Exploring Insurance Industry of Pakistan


Nov 19 - 25, 2007

While motor third party insurance indemnifies insured in the event of accident against all sums including accruing claims, limited liability repayment of mere twenty thousand rupees makes insured too lethargic to claim compensation. The comprehensive non-life insurance policy does compensate property loss caused to a person other than insured, however, another equally important factor of unawareness in public about third party insurance miss them a tiny but due monetary benefit.

Motor third party compulsory business is defined as effecting and carrying out contracts of insurance against loss to the policy holder arising from liabilities incurred to third parties in connection with the use of motor vehicles on land. This loss includes injury, casualty, and loss of property. Third party insurance entitles a person(s) without holding an insurance policy to have compensation amount accrued to insured in case of accident caused by him (insured). Insured owes liability to person(s) affected.

There are roughly fifty-seven private sector insurance companies operating in the country. Of about fifty companies, forty-eight are engaged in non-life insurance business and two in life insurance business. These non-life insurers write billions of premiums annually through comprehensive and accidental insurance policies. But, hardly few of them carry third party insurance business as an isolated entity. One of the reasons attribute to the inclusion of third party insurance by Security & Exchange Commission of Pakistan into the restricted class. Once the certificate of registration is granted to an insurer for conducting insurance business, the non-life insurer is allowed to underwrite all four classes of non-life insurance business given in sub-section (1) of section 4 of the Insurance Ordinance, 2000 except motor third party compulsory business; workers' compensation business; accident and health business; proportional treaty business; and non-proportional treaty business. The Insurance Ordinance, 2000 classifies non-life insurance business into fire and property damage business; marine, aviation and transport business; motor third party compulsory business; liability business; workers' compensation business; credit and surety ship business; accident and health business; agriculture insurance including crop insurance; and miscellaneous business.

The reluctance of tariff non-life insurance companies in treating third party insurance business independently lies in low premium gain from policy holders. Tariff non-life insurers (general insurance) such as Adamjee, EFU General, etc indemnify risks of insured comprehensively with a substantial annual premium. In contrast, the minimum rates of premium charged by non-tariff third party insurance companies are Rs. 129 for Motorcycle; Rs. 238 for car and LTV commercial vehicles; and Rs. 347 for HTV commercial vehicles. Understandably, former insurance companies could not afford to have this much low premium. Consequently, the later one has a competitive advantage in attracting customers. Majority of them are formed by motorcyclists, who don't know the purpose of holding a third party insurance policy. Considering that SECP stipulates paid-up capital of 80 million rupees for a non-life insurer to start business and additional requirements in the form of restricted class, third party insurance implies strict criteria to meet with prior to begin insurance operation. Notwithstanding, third party insurance business has become a street business. In small shops and on roadside stalls, insurance agents are found busy in engineering a policy document. Agents standing on public pathways in civic centers would usher you to policy maker, who inconsiderate of your concerns tries to convince that the policy saves you of challan. Nothing else, he tells you!

The non-tariff insurers issue third party insurance policies and certificates to motorists sometimes in an utter violation of law. Usually, the insurance certificate and policies being issued to insured are without stamp duty. Even, the forged stamps are used by the unscrupulous insurance companies through their agents. These insurers do not have reinsurance arrangements. To underestimate low premium, mode of payment is kept intentionally in cash. Agents and representatives of these insurers were found involved in fabricating and issuing fake polices on companies' behalf. They printed illegally insurance policies and certificates. A former manager of Cooperative Insurance Society of Pakistan Ltd. told that a book containing 50 insurance certificates are obtained against Rs.500. He said such kind of companies-none of them belongs to Karachi-having on-paper head office could get a handsome amount in return of stationery sale-out. He said minting of fake currency note surely blows you off, but printing of forged documents gets you scot-free.

Zonal Manager of Asian Mutual Insurance Company, Tahir Hussain showed copies of recently purchased forged policies. He said if we didn't buy, they could have affected customer base and their market share. When inquired about whether the matter reported to government's officials or regulatory body, he dismayed that SECP had been informed every now and then but no action was taken against such elements. The muggers have become so courageous in taking illegal operations that they shrug off laws knowingly.

Some companies claimed to be non-operational in the business of third party insurance, but these so-called closed companies were supplying their stationeries to different agents in a redundant attempt to violate laws openly. Moreover, some companies are involved in issuing unrecorded certificates causing significant loss to government in terms of taxes and duties such as federal insurance fee, central excise duty, stamp duty, and income tax. It is afraid that these companies could not defray claim payment when required. One even confided, "Within last five years, not a single claim has been cleared." On the contrary, Tahir told that claims were paid. He affirmed, however, numbers of lodging claims were abysmally few.

Given the circumstances, general and life insurance becomes as necessary as motor third party insurance to curtail the prospective risk for a person in case of unexpected uncertainty. The automobile sector has grown to the extent of optimum and roads usage is increasing day by day. It is sign for making plans to anticipate future happenings. One can not defeat the nature and calamity, yet, it is wisdom to defend oneself from uprising dooms. This could be possible to anticipate ways to be used in the wake of crisis. In the month of March this year, 856 total number of accidents occurred in Pakistan. Fatal were 364 and non-fatal were 492. The death toll due to these accidents was recorded as 432. Injured were 936. And, 926 vehicles were involved in these accidents. The data on road traffic accidents relate to road accidents only. Railway accidents, air-crashes, electrocutions, etc. are not included. Fatal accidents refer to those where the death occurred on the spot or where the victim succumbed to injuries later on. Non-fatal accidents refer to those in which no person was killed but one or more persons were seriously or slightly injured or property damaged. The number of vehicles in Pakistan has swelled in recent years-from 680,000 in 1980 to 5 million in 2003. Beneficiary can get the compensation of loss of property and casualty in the event of an accident, but third person affected may remain at disadvantage end. Therefore, third party insurance concept was conceived to indemnify the risk of third party involved in the accident. Sarcastically, the amount with which indemnification secure a person-sometimes more than one claimant-would not ensure a quality hospitalization, let alone a property return.

It is clearly mentioned in the insurance policy that the limit of company's liability is Rs.20,000. Even after, promulgation of Insurance Ordinance, 2000, section of the Motor Vehicle Act 1939 intact, which says: It is held that statutory liability of insurance company under the Act is to be limited to Rs. 20,000 only for each accident. Same vehicle involved in more than one fatal accident on one date then liability in respect of each one such accident would be separately to extent of Rs. 20,000. Contention that liability of Insurance Company was unlimited cannot be accepted in absence of such liability on part of Insurance Company.

The comprehensive insurance underwritten by tariff non-life insurance companies could exemplary defray unlimited compensations to the third party at its discretion and if obliged to any preliminary contract. Insurance companies which only depend on third party insurance business can never pay more than twenty thousand rupees if the rate of premium remains low or they don't get government subsidy. Few months back, Ministry of Commerce has initiated a proposal to introduce a standard compensation scheme relating to third party liability to be underwritten by registered insurer, reportedly, then to be taken up with governments. Elapsing of five months brings forward no follow ups.

Majority of people are unaware about the necessity of motor third party insurance. Often, they purchase insurance policy to save themselves from penalty. In other words, to refrain from penalty of fifty rupees they subscribe to third party insurance policy. Without knowing the authenticity of insurers, what they least do is to pay few hundred rupees for a certificate. Associated with insurance business since fifteen years, Mujeebuddin longs to embark on ubiquitous public awareness campaign about third party insurance. Having resigned from a dubious third party insurer company, what he termed, he is working on the line to set up a welfare organization for assisting people in claims making. Looking passionate about his intentions, Mujeeb told of his intermittent letters of information to SECP about unlawful practices being committed in third party insurance business. But, to his utter dismay no effective actions have been perpetrated to remove menace, which he dubbed as a travesty of justice on account of public rights. Simultaneously, he made people responsible for their ignorance. People don't want to know about their rights. While purchasing an insurance policy, whatever little they are paying for, people barely go through the descriptions inscribed onto a two-paged policy documents. Again, lingua franca arises! The policy is written in English language. And, legal epithets dissipate chances of readability, if any. Mujeeb told that he helped a person successfully getting claim payment in his sue to insured and insurer at once. The compensation was made by insured's insurer. The thing went the other way round if insured would not have been covered with third party insurance. He would publish informative materials on pamphlets and leaflets educating people of tackling up with legalities entrusted in insurance industry. Along with, people would be guided to direct their efforts in the right path in lodging claims in case of unfortunate occurrences. They would be mentored through materials the ways to recognize unscrupulous insurers and agents. How they could get claim recovery in legal ways. He said his major target market would be kids. They must be taught basics of traffic rules. As per nature laws, education catches its root from the bottom level.

Ever since, ticket system is introduced vehicle owners have become unconcerned about penalty they may be imposed of in case of non-holding of motor third party insurance policy. They get through paying little penalty. While, previously they may have suffered as much as three-day imprisonment with a heavy penalty on this account. It is safest to say that people should be motivated to subscribe to third party insurance. Yet, people should be assured that their amount in shape of premium is not going in waste and in filling up coffers of some opportunists. They must be ensured that in the wake of crisis claims would be paid lest insurers deny policy. SECP, being the only regulatory and monitory authority, should take all these issues immediately. SECP should activate its network of vigilance to curb bogus third party insurers. It must recommend increasing in the compensatory amount. Otherwise, people hard earned money uselessly continues serving and feeding thugs.

To encourage people towards third party insurance policy, Excise and Taxation department must regularly call insurance policy while transferring of vehicle ownership and during token season-December. Similarly, Regional Transport Authority calls it up while issuing of permit to commercial vehicle. The policy holders at the same time must be educated about the merits of policy. Cases of non payment of claims should be taken seriously. Such insolvent companies should be taken to the courts and tribunals. Empowerment, mobilization, and activation of tribunals, which constituted exclusively for giving verdicts over insurance cases, must be ensured in order to prosper insurance industry of Pakistan.