PAKISTAN INSURANCE INDUSTRY

MOHAMMAD AQEEL KHAN,
Research Associates

June 25 - July 01, 2007

WHAT DOES INSURANCE MEAN?

An agreement(policy) in which an individual or entity receives financial protection or compensation against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.

SIGNIFICANCE OF INSURANCE

The most important measure of an industry or an activity is its contribution towards employment generation, strengthening linkages with other sectors of the economy in promoting growth and stability, and creating a sizeable impact on the national income of a country.

In developed countries, the Insurance industry is a necessary part of daily life and serves all the above mentioned purposes as opposed to developing countries where insurance is still dependent upon an individual's net disposable income, religious beliefs and government policies. Hence the economic significance of insurance as measured by the share of total gross premiums to GDP is very high in developed countries in contrast to developing countries.

Generally, insurance companies help businesses and individuals in managing risks which can severely impact their economic well-being. Furthermore, insurance companies are also termed as the largest investors in capital markets, in addition to being characterized as the sole suppliers of insurance business to reinsurance companies.

PERFORMANCE:

The Insurance Ordinance 2000 and related Insurance Rules in 2002 the insurance sector went through a major reform process. The direct insurance premiums (excluding reinsurance premiums receivable by Pakistan Reinsurance Corporation Limited) have grown by 22% per annum over the past five years, totalling approximately Rs.52.2 bn in 2006, being 43% of life and 57% non-life (excluding PRCL).

As a result of this high growth in premium insurance penetration has improved but continues to be very low (0.67% of GDP), especially in the area of life insurance where Pakistan has a much lower penetration (0.27% of GDP) as compared to India (2.53% of GDP) and even Bangladesh (0.42% of GDP).

FUTURE PLAN

For development of the insurance industry, the Securities and Exchange Commission of Pakistan yielded a roadmap drawn by the Insurance Association of Pakistan (IAP). As follow-on to this, the federal government has agreed for Phase-wise raising of the minimum paid-up capital requirement of the insurance industry.

 

PHASE-WISE MINIMUM PAID-UP CAPITAL REQUIREMENT

YEAR

NON-LIFE INSURANCE

LIFE INSURANCE

2006

Rs 80mn- Rs 300mn

Rs.150m to Rs.500m

2007

Rs.120m

Rs.350m

2008

Rs.160m

Rs.400m

2009

Rs.200m

Rs.450m

2010

Rs.250m

Rs.500m

2011

Rs.300m

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