LANDSCAPE OF MICROINSURANCE IN PAKISTAN

TARIQ AHMED SAEEDI
(feedback@pgeconomist.com)

Mar
1 - 7, 2010

Microinsurance is a new concept in Pakistan with only limited number of microfinance institutions, NGOs, and rural support programmes providing low premium and tailor-made insurance products to low-income groups mostly based in rural and remote areas of the country. Microinsurance covers people that have low-income and are not served by conventional insurers who eye for wealthy clients. Its efficacy increases for Pakistan because a majority of country's population is without proper health services, and disability and death of breadwinner is portent of socioeconomic hardship of family. The per capita income in the country is little over one thousand US dollar.

Life and health are the focus areas of microinsurance across the world. However, it is expanding to other areas as well. The aim is to reducing poverty. Poverty reduction, according to Lloyd's, is no longer merely a corporate social responsibility for business but seen as an opportunity now.

Penetration of insurance is low in Pakistan and the insurance sector constitutes not over one percent of gross development product. This share is small as compared to overall contribution of financial sector to the economy. If proportion of low-income group in total insurance policyholders is separated, penetration will be found markedly made by high- and middle-income groups, despite the fact that need of covers is high for financially underserved class.

Seldom commercial financial institutions went in to micro financial markets worldwide owing to obvious small returns on investments. However, global success of microcredit has persuaded commercial banks, in few instances, giant financial group to give up this trend. Microfinance has low reach in Pakistan because commercial banks have negligible or no microfinance portfolios. Rural support programmes and NGOs are active in extending financial outreach to low income groups.

There are 1.83 million microcredit borrowers against an estimated potential microfinance market of 27.40 million in Pakistan, according to Pakistan microfinance network, which is an association of microfinance institutions.

Insurance agencies do not find it practical right now to rack up profits through economies of scale. There are 2.44 million microinsurance policyholders across the country while total value insured accounts for Rs30.22 billion, reports Pakistan microfinance network (PMN). Not a single leading insurance company is amongst top five largest microinsurance providers, suggests its graph. Microfinance banks and rural development programmes engage in microinsurance business at district levels. Five micro insurance providers providing inexpensive insurance products are national rural support programme, Kashf foundation, Khushhali bank, the first microfinance bank, and thardeep rural development programme.

"While microcredit helps people to grow economically and to move out of poverty, microinsurance helps to make this growth sustainable and prevents people from falling back in to poverty," says Lloyd's 360 risk insight. It says the potential insurance market in developing economies comprises of 1.5 to three billion policyholders who have demand of life, health, agriculture, and property insurance products.

Microinsurance covers 135 million people worldwide (around 5 percent of the potential market) with some countries witnessing more than 10 percent annual growth in micro insurance, the report says in its latest issue in November. Lloyd's is the world's leading insurance expert. It has businesses in 200 countries and territories across the world. It provides insurers around the world with updated analyses on insurance market.

Notables are the merits of microinsurance mentioned in the insight, which says commercial insurers can get the benefits through microinsurance of a larger and diversified risk pool, repo building, market intelligence, and innovations of products.

"Microinsurance is effective in markets with little experience of insurance, as long as products, procedures, policies are simple, the premiums are low, the administration is efficient, and distribution channels are innovative."

In Pakistan, financial outreach is slow in its extension across underserved locations because of sparsely scattered branch network. Weakness of distribution channel can be removed with the utilization of new communication technologies especially mobile phones. Banks are adapting to mobile banking to reach to rural and remote areas since the usage of mobile phones nationwide is growing. Financial institutions can enhance micro insurance penetration by bringing operational synergy. Bancassurance is such an innovative product that brings together operational capacities of two financial institutions to serve financial needs of people. According Lloyd's report, large financial institutions are collaborating in designs of microinsurance products to enter in underserved markets, keeping success stories of microcredit in developing economies before them as motivators. The benefits of microinsurance are far-reaching as insurers can get hold of untapped market shares in rural areas, which can also be used for other financial products.

Government of Pakistan announced insurance for low-income group as poverty alleviation measure. Its health insurance for the poor and vulnerable proposed to cover a family against annual premium of Rs800. The maximum policy benefit per family member is Rs25000 per year and covers hospitalization, pregnancy, day-care treatment, and diagnostic test. Infant mortality rate is high in the country and at 73 per thousand live births. Heath insurance is important to improve public health standard.

Agriculture sector is an emerging needy of microinsurance in agro-developing countries since the increase in natural calamities. Government of Pakistan has planned to promote insurance in agriculture mainly covering crops. Food insecurity and climate change increases the exigency of agriculture insurance. Insurance can mitigate the impact of loss of crops and livestock, says the insight, adding, "therefore it can help raise the living standard in rural areas, as well as pave the way for advancements in the industry as increased revenue spurs on development".