Insurance industry fails to grow

June 25 - July 01, 2007

LAHORE: With a drastic decline in consumer loans growth from 70.5 percent in the year 2005 to mere 11.9 percent in 2007, the country's insurance industry has been also unable to register much needed growth despite various incentives announced by the government for this sector.

In a bid to provide a level playing field to non-life insurance companies in the field of health insurance vis-a-vis life insurance, the government in the budget 2007-08 has abolished excise duty leviable @ 5 percent on health insurance.

There are two types of insurance companies in the country i.e. insurance companies engaged in life insurance and non-life insurance. State Life Insurance in the leading insurance company engaged in the business of life insurance while in non-life insurance EFU and Adamjee Insurance have a major share in the business.

In the middle of April this year, the government laid down outlines of a new insurance policy. The focus was to extend insurance cover to rural areas and low-income groups. The insurance rules were framed in the year 2002. Before promulgating these rules, the government held detailed discussions with stakeholders who demanded constitution of Pakistan Insurance Regulatory

Authority (PIRA) to regulate the affairs of insurance companies but PIRA could not be formed.

Apart from the insurance industry in general, there are three insurers in the public sector (State Life, National Insurance Company and Pakistan Reinsurance Company).


According to analysts, there is prevalence of bogus insurance companies issuing spurious Motor Vehicle Third Party Insurance Policies for motor vehicle registration purposes in the provinces particularly in Punjab.

The government has assigned the task to the Securities and Exchange Commission of Pakistan (SECP) to examine ways to prevent the issuance of bogus policies and take suitable action, which should include making provincial agencies aware of the identity of registered insurance companies, however, no concrete steps have been taken so far.

Sources in the Ministry of Commerce (MoC) told PAGE that the MoC had initiated a proposal to introduce a standard compensation scheme relating to third party liability to be underwritten by registered insurer but this proposal is till in doldrums.

Moreover, the analysis carried out by the Ministry of Commerce indicated that insurance industry had failed to penetrate rural areas and provide insurance cover to socially deprived people. MoC proposed making the group insurance compulsory through a legislation.

It may be mentioned that the government had promulgated Takaful Rules in 2005, allowing dedicated Takaful companies to start writing business.

"One major anomaly is the non-applicability of the regulatory framework to Postal Life Insurance", an official in MoC said. He said that the government has decided to bring Postal Life under the ambit of the Insurance Ordinance 2000.

The government has already taken some tax relief measures to remove bottlenecks in the development of insurance sector on modern lines in the budget 2007-08. The new Insurance Policy aims at increasing penetration, removing impediments to insurance industry's development and outlining a more rational role of the public sector in line with international practices. The percentage of life insurance in the country, which presently is around 0.28 percent, is among the lowest in the region and the immediate goal has been set at to enhance it to 1% in a period of three years. Under the new insurance policy insurance cover against terrorism, crop insurance, cover against earthquake and micro insurance facilities would available in the country.

The policy proposes that capital element of annuity receipts be exempted from tax or allow deduction of annuity premiums in determining taxable income from individuals especially for annuities taken for defined purposes like pensioners, retirement saving schemes. The policy has pointed out that in the health sector, general insurance companies are required to levy a federal insurance fee of 1% and central excise duty of 5% on premiums, which are than paid across to the federal government. This does not apply to life insurance companies.