Looking at various developments, one could say that the future of the insurance sector in Pakistan is promising and the prospects of foreign direct investment are quite prominent.

KHALIL AHMED, Senior Correspondent
Dec 11 - 17, 2006

It could be assumed, based on the performance of the insurance companies in our neighbouring countries, that various insurance companies intending to carry out investment in the insurance sector of Pakistan had some reservations for conducting business. Though the insurance sector has performed relatively better with every passing year, yet the liberalisation of the sector could be termed crucial in bringing about a kind of revolution as it has been witnessed in the banking sector of Pakistan, particularly over the period of last six years. Undoubtedly, the insurance sector of Pakistan has enormous potential. This potential could have been materialized in terms of gaining FDI flows into Pakistan, had the sector been liberalized earlier. Well, the recent developments regarding the opening of the insurance sector would surely attract foreign companies to invest in the insurance sector of our country.

According to a source, the government has recently enhanced the ownership rights to 100 per cent from 51 per cent for both domestic and foreign companies in life, non-life and general insurance business in order to attract foreign direct investment in the sector. It is said that the insurance sector has been opened due to the demand from the foreign insurance companies which intend to operate with 100 per cent equity in Pakistan.

According to the official sources, it was proposed to the government to allow foreign insurance companies to hold 100 per cent equity in life, non-life and general insurance business with the conditions for bringing in a minimum of $2 million in foreign exchange and raising an equivalent amount from the local market. Well, this step should be termed positive as it would help the sector grow and provide financial protection to millions of Pakistanis. The banking reforms brought about the flows of FDI and the robust growth in the sector and now one could see substantial growth in the insurance sector of Pakistan as well. When compared with our neighbouring countries one comes to know that Pakistan's non-life insurance density is $2.8 against China's $15.8 and Iran's $33 insurance density. One should also know that there is remarkable performance in the sector as compared to the past. Both life and general insurance have gathered momentum in the country and their results are quite satisfactory. According to the official source of the State Life Insurance Corporation, about 25% of Pakistani families are protected by State Life's Group and Individual life insurance. One leading newspaper reads that "the insurance sector posted a growth of 31.2pc in their net profits amounting to Rs6 billion for three-quarters ended September 30, 2006, compared to Rs4.6 billion earned in the same period last year. The figures represent those of 18 of the 26 companies listed on the insurance sector at the Karachi Stock Exchange.

Looking at these developments, one could say that the future of the insurance sector in Pakistan is promising and the prospects of the foreign direct investment are quite prominent. Foreign investors should find the Pakistani market as an attractive market because of varied reasons. The reasons are strong economic growth of the country leading to over $700 per capita income, better performance of the capital markets in the country, exceedingly well performance of the financial and the corporate sectors, South Asia Free Trade Agreement, the rising trend in foreign remittances, robust growth in the construction industry, increasing international trade and handsome growth in the domestic wholesale and retail trade.

One must know that the international trade during 2005-06 was around $44 billion and Pakistan plans to increase its share in the world trade. At present, Pakistan's share in the world trade is around 0.2 per cent. The country expects to increase it to one per cent by 2030 and at the same time the expectations are that the Pakistani exports which touched $17 billion in the last fiscal year may reach around $250 billion by 2030. The Budget Speech 2005-2006 must have provided impetus to the foreign insurance companies to invest in Pakistan's insurance sector. The speech reads that "the service sector accounts for 52% of the country's economy. During the year banking and insurance sector have registered growth rate of 21.76%. The construction sector has improved by 6.2 %. In the past one year air-conditioners production has increased by 462 %, deep-freezers by 55 %, refrigerators by 19.79 % and detergents by 21.86 %.

After 9/11, Pakistan has witnessed the rising trend in remittances which went up from a billion dollars in 2000 to $4.6 billion in the last fiscal year and there are expectations that in the next couple of years the country might receive up to $5 billion remittances from the overseas Pakistanis.

A few points need to be noticed.

i) A source quotes that the National Bank of Pakistan, one of the public sector banks in Pakistan, in collaboration with the American Life Insurance Company, a foreign private life insurance entity, offers insurance cover to its more than half a million PLS account holders against terrorism, accidents and natural calamities. This move would surely lead others to follow.

ii) Here, one is reminded of the last year's cricket series played between Pakistan and India when the Pakistani cricket team was provided with the highest ever insurance cover in the history of cricket in India, worth around 245,000 to play against India in Ahmedabad.

iii) It is necessary that the Pakistan Railways, which offers travel services to more than 70 million passengers every year, provides insurance cover to its commuters, luggage or to its own equipment and machinery. The nation remembers the tragic accidents in the history of the Pakistan Railways - one of them being last year's Ghotki tragedy when more than 130 passengers were killed and over 1,000 got injured.

iv) Pakistan needs to advertise its tourist locations like other countries. India advertises itself as "Incredible India" and Cyprus advertises itself as 'Cyprus for all seasons'. Tourism could fetch the country substantial revenue as Pakistan is blessed with lots of historical sights which can be instrumental in case proper strategies are applied to promote tourism in the country. In case this is done travel insurance would gather momentum. The insurance companies could attract those Pakistanis also who travel abroad. It is a norm across the western world that many travel operators insist that you have cover before they will sell you a holiday. It is beneficial because apart from covering items that may be stolen while you are on holiday, including small amounts of cash, travel insurance offers cover for medical expenses or if you are unfortunate enough to be attacked and injured. One of the most important things is that in case you cancel your holiday because of injury, illness or some unavoidable circumstances, this will pay for the holiday expenses you cannot recover.

Increase in the paid up capital requirement from Rs.2.5 million to Rs.80 million by the Insurance Ordinance 2000 will further bring forward more mature companies and the mergers could be eminent. What Pakistan needs to do further at present is to attract investment from the big players like Standard Life, the fifth biggest insurance company on the UK stock market, US insurance giant American International Group (AIG), IGI Insurance Company Limited of England, the insurance giant Lloyd's of London, the largest US reinsurer General Re, the German group Allianz, France's Axa, UK-based group CGNU, Chubb, PMA Capital, AMP Insurance, etc.

All the economic developments in Pakistan offer business opportunities to both the life and the general insurance companies.