Life Insurance; an underperforming sub sector

Nov 19 - 25, 2007


When a far flung area visitor entered the city to have a first time face to face meeting with the Prophet Muhammad (pbu), he, out of sheer excitement, left his horse unhitched in the open ground. On enquiry from the Prophet (pbu) about the horse he exclaimed that he had exercised "Tawakkul" and had left the horse in the Custody of God. The Prophet (pbu) advised him to go back and first hitch the animal properly and then exercise "Tawakkul (Faith in God).

Insurance is akin to the hitching of our animal securely and then leave our matters to the Will of God. The issue of insurance should not be subjected to the rigorous cleric questioning ensuing from the limited knowledge of religion and interpretations of one's own choice. Unfortunately it is not so and the business of insurance in general and life insurance in particular has suffered in consequence of religious misgivings. There are people who undertake huge commercial transactions without benefiting from a variety of insurance options available to them. Like so many other areas of concern, insurance is one important area that needs a lot of doing on the front of "awareness creation".


Insurance sector operations are divided in two main categories :

1. General Insurance
2. Life Insurance.


To state simply, any insurance other than the life insurance falls under this category. Some examples are :

Marine insurance in case of imported goods and machinery
Vehicle insurance in case of financing by the banks.
Inventory insurance in case of bank finance under hypothecation or pledge.
Property insurance in case of house finance
Business fire and theft insurance
And many more

These types of insurance are obtained by the owners of vehicles, goods, property and business premises even if no bank finance has been availed.

The natural partners to such type of insurance are banks and insurance companies. The synergy produced by their business relationship results in economies of scale to both the partners.. A lot, however, still needs to be done especially by the banks who play a dominant role in the partnership. Their huge list of customers affords them a cutting edge. What is required of them is a constant search for some innovative products based on the concept of insurance This will not only provide a monitory shield to their customers but will also make their risk management job more effective and meaningful.


The life insurance business in Pakistan has remained under stress despite having immense growth potential. It has been assigned the role of a doubtful starter by our failure to create mass awareness on the importance of insurance in human life. The rate of life insurance in Pakistan is only 1.2 per cent.

The Insurance Association of Pakistan, having 34 top Insurance companies on their membership list, have stated in a report that the gross general insurance premium for the year 2005 was Rs.22.5 billion as against a meager amount of Rs.0.81 billion for life insurance premium. These comparative figures are a sad commentary on a highly under explored insurance sub sector. The 1972 nationalization of life insurance proved a set back to an already under performing insurance sector. The life insurance business was opened again to the private sector in 1992 with some monitory restrictions for foreign companies. The government insurance business is still monopolized by the National Insurance Corporation.


In our age of globalization, meaningful business partnerships can be used to achieve the goals of asset value addition on one hand and social sector uplift on the other. Our focus on service sector economy has resulted in structural imbalance in country's growth pattern,. With an enormous jump in the contribution of service sector to the overall economy, the manufacturing and agriculture sectors have taken the back seat which is not a good omen. The saddest part of the story is that hi fi performance of service sector has contributed little to the uplift of the downtrodden. The service sector dominated by the banks has reported a growth of 53 per cent for the year 2006-07. It is high time that the beneficiary of this growth allocate a portion of their huge profits for the well being of the lower strata of the society.


Banks are in an envious position to develop some insurance based products to benefit the small depositors and borrowers. This will not only register their support for the social sector programs but will also result in an increased business volume to their bank. The lives of small depositors (say up to an amount of Rs.500,000) may be insured without involving depositors in any sort of complicated documentation and formalities. The insurance companies should offer a very competitive premium rate to the banks. This premium expense should be born by the bank. In case of death of the depositor an amount equal to the amount of deposit in his account at the time his death should be paid by the insurance company to the legal heirs of the deceased depositor. A similar scheme was once launched by the Habib Bank and had turned out to be a great success. Why it was discontinued is not known.

Similar free life insurance benefit may be extended to the small borrowers of all categories. Presently, such insurance is available on credit card borrowings at the expense of the credit card user which is not fair in view of an already high charge on credit card borrowings. The insurance should cover the outstanding amount of loan which, in case of death of the borrower, should be immediately written off.

These life insurance products will not only augment bank business and save them from litigation in case of borrowers" death besides easy recovery of their loan, but will also give a tremendous boost to the life insurance business.


Another natural combination of business partners could be the Corporate sector and insurance companies.

Pakistan has a 48 million workforce including female and children employed both in organized and unorganized sectors. The working conditions are very poor with high occupational safety risks. In highly developed countries like America, Chine and European Union, the death caused by work related accidents and mishaps is more than 100,000 every year. In our country where work place safety is given little consideration, the incidence of work related deaths should be much higher. Most of such cases remain unreported. No labor survey ever gave a true account of such deaths. The Labor Policy 2002 envisaged formation of a National Occupational Safety and Health Council. Till date nothing substantial has been done to form this council, leave alone the role this council was supposed to play.

The sufferings of this huge work force and their dependents can be lessened by offering them some sort of monitory shield in the shape of insurance pay out. Likewise banks, the corporate sector should share the fruit of its growth with the all important production of factor- their employees. The modus operandi should be the same as in case of the banks. The premium cost should be born by the employer. The amount of insurance in case of death or permanent disability should be a minimum of Rs.300,000. The amount of compensation in case of accident should commensurate with the extent and nature of the damage caused by the accident.

Will the banks and the corporate sector take cognizance of their duty towards the society in general and their customers / employees in particular. Their concerted efforts in league with the insurance companies will not only give them a sense of participation in the social uplift programs but will also augment their as well as insurance companies" business.