

SAAR: We can build up more awareness by growing our network through having more private companies in this sector. In that way people will have a variety of products and a host of choices available with them. It also enhances the approach to reach more people.

We also ask the NGOs to come forward and give the awareness to the people as a cause.

PAGE: How do the insurance companies work, how do they generate their revenue and what are their rates of return?

SAAR: Ours is a diversified portfolio. We invest in government securities, in banks, in stock market in the form of mutual funds, etc. An individual doesn't have the tendency to enter or leave the market whenever he wants to, but we can do this as a company having shares in the market. I want to bring about the success story of our Sarmaya fund that we have designed, its a mutual fund and it has shown a growth of around 24% this year. Our mutual fund managers are allocated on weekly or fortnightly basis. We purchase the shares through our fund managers and sell them when the prices are high. The profit will be divided equally as per the contribution of the persons involved.

We have fixed administrative charges for our services, which we deduct from the investment amount. The profit however goes to customers. We allocate units through unit-linking which is very common these days. In unit-linking you can out rightly sell your units when the prices are on the higher side.

PAGE: What guarantee you give to your customers for the risk involved in mutual funds?

SAAR: Well, there is no guarantee at all; customers can only rely on us through our past performance. Life insurance companies however are now developing some of the products in which the returns will be guaranteed.

PAGE: How much foreign investment is coming in this sector?

SAAR: People are coming from abroad with huge sums of money and they want to invest it. If all the insurance companies start giving similar products in the market then foreign companies should come as they don't expect that much return. The way our economy is boosting and if the right products will be available in the market then there is no doubt that the foreigners will be inclined to make investment here.

PAGE: How much hopeful are you about NJI Life's progress in future?

SAAR: I hope that in three years time, we will be the market leader by all means.

PAGE: Any message to the prospective customers?

SAAR: They should understand the importance of life insurance. The role life insurance policy can play in their lives and their families when it is needed. Life insurance is an umbrella, when it is rain, you need umbrella so people should start trusting that they will not lose their money. They have to think as wise persons that making investment is not the only part, but they should start believing that it will be going to help when they will be no more. Life insurance can play a vital role in maintaining the life standard of a person. They should learn as how they can help their own self.