MICROINSURANCE REGULATIONS ON THE ANVIL
TARIQ AHMED SAEEDI
Sep 19 - 25, 2011
Securities and exchange commission of Pakistan (SECP) is discussing new reforms and regulations related to the microinsurance with the central bank, commercial banks, insurance agencies, and other stakeholders, it was learnt.
The new guidelines and policy document specifically for the microinsurance sector will augur well for the penetration of financial covers to the low-income groups that are too overstressed by economic hardships to save little money to secure their future, according to the experts.
Insurance sector of Pakistan is abysmally underdeveloped with overall penetration of 0.3 per cent that is a surprising factor in that financial landscape in the country has been getting rich very rapidly with modern and ever-evolving bleeding edge financial intermediation services being introduced for the convenience of customers.
When it comes to microinsurance, that gives paltry covers to the insured and therefore its premiums are supposed to be low as compared to other insurance products, the penetration level is negligible despite the fact that a majority of population in the country can prove the potential clients of this product given the high poverty graph.
Majority of population of Pakistan lives in rural areas or under harsh conditions without basic necessities of life including access to health, education, and income means in the wake of emergencies. The conditions are found similar if one takes view of the lives of less privileged in the rural areas and underdeveloped suburban localities around the country. An average household income is too meagre to meet the daily expenditures, what to talk of shelling out money to for example insurance agencies. Obviously, insurance is still a luxury for the society at large. Savings are very low. High and middle income strata spend beyond their means and low income groups can hardly make both ends meet.
For low-income group, perhaps perception about the insurance does not so much act as hindrance as monetary constraints do. Under the present circumstances, there is a dire need of hands-on change in the insurance regulations that cause to make premiums contently affordable for them so that underprivileged people get the benefits of financial covers and are not deprived of them only because of monetary constraints.
Micro financial institutions especially community development organizations are offering low premium products to farming community and low-income group. The covers are generally limited to income generating assets such as agriculture lands, livestock, and crops, etc. The accessibility of microinsurance is not far and wide against the real needs in the country. There are many important reasons. Firstly, microinsurers do not possess sound and extensive infrastructure. Secondly, where they join forces with banks and community service organizations, the cost is unaffordable for end users. Thirdly, insurance is an incognito for its being blessing in disguise to ensure financial health of the insured as well as providing shields against the financial shocks.
Bancassurance can be used at best to extend the outreach of insurance in undeveloped areas from branch networks of banks. The awareness would be created once people would get third party endorsements from banks in this case. Tailor-made insurance products will also increase the penetration of insurance policies. Takaful can play an important role in this regard.
The incumbent government planned to provide financial covers to poor people in the rural areas under income support programme. But, for many people, it is a far cry since the government is still confined to dole out small amount to people living on subsistence. It has already distributed billions of rupees on this account and obviously would be in need of handsome capital to give full or subsidize insurance of millions of people.
Rainfalls-triggered floods, intensifying because of poor water mismanagement, wreaked havocs on the agriculture of Sindh province where the initial damages are being estimated in hundreds of billions of rupees. Due to lack of financial protection, indirect losses are still to trample the lives of flood-hit people.
Microinsurance has been adopted as an ideal international model to improve living standards of people in developed and developing countries. Insurance sector's reforms and their implementations in letter and spirit can improve the economic well beings of desolated victims of vagaries of life. Microinsurance coverage should also be extended to health and life. This would also support government's development expenditures. Whatever the government spend on development sector and social net can also factor in investments in pool to give financial covers to poor. In this relation, the government should collaborate with insurance companies in order to develop innovative micro insurance products. Insurers should also consider the micro insurance as profitable ventures in the end. The target market of this product is so huge that financial institutions must receive windfalls.