Apr 19 - 25, 2010

A top official of insurance section of apex regulator said the insurance companies and non-banking finance companies would be required to adaptable to fit and proper criteria in line with ones directed for banks by the central bank by yearend.

"We are making them to be compliant with fit and proper criteria imitating the pattern of State Bank of Pakistan," said Nasrin Rashid, executive director Securities & Exchange Commission of Pakistan (SECP) referring to financial sector that comes within the SECP's ambit. The document will be unveiled by yearend, she said.

The commission has cancelled operational licences of 24 insurance companies because of their non-compliance with paid-up capital requirement. Twenty four insurers are ceased to operate because they failed to meet the basic revised criteria of solvency, statutory deposits, and paid-up capital, she said in a press briefing.

The executive director realized the scant appearance of the commission to the public, saying the interaction would be increased further to update public with the performance of SECP on regular basis.

She said the fit and proper criteria also demand insurers of having qualified chief executive officers, adding the scope would be extended to workforce in insurance companies later on.

The purpose of increase in paid-up capital requirement, she said, is to ensure financial soundness of the insurers and protect interest of the policyholders. When asked sometimes insurers include fixed assets, and assets that are not liquid or take time to be liquidated, in to the paid-up capital disclosure that also makes solvency of the insurers risk-prone, she told the scribe the commission was working on to make the solvency laws strict and impregnable in an ultimate bid to ensure payment of claims and secure financials of shareholders. Insurance division has recently increased the paid-up capital requirements for the insurance companies. This is to ensure financial soundness of the insurers and protect the interest of policyholders, she said. To a question she said SECP wants to strengthen solvency stature of insurers. About fit and proper criteria, she said insurance companies should be led by insurance expert who must possess certain education in the field of insurance. This is basically the spirit of fit and proper criteria, she remarked.

Nasrin Rashid, who has also held an executive position in Adamjee Insurance, said the commission wanted to extend the outreach of insurance products to the low income groups and un-served segments. She said micro insurance was in this regard an effective financial innovation and "We are working to broaden the dispensation of micro insurance to the larger section of the society." There are some flaws on legal front, she admitted. This needs to be reckoned with, she urged.

SECP discharges its regulatory duties under the dual command system of ministries of commerce and finance. If this creates conflict of command, "No," she answered saying "this issue is not new and frequently brought in to our notice". She did not come up with a clear response on what is being done to remove the anomalies. However, she said, "We are conferred with the rule making authority."

It seems that the commission's top brasses push the issues of legal and administration dichotomy under the carpet while conceptualizing strategies to increase penetration of insurance. A utopian Nasreen is at least in favour of financial innovation in insurance sector regardless of administrative and legal flaws that she conceded "there were". She also admitted that 'bogus third party' insurances were being sold. It is worthwhile to mention third party insurance policies are still being sold to motorists despite its uselessness conveyed through media several times. These policies have earned policyholder a negligible amount if any, upon claims which are filed one in thousand. Third party covers the loss of person other than insured in case of mishap caused by insured. Comprehensive general insurance covers this loss, though tear-off third party note that motorist receives from a roadside peddler does not guarantee total loss coverage.

The commission is planning to promote bancassurance, livestock and crop insurances. Foreign insurance companies are interested to invest in the insurance sector Pakistan, she said. Two fully dedicated health insurers are operating in Pakistan besides other local and overseas insurance companies that offer mixed insurance services ranging from health, life to non-life. The business-friendly regulatory regime in the country is attracting foreign insurers to come and invest, said Nasrin. Government of Pakistan allows 100 per cent reparation of profits. A foreign company with minimum $2million can start insurance company in Pakistan. While a local equity is permissible, yet the government also welcomes investments more than the minimum capital and complete foreign ownership, commented the executive director.

Insurance sector of Pakistan is squeezed at present, formulating a little of total assets of the financial sector in the country. The penetration of insurance is not only one of lowest in the region but also in the world, pointed out Faraz Uddin Amjad, deputy director SECP. The insurance penetration accounts for 0.7 per cent of the gross domestic product, he said. "The rate is stagnant for last ten years." He said over the last 10 years gross premium had witnessed a cumulative growth rate of 16 per cent and net premium 19 per cent. He said minimum statutory deposit requirement was still low.

It is generally observed that complicated procedure of acquiring insurance product or hardened sales pitch shoo away the prospective insured from the policy. A reason partly lies in the deficiency in training of sales reps. Many a time dearth of trained workforce in insurance sector has been attributed to low penetration, however academics remain a poor dimension of the sector. Insurance experts find the answer of this weakness in telecommunication. They said new technologies should be used to minimise the instances of interaction between sales lead and rep. Faraz went on to the extent of saying insurance products would now be funnelled through a proper channel. He was referring to bancassurance-a new mode taking the expertise and infrastructure competency of banks to sell insurance. So far so good. But, this would likely to have a knock-on effect on the employment in the insurance sector.