MOTOR INSURANCE - GROWTH PROPELLER
June 7 - 13, 2010
Automobile Insurance, also known as motor insurance, is probably the most common form of insurance and may cover both legal liability claims against the driver and loss of or damage to the insured's vehicle.
Throughout the Pakistan, auto insurance policy is required to legally operate a motor vehicle on public roads. In some jurisdictions, body injury compensation for automobile or car accident victims has been changed to a no-fault system, which reduces or eliminates the ability to sue for compensation but provides automatic eligibility for benefits. Credit card companies in Pakistan insure against damage on rented cars.
According to experts, the motor segment in auto insurance is regarded as the major growth propeller for the insurance sector in the last 5 years. This was mainly attributable to abundance financing facilities and rise in personal income. The growth of the sector, however, remained stagnant in 2008 on back of the subdued car sales and industrial production. Further, slowdown in the trade activities amid global economic crisis also affected the Marine insurance. Another problematic factor for the insurance companies is the increase in the reinsurance rates by the major reinsurance companies in the world. As reported in many international journals, the reinsurance companies have increased their rates due to growing demand of reinsurance and changing risk environment
Auto insurance is insurance purchased for cars, trucks, and other vehicles. Its primary use is to provide protection against losses incurred as a result of traffic accidents and against liability that could be incurred in an accident. According to experts, car insurance has become very common in Pakistan. With the traffic increasing every year, due to congestion, cars are involved in accidents more than ever. "Insurance makes sure that you escape any financial car loss if you are involved in an accident. Not only this, but depending on your insurance plan, you will also be able to cover the losses of the other car if the accident is caused because of your mistake. Not only insurance gives you a sense of security, but it helps you to work to your optimum level without the thought of a loss coming in your mind. There are many car insurance companies in Pakistan working privately and with government or private banks. Though car insurance is a very common practice in the west, people in Pakistan too are realising how fruitful car insurance can be," they pointed.
New Jubilee Insurance Company Limited (NJI) is one of the renowned general insurance companies of Pakistan. NJI was incorporated in 1953 and is listed on Karachi and Lahore stock exchanges. In 2003, NJI acquired Commercial General Union's operations of Pakistan. Moreover, the company along with AKFED (Aga Khan Fund for Economic Development) also acquired majority stake of Commercial Union Life Assurance Company of Pakistan ltd. In terms of strong financial base and gross direct premium, the company is ranked amongst top three insurance companies of Pakistan having coverage in diverse sectors under general insurance. Besides on the shelf services, the company also offers tailor made risk coverage products along with risk management services. Major shareholders of the company include Aga Khan Fund for Economic development, Habib Bank Limited and Hashoo Group.
New Jubilee Insurance Company Limited (NJI) provides insurance coverage i.e. Property insurance, Marine insurance, Motor insurance, Engineering insurance, Group health insurance, Miscellaneous insurance, Personal Line insurance and Specialized insurance.
During 2008, major chunk of premium revenue was contributed by motor insurance with 31 per cent share in total premium, followed by fire & property damage 23 per cent. Generally, motor category is assumed as the riskiest business segment due its highest claim ratio. However, being riskier, motor category also attracts lucrative premiums. Due to subdued performance by domestic auto industry, the premium of motor segment depicted muted growth of 5 per cent during the year at Rs691 million.
In 9M09, the company recorded net earnings of Rs348million as compared to Rs253 million in the same period of last year - 38 per cent higher. Underwriting performance remained impressive with an increase of 112 per cent to Rs97 million due to 3pps drop in net claim ratio. Underwriting profit also received due support from decline in commission expenses. However, net premium grew by only 4 per cent to Rs1.7 billion on account of smaller growth in marine, motor and health insurance segments. In addition to healthy performance from underwriting business, investment income increased by 36 per cent to Rs169 million due to record gain in equity market during 9M09. The company's return on banks deposits grew by 99 per cent to Rs116 million versus Rs58 million in the last year's same period.
The insurance industry of Pakistan forms a meager part of the GDP as compared to other nations of the world. With a very low penetration level, the industry is still at its nascent stage.
Pakistan's insurance sector is reaping the benefits of a growing economy coupled with the insurance sector reforms. The gross premiums and net premiums of the insurance industry have shown an increasing trend thanks to the better marketing environment. Also, the percentage of gross premium to GDP also showed an increasing trend over the period under assessment. This trend is indicative of growth of insurance penetration in the economy.
At present, there are 54 insurance companies out of which 49 companies offer non-life insurance and 5 offer life insurance services. The non-life insurance industry also includes six companies that provide health insurance coverage as well.
There is a monopolistic competition within the non-life insurance sector in Pakistan as there are around 49 non-life insurance companies. The promulgation of insurance ordinance in 2000 and subsequent regulatory changes strengthened the regulatory and supervisory infrastructure for NLI companies. For instance, enhancement in paid-up capital requirement improved the equity structure and reduced the number of non-profitable companies. The non-life insurance sector's profitability has jumped by 17 per cent in the 1st half of current year over the same period last year. The demand for auto insurance, marine insurance, and fire insurance augmented owing to availability of consumer financing at low interest rates, unprecedented rise in trade volumes and increased uncertainty due to terrorist attacks in many regions, surge in industrial activity and high growth construction business respectively. The structure of the NLI sector is still skewed. The top five companies have more than 70 per cent in the overall assets and net premium of the sector.