HEDGING THE RISK
Excerpts from an exclusive interview with Saifuddin Zoomkawala, Managing Director, EFU General Insurance
SHABBIR H. KAZMI, Special Correspondent
Dec 11 - 17, 2006
PAGE: EFU Group has majority stake in general, life and health insurance companies. What role does an insurance company play in society?
S. ZOOMKAWALA: An insurance company helps in hedging various types of risks with an objective of minimizing losses of their clients. On top of this insurance companies also provide and/or help in mobilizing resources for the development of the economy of the country. Therefore, the role of insurance companies can be clubbed in two major activities: 1) hedging risk and 2) capital formation.
PAGE: How do you define each role?
S. ZOOMKAWALA: Our lives, capital, assets and businesses are exposed to a variety of risks. Life of an earning member of the family or business (agriculture, industrial and commercial) has to be protected against natural calamities. Assets, both moveable and immoveable, have to be guarded against theft, fire and accidents. Goods in transit and vehicles on roads are exposed to accidents. All these risks need hedging and insurance companies provide the best possible cover. While providing the insurance cover, insurance companies generate premiums of millions of rupees.
After keeping an appropriate amount for expenses etc, insurance companies are still left with huge sums at their disposal. This they have to invest somewhere be it a bank deposit, investment in shares, corporate bonds, real estate and government bonds. Often they are also the key investors in pre-IPO and IPOs. This way they provide the much-needed liquidity to the capital market.
PAGE: Do they play any role in the development of real estate market?
S. ZOOMKAWALA: Most of us are aware of the fact that insurance companies own large commercial buildings. Among the insurance companies State Life Insurance Corporation (SLIC) owns the largest number of buildings. EFU Group also owns two buildings one each at Karachi and Lahore and New Jubilee Insurance Company has one building in Karachi. In the past a life insurance company also owned a number of prestigious buildings, which are now owned by SLIC. Investment in real estate on one hand helps in the development of prestigious buildings and on the other hand become a source of regular income and yields handsome gains when sold.
PAGE: What role insurance companies play in natural calamities?
S. ZOOMKAWALA: Insurance companies insure lives as well as physical assets and also provide health insurance. In case of a natural calamity or catastrophe the first and most important step is to help people recover from mental and physical shocks. Then comes treatment of injured. EFU Group is proud to say that it provides insurance cover in the three key categories and the added advantage is that EFU has a track record of excellent performance.
PAGE: Can an insurance company help compensate the real loss?
S. ZOOMKAWALA: It is true that the real loss just cannot be compensated but its impact can be minimized. In case of loss of moveable/immoveable properties claims paid by the insurance company could be close to the real worth depending on the type of cover that is obtained. However, there could be no compensation for the loss of life of father/husband/son/brother. However, the claim can help the family in recovering from the shock resulting from loss of near and dear.
PAGE: How benefits could be maximized?
S. ZOOMKAWALA: Maximizing benefits depend on the client as well as the insurance company. A client can maximize his/her benefits by acquiring the best cover. However, some times in an attempt to save few hundred rupees a client deliberately avoid getting a few covers, assuming that these eventualities may not be there. This may help in saving a small percentage of total payable amounts, but could cause a fortune. Similarly, a fully conversant insurance executive helps the client in better understanding of the potential risks. This type of understanding does not come overnight. Professional qualification and expertise plays the most important role in developing such a reputation.
PAGE: Having arrived at the conclusion that insurance sector plays very important role, one wonders why the overall size of the sector is so small?
S. ZOOMKAWALA: Lack of awareness about the benefits of the insurance has kept the growth of the sector subdued. Government is still the largest player of the sector but amount being spent on creating awareness is negligible. As the regulator the government has also failed in curbing the largest pilferage in the shape of Third Party Motor Insurance. On top of this the laws are often bias against the insurance companies be it tax on capital gains or reinsurance through state-owned entities. Lately, there has been pressure on insurance companies to enhance paid-up capital. However, raising capital alone cannot improve claim payment ability of the insurance companies. Due to lack of interest on the part of government agriculture sector, contributing nearly 25% of Pakistan's GDP, remains a far cry. It is also true about health insurance. It has not become a reality because average disposable income is very low. Only big corporates provide some cover after incurring huge expenditures. If their employees get health insurance they would spend less and the benefits to their employees would be enormous.
PAGE: How well does EFU groom its executives and agents?
S. ZOOMKAWALA: EFU invests a lot in hiring and training. To begin with, elaborate recruitment process helps in placement of dedicated personnel and appropriate training polishes their personality. And above all the comprehensive understanding of the insurance business helps the insurance executive protect the interest of the client to maximum. We train our people to avoid being pennywise pound-foolish. They convince the client to pay a little more for the complete peace of mind. They are the true propagators of our message ñ EFU the Symbol of Security.