May 19 - 25, 2008

While Security and Exchange Commission of Pakistan (SECP) has as yet recognized motor third party insurance policies issued by 22 non-life insurance and 3 Takaful insurance companies, it is looking towards provincial governments for eliminating fake businesses of motor third party insurance, which often hoodwink policyholders at the time of arising liability.

Except these SECP-registered insurers, all others are not licensed by the SECP to issue motor third party insurance certificate, which basically compensates predefined loss of the third party caused by the insured vehicle.

Dr. Mumtaz Hashmi, Adviser Insurance, SECP told PAGE, "We are monitoring financial status of non-life insurers and Takaful companies quarterly to know whether they maintain minimum paid-up requirement." Accordingly, we prepare a list of authorized insurers who are allowed to transact motor third party insurance business, he added. Contingent upon the agreement between insurer and insured, comprehensive insurance policy may have built-in third party cover that can also be offered exclusively by licensed insurance company.

Till April end, 25 insurers had met minimum paid-up capital criterion set for the general insurance class. There is a mechanism underway through which the updated list will be made available to provincial governments whose continuous support is greatly needed to root out unscrupulous and bogus third party insurers. We are mulling over modus operandi to wipe out illegal issuance of motor third party insurance certificates," he stated, saying when compensation is required these bogus insurance companies are not around to response.

He says even then SECP is a regulatory authority it is law enforcement agency that can keep check on issuance of illegal insurance certificate. Certainly, LEAs have capacity to contain infringement of state laws. Nowadays, insurance division of SECP is pilling up letters of intention to be sent to all four provincial executives, drawing their attention towards premium loss suffered to registered insurers by unregistered insurers.

Through regular updates at least district offices of excise and taxation departments, tax collectors nationwide can ensure Act Liability cover from authorized insurers.

Section 108 of the Saved Chapter of the repealed Motor Vehicle Act 1939 permits an entity registered under the Cooperative Societies Act 1912 to meet its members" Act Liability insurance requirements. Such an entity is not bound to be licensed from SECP prior to transact insurance business.

Sometimes, the division of command creates unnecessary problem, he said adding SECP has to report simultaneously to ministry of finance and commerce. Replying to question, he said absolute autonomy of SECP is not possible. "Certain people will not be pleased with autonomous authority."

Dr. Hashmi is of the view that deletion of this section will be beneficial to promote fair insurance industry and to pull the rug under thugs' feet. To a question, he said paid-up capital requirement would develop insurance industry of Pakistan at par with international. Particularly in reference to India, he said, Indian insurance rules set tough paid-up capital criterion in billion to attract only law-abiding investors. Notably, this requirement in Pakistan is too keeping on increase.

He said the paid-up capital condition for non-life insurance and Takaful companies will further be tightened gradually and slowly, adding by 2011 insurers will have to get hold of a significant amount in reserve.

According to an estimate shared by him, there are over 6 million registered vehicles in Pakistan and every year 0.25 million new vehicles and 0.5 million motorcycles are added on. It is observed in general that mostly motorcycle riders and drivers of commercial vehicles subscribe to unregistered motor third party insurance services as these insurance certificates carry with them very nominal annual premium charges.

Notwithstanding the insurance cover for goods vehicle does not cross Rs. 20,000 in all and for passenger carrying vehicle, it is subject to sub-limit of Rs. 4,000 per person (vehicle carrying up to six persons) and Rs. 2,000 per person (vehicle carrying more than six persons). Determined by the court of law, this insurance cover may be unlimited for all other vehicles.

Section 95 of the Saved Chapter VIII states that insurers shall cover Act Liability in case of death of or bodily injury to any person caused by a motor third party insured vehicle. Amount payable for Act Liability in case of commercial vehicle is Rs. 20,000 and in case of all other class of vehicles, it is unlimited as being legally liable.

The 'no fault basis scheme' by SECP proposes to extend the compensation amount to Rs. 200,000 per person, subject to an overall aggregate limit of Rs. 10 million. According to this scheme, limit of liability for any one person as per Workmen's Compensation Act 1923 will be Rs. 200,000 per life.

For making it workable, Dr. Hashmi seeks an alternative to the existing provision of being legally liable of section 95 so to make the third party accept settlement on a non fault basis. This will not only save people from being involved in the court hearings but also defray them Rs. 200,000. However, the cover would provide an option to the third party to take the compensation as per the law or on no fault basis, he said saying insurance companies have no apprehension over this scheme. 'They all agree.'

When asked about the premium, he prompted, about Rs. 1000 annual premium would not be worrisome for a person whose motor third party insurance certificate genuinely takes care of his happened-to-be over lakh rupee liability. "I guess, policy under proposed scheme will extrapolate amount near to a thousand rupees," he said.

He said people should be encouraged to hold effective insurance policies for particularly the protection of victims of road accidents. Dr. Hashmi says the process of communication between SECP and government officials to resolve the issues has been expedited and sooner outcome will surface.

He said insurance sector of Pakistan is not being promoted in line with banking and finance sector.

As motor third party insurance certificates cover loss of a person other than the insured government should actively respond to any proposal that is in the larger interest of public.