Apr 19 - 25, 2010

The slow growth of insurance sector against its counterpart, banking sector, may appear enigmatic to some. The total assets of scheduled banks in Pakistan, as of December 2008 were Rs5,332 million while insurance companies' total assets for the same period stood at Rs.401 million only.

The 'fear factor' is the prime mover or the driving force behind these two businesses, but the intensity of fear and imminence of danger separate one from the other. The fear of theft - now dacoity and snatching forced individuals to put their cash holdings under the safe custody of banks. These fear-driven cash deposits became the banking industry's raw material. Banks also developed products that allowed transaction and remittance ease to the business community who thronged the banks to boost their business. The credit management job that became the mainstay of banking helped great deal to grow banks. Insurance industry also relies on the use of fear factor to generate business, but since the fear of death or fire or accident is not so imminent or as probable as that of a theft, hence the slow rate of growth of insurance vis--vis banking.

Moreover, the insurance product range is not as broad as that of banking in that insurance doest not offer any day to day services to the business or industry. The fact that the benefits from an insurance transaction usually accrue after the happening of an unfortunate event is yet another negative. People usually hate to buy such future benefits at the cost of their current disposable income.

The theory of fear factor is proved by the recent developments in the country that resulted in higher life insurance and motor insurance businesses in the wake of growing incidence of suicide bomb attacks and car lifting/snatching, although the benefits of higher motor insurance were soon offset by an alarming rise in the number of claims. So, do we have to be a terrorist nation to grow our insurance industry? The answer should be no.


Bangladesh 0.9% 80 0.7 0.02% 75
China 3.3% 43 140.8 3.30% 06
India 4.6% 31 56.2 1.32% 14
Indonesia 1.3% 75 6.9 0.16% 39
Iran 11% 78 4.2 0.10% 47
Malaysia 4.3% 33 9.3 0.22% 34
Pakistan 0.8% 83 1.1 0.03% 63
Philippines 1.4% 73 2.3 0.05% 54
Saudi Arabia 0.6% 85 3.1 0.07% 50
Sri Lanka 1.4% 71 0.6 0.01% 78
* Insurance penetration = total premium to GDP

It will be observed from the statistics that all Muslim countries included in the table have a low penetration and a low world market share with Malaysia being the best performer; Bangladesh and Pakistan occupying the last and second last positions respectively. Is religion a factor in poor growth of insurance in Muslim countries? If yes, then the situation gets aggravated in case of Pakistan where low disposable incomes, lack of education, and poor awareness level already stand in the way of insurance business growth. Thus religion, general economic conditions, literacy level, and lack of awareness all affect insurance sector growth in one way or the other. A higher negative effect of these factors makes insurance a low priority sector. Lack of awareness is closely linked with the low literacy rate. Small business man and traders with a low educational background fail to appreciate the importance of insurance as a business risk transfer instrument. Religious misgivings find their roots in the tribal culture.

One, from this background, 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" and take the loss and profit as they come. There are people who undertake huge commercial transactions without benefiting from a variety of risk transferring options available to them. Life insurance has suffered great deal in consequence of such religious misgivings, although it has shown significant improvement with the rising wave of suicide attacks. So, do we have to be a terrorist nation to grow our insurance industry? The answer should be a no.

Apart from being relegated to a low priority position, perhaps our insurance sector exhibited little innovativeness in its earlier days when it failed to develop new insurance products, especially synergic products. It also missed the opportunity during recent boom years when innovation could have taken the sector to an all together different plain. It was during this period when its counterpart banking sector rose to new heights. About four 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."

Services sector has great advantage of developing synergies with other sectors of economies. These synergies could be inter sector as well as intra sector. Our telecommunication and IT sector has proved this by developing mutually beneficial synergies with banking and business sectors. The recent developments suggest that efforts to create linkages between insurance and other sectors of economy are on. Agriculture sector, with its vast base, offers huge possibilities of synergizing with the financial sector. SBP-introduced mandatory crop loan insurance for five major crops is a three-way linkage recently created between bank, agriculture and insurance. Proposals to provide insurance cover to engineering sector and health insurance cover to the beneficiaries of Benazir income support program are further examples of emerging viable synergies. These developments suggest that insurance industry has waken to the situation that its expansion is dependent on its extended outreach that can only be achieved through working together with other sectors of economy.