22 - 28, 2010

Economic potential of Pakistan is tremendous. This needs to be properly tapped and channelized for the social development. The father of nation, Quaid-e-Azam Mohammad Ali Jinnah, had said that the challenge was for us to exploit all resources to the advantage of our country. We have to go a long way in translating his dream into reality for the benefit of Pakistan.

Agricultural development needs to be organized on productive and scientific lines to usher in to an era of great prosperity and stability. A sound industrial and mineral policy is the crying need of today. Infrastructure is to be strengthened. A vibrant socio-economic development strategy should be the primary agenda of today. All stakeholders are urged to develop a sense of urgency in this respect.

However, this piece focuses on the role of life insurance for socio economic development of Pakistan. In particular, emphasis will be given to the social challenges facing the country and defining ways and means of how these social challenges can be met so the instrument of life insurance can be used effectively across the board.


Pakistan faces several social challenges. These can be overcome through a well spelled out indigenous approach. Some of these challenges include unemployment, poverty, poor standard of living of people, social instability, and lack of patriotism.

To overcome these challenges and many more like them, there is a need of separate strategy.

However, this piece looks at one tool that is employment promotion with consequential benefits through development of life insurance sector in Pakistan on exponential scale.


The father of the nation, Mohammad Ali Jinnah emphasized the importance of education several times in his addresses. Especially, on the auspicious occasion of the First Educational Conference held in 1947, he highlighted the importance of education in national context. He emphasized on the basic objective of education namely, development of character in younger generation of Pakistan. To our dismay, this object has yet to be materialized. At another instance during his address in Edward College, Peshawar on April 18, 1948 he emphasized on the importance of specialized education including insurance.

So far, no educational institution (private or public) except the University of the Punjab responded positively to the clarion call of the father of the nation. The University of the Punjab through its constituent college, Hailey College of Banking & Finance, commenced full-fledged professional education in insurance by offering various programs including four year BBA (Hons), regular MBA morning and regular MBA evening for executives in 2006. This effort is a singular contribution towards offering services of professionally qualified personnel to the insurance sector. The cooperation of Insurance Association of Pakistan, Lahore and qualified teachers, oriented with field experience, have helped in accelerating human resource development for the benefit to insurance sector in the country.


Private sector was in the life insurance sector until 1972 before the nationalization. State Life Insurance Corporation (SLIC) was established in 1972 with laudable objectives. Private sector was not allowed to operate in life insurance sector. This was a crushing blow to the life insurance sector, which always served protection and investment.

Fiscal incentives available for development and expansion of life insurance sector were eliminated. Savings got a disincentive and the gap between savings and investment continued to widen-necessitating more and more loans for the country. Government enjoyed expanding their role beyond their traditional and real roles, which were relegated to low priorities. Until today, SLIC enjoys virtually monopoly in life insurance.

The company has manifested really a dismal progress. This piece presents a quantitative analysis on some aspects as a wake up call for all of us to see its progress. In some dimensions, group life has shown static, if not negative growth. If deflator of 10-12% is introduced, the overall progress is negative which a matter of serious concern is. If quick action of the privatization through stock exchanges is not undertaken, the matters will further worsen to the despair of social sector, particularly rural areas of Pakistan.

The two elected governments during late 1980s and early 1990s took a hobbled step to bring private sector back in the life insurance sector. However, the efforts were half hearted. Only four life insurance companies are listed on Karachi Stock Exchange as at 2nd February, 2010 with a total paid up capital of Rs 2.29b (0.28%) of the total paid up capital of listed companies of KSE. Market capitalization represents 0.49 %. However, their performance is better which is reflected in market price quoted on KSE. The market price of one private life insurance listed company is around Rs 140 against par value of Rs. 10. Another is around Rs 45 with expanding business. They are introducing new products through employment of professionally qualified energetic persons. One can find the same spirit in public sector.

Based on available information from the annual reports of SLIC, we have carried out some analysis, which is now presented for readers and SLIC to pay heed.

Based on 2008 SLIC annual report, there is an emphasis on achieving some of the following objectives.

1. To maximize returns and economize expenses. This objective is indeed laudable. However, the results were in contrast during 2008 as this year income was increased by 15.46% and expenses by 21.87%.

2. To widen areas of operations of life investment for common person in towns and villages. This appears to be an objective without a timeline When will this be achieved? Is there a clear-cut road map? These questions scream for a positive response from SLIC.

It is interesting to note that at top and even at middle level management, there are no professionally qualified insurance experts. Consequently, there is a lack of innovation to meet the present and future needs of the customers. Strict legislation and its solid implementation are very much needed.


In today's vibrant world, expectations are pegged on high performance of an organization. Mere achievement of satisfactory results is an ordinary approach, which needs to be changed. This is a challenge for SLIC and it must positively respond in this direction with a sense of high priority.

Number of life insurance policies increased 5.31 percent, which is negligible. In 2008 there were only 2.6 million life insurance policies in force as compared to the total population of 170 million, which comes to only 1.53 percent. This shows that one of the objectives for which life insurance business was nationalized that is to widen the area of operation of life insurance and making it available to a large section of the population is far from materialization. In fact, untapped potential is 98.47% of population of Pakistan.

Increasing lapsation rates is a challenge that needs to be urgently addressed in an appropriate and positive manner. The top management must address the issue seriously and the field staff must accept this challenge to reduce lapsation rates to negligible levels. This area requires an in-depth and independent analysis.

While field workers are being trained, the training must ensure achieving high results and the bottom line must be beefed up, failing which "value creation" will not take place. Capacity building must be accepted as a great challenge in this respect.

Overall expense ratio appears to be very high and not appropriate in life insurance business. Steps should be initiated to ensure its reduction immediately over a medium term three year plan. The services of a practicing cost & management accountant can be a logistical support in this direction. This should be compared with international benchmark and steps be initiated to ensure reduction for the benefit of all stakeholders in general and policyholders in particular.




2008 2.60 135 111
2007 2.35 122 108
2006 2.18 113 107
2005 2.04 106 106
2004 1.93 100 100
Source: Extracted and calculated from Annual Report 2008, State Life Insurance Corporation of Pakistan, PP 62-63 and earlier reports.

Table one presents statistical data for the last five years of SLIC. Our analysis is based on base and rolling concept index. It shows how slow is the progress and how big is the potential. Following conclusions can be drawn.

1. Annual average growth in the above five years has been 7%.

2. Rolling index presents a sharper analysis and is a wake up call for an aggressive marketing strategy to be followed by SLIC. Its organizational set up must positively respond to this challenge.

3. A breakthrough is needed to ensure quantum jump in number of individual life policies. This number is only 2.60 million in a total population of 170 million in 2008.

4. To accomplish the objectives of SLIC, a bold marketing approach is needed to "widen areas of operations of life insurance for common man and in towns and villages". SLIC must rise to this occasion and meet the challenge.

5. There is a need to revisit the declared objectives of SLIC and initiate a threadbare analysis. A stakeholders' conference may be held to help SLIC to achieve its objectives. An extrovert approach is required.

6. Insurance culture as a way of life needs to be cultivated through a market driven approach. Synergy can be created through seminars, workshops, insurance fairs, puncturing fears of potential policyholders and undertaking all steps, which would ensure success of the noble cause of making insurance a way of life.

7. Qualitative and quantitative analysis of existing training courses for field orientation should be undertaken for improvement and capacity building.

8. A strategic plan for manpower development for SLIC is vital.

9. Leading universities in Pakistan must start degree programmes in insurance. Hailey College of Banking & Finance, the 5th Constituent College of the University of the Punjab, Lahore launched the programmes in 2006 for the first time in the history of Pakistan to fill the gap of professionally qualified work force in the insurance sector.

10. Degrees at graduate and postgraduate levels must be offered with a clear and transparent manifestation of 'Insurance & Risk Management'. This will broaden the scope of job openings. Financial sector needs risk analysts with knowledge of insurance sector.


Group life insurance is compulsory in Pakistan for specified industries, which employ certain workers above an announced threshold. Table 2 captures an overall position relating to SLIC progress on group life insurance front.



2008 3.89 100 096
2007 4.06 104 104
2006 3.92 101 105
2005 3.73 096 096
2004 3.90 100 100
Source: Extracted and calculated from Annual Report 2008, State Life Insurance Corporation of Pakistan, and earlier reports.

Following is the analysis of table 2.

1. Annual average growth during the last five years has been negative and shows declining trends. SLIC must seriously address this issue.

2. Unfortunately in 2008, there were only 3.89 million group life policies as against 3.9 million in 2004. This is a wake up call for SLIC. It appears that the aggressive and motivated private sector in life insurance in Pakistan seems to capturing the share of market and thus the base index and rolling index have shown a declining trend. This feedback should be taken in a positive spirit and the trend must be reversed. The strategic thinkers of SLIC must at least target an annual increase of 10%, and be not complacent with the present situation.

3. To achieve a target of 10%, a strategic plan must be prepared and its implementation be periodically monitored to help achieve positive results. A "mapping chart" approach should be used to ensure proper analysis. Field visits to potential sectors must be undertaken. All logistical goals to achieve the foregoing suggested targets must be well defined.

4. An institutionalized approach of Management Information System (MIS) through computer assistance can help achieve the foregoing suggested objectives. Nothing succeeds like success. Targets for annual growth should be established and achieved through financial and non-financial incentives by hiring professionally qualified and motivated staff to be employed through transparent merit.


1. Political will is needed to promote life insurance sector.

2. Ministry of commerce must rise to the occasion and give serious thought to design an insurance policy. Regular interactions with stakeholders and local and international academicians can provide productive inputs to the draft of insurance policy.

3. The role of government must be defined in terms of oversight and monitoring the business of life insurance. SLIC should be denationalized immediately.

4. The share of life insurance in GDP should be targeted at a minimum of 4% to 5%.

5. Life insurance (conventional or takaful) should be popularized on massive scale through employing young professionally qualified and committed graduates. The development should not be restricted to urban areas only, but the untapped rural areas of the country deserve special attention. Takaful can be offered as substitute, if conventional insurance is not acceptable by potential policyholders.

6. All listed insurance companies should immediately be allowed to set up a special window for takaful to open new vista for private sector to unleash their initiatives for expansion on exponential basis of life insurance sector. State Bank of Pakistan has permitted scheduled banks to open special windows for non-interest banking (NIB). Similar facility should be extended to listed insurance companies.

7. Takaful should be included in commerce, business, and public administration courses in private and public universities. Curricula should be restructured accordingly to the acceptability of market driven needs.

8. MBAs, graduates in related disciplines, and MBAs in insurance & risk management should be employed to strengthen the work force of life insurance sector. The old ones should be replaced immediately as professionally qualified and committed people can only unroll new initiatives. As practiced in Singapore and popularized by its founding father, Lee Kuawn Yee, meritocracy should be strictly introduced for human resource selection process. It must be remembered that one wrong selection in life insurance setup can undermine the whole structure of life insurance. This must be given a serious thought by all the stakeholders. Professionally qualified people will be instrumental in creating an innovative environment with new products to be introduced to serve the existing, emerging, and future needs of the users of life insurance products.

If the suggestions are given a serious attention, a new dawn in our country will be discovered and the objectives for which Pakistan was born will be accomplished to the happiness and prosperity of the people and the country.

Life insurance can be a main engine of growth, can generate employment, alleviate poverty, reduce social tensions, narrow the gap between savings and investment, and eventually accelerate socio economic development of Pakistan.

The writer of this article is founder principal of Hailey College of Banking & Finance, University of the Punjab, Lahore.