Apr 14 - 20, 2008

About two and a half years back, the chief executive of the emerging markets ACE group Serge Osouf said in Karachi, "the time was ripe to streamline insurance business in Pakistan as the country's economy has shown remarkable recovery in the last 4-5 years and Pakistan's development and advancement is backed by strong macroeconomic indicators as the local insurance industry has started picking up. The share of insurance in the country's GDP has grown to over 0.5 per cent in the year 2004-05 and the ACE Insurance Limited has ranked Pakistan as an emerging market to join the league with Russia, Poland, Saudi Arabia and Egypt."

The Business Recorder reports in its issue of March 19, 2008, "The insurance industry of Pakistan forms a meager part of GDP compared to other nations of the world. With penetration of merely 0.5%, the industry is still in its nascent stage in consequence of lower demand."

The potential identified a few years back by Serge Osouf has not been translated into tangible growth. The deteriorating law and order situation has spurred the insurance companies to raise tariff and in consequence inflate their bottom line. The insured-base has not been broadened with the result that the sector is living in a state of dormancy. The counterpart banking sector has flourished during the same period with an incredible increase in market capitalization. The following table gives a comparative view of the two sub-sectors" performance on stock exchange.






Commercial Banks





Insurance Cos





The under-performance of insurance sector in our country can be attributed mainly to a narrow user base which in turn is the outcome of a number of factors few of which are listed below:

1. Lack of awareness
2. Meager disposable income
3. Religious misgivings
4. Higher tariffs

Lack of awareness and religious misgivings may be found overlapping in most of the cases. One may not like to listen to the logical side of an insurance cover as one has been taught not to "interfere with the ways of Lord". In some of the areas of our country, polio vaccination is taboo as this is tantamount to "rejection of the Will of God". Unfortunately, the business of insurance in general and life insurance in particular has suffered in consequence of such religious misgivings. There are people who undertake huge commercial transactions without benefiting from a variety of risk transferring options available to them. .

The lack of sufficient disposable income is yet another factor responsible for subdued insurance business. One sees the insurance option as a compulsion rather than a risk management device. Our insurance tariffs are possibly the highest in the world. These need to be scaled down to make insurance an attractive option. With a slight worsening of the law and order situation, the vehicle insurance premium rates are raised exorbitantly with the result that the user base is further narrowed down. Insurance companies should take lead from the booming success of telecom sector. The persistent cutting down on tariff has expanded the user base incredibly.


The life insurance business in Pakistan has remained under stress despite having immense growth potential. It has been assigned the role of a noted under-performer 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.

In the IAP's (Insurance Association of Pakistan), member list of 36 companies, only four are life insurance companies. A recent IAP report states that the gross general insurance premium for the year 2006 was Rs.27.4 billion as against a meager amount of Rs.1.2 billion for life insurance premium. These comparative figures are a sad commentary on a highly under-explored insurance segment. The 1972 nationalization of life insurance proved a set back to an already under performing segment. The life insurance business was opened again to the private sector in 1992 with some monitory restrictions for foreign companies.


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 the death of a depositor an amount equal to the amount of deposit in his account should be paid by the insurance company to the legal heirs of the deceased depositor. A similar scheme was once launched by Habib Bank and had turned out to be a roaring 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 the 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.

In case of general insurance too, the synergy can work wonders. The recent crop insurance products launched by National Insurance Company Limited in partnership with the National Bank of Pakistan should spur other insurance companies and banks to create mutually benefit business relationship.