Sep 19 - 25, 20


ALI SIDDIQUI: I started my career as business development officer for Adamjee Insurance in 1999. I subsequently handled the fire underwriting and risk management areas of EFU General's Corporate Division. I then joined the New Jubilee Insurance as manager in the corporate division at its Head Office. In that capacity, I was coordinating in all the underwriting and client's servicing matters in addition to facilitating facultative reinsurance placement of specialized risks. I then briefly held an appointment in Shaheen Insurance as 'Head of Claims' in their Karachi Office and contributed my humble bit in streamlining the claims' procedures.

I joined Pak-Kuwait Takaful Company Limited in 2004 and was a member of the core team that set up the various functions of the company. Now as Deputy General Manager - Operations of Takaful Pakistan Limited, I am actively involved in all operational areas of the Company.

Takaful Pakistan Limited was registered and duly licensed by the Securities & Exchange Commission of Pakistan as a General Takaful (Islamic Insurance) Operator on March 9, 2007 with a paid-up capital of Rs300 million. The company's registered head office is in Karachi and is operating its branch offices from Lahore and Peshawar.

The company has adopted 'Wakala-Waqf' model to carry out its Takaful operations. The company is sponsored by a consortium of reputable and financially sound institutions, both local and foreign.

The Shariah Board of the company comprises of trustworthy scholars who are duly qualified to issue fatwas on commercial and financial transactions, having vast experience and knowledge in the present day financial dealings and transactions.

The company's Retakaful treaties are supported by world renowned and strong Retakaful operators that are duly approved by the SECP. The company provides all Shariah-compliant general Takaful products, namely: Property (fire, engineering), motor, marine, liabilities, miscellaneous and health cover at competitive rates with excellent service standards.

Our management team comprises of qualified insurance and Takaful professionals who are fully committed to implementing and complying with the fundamental principles governing Takaful with the resolve to prove it as a viable Islamic alternative to conventional general insurance. The company is still in its infancy and has been incurring losses till the end of last year. Our diversified business strategy has paved way to rise above and the results have shown substantial improvement from this year with both the Shareholder's Fund as well as the Participants' Takaful Fund are in surplus as of end June.


ALI SIDDIQUI: Takaful, as defined in the Insurance Ordinance 2000, is a scheme based on mutual assistance in compliance with the provisions of Islamic shariah, and which provides for mutual financial aid and assistance to the participants in case of occurrence of certain contingencies and whereby the participants mutually agree to contribute to the common fund for that purpose.

Historically, this spirit of mutual help and solidarity was prevailing in the Ummah and was an august move to help each other when faced with a calamity or pecuniary loss.

In the present modern world, where the financial industry is regulated, a more appropriate solution was warranted. One of the pioneers in developing a solution was Sheikh Darir of Sudan, who came up with the idea of Tabarru (donation/contribution) instead of premium.

If a Tabarru is given then from a jurisprudential level, there is no link between the money given as a contribution and any help received from a joint guarantee fund. The fund is established to help individuals who want to reciprocate their help when any member is faced with a specific unfortunate incident. The help received can be in the form of an asset to be replaced or monetary. Thus, the elements of riba (interest), gharar (uncertainty) andmaisir (gambling) which prevail in a contract of conventional insurance are avoided or become tolerable as in case of gharar.

Having reinvented itself in the world in 1979, Takaful found its way into Pakistan in 2006 when in the last quarter the country's first Takaful operator was issued license to start business.

Although Pakistan is a late entrant on the global Takaful scene, Takaful started taking shape in the Islamic Republic in 1982 when the Council of Islamic Ideology was entrusted with a task to review the country's entire financial system and to suggest Shariah compliant alternatives thereof.

The council took almost a decade and issued its report in 1992 which suggested 'Takaful' as a viable alternative to the prevailing system of insurance. No practical steps followed the report and even the Insurance Ordinance 2000, that replaced the Insurance Act of 1938, mentioned Takaful merely as a definition.

Real efforts in this direction began in 2004 with the formulation of a task force by the regulator securities & exchange commission of Pakistan to formulate regulatory framework for Takaful in the country. The task force came up with the draft early in 2005 and the Takaful Rules 2005 were finally promulgated on 3rd of September 2005.


ALI SIDDIQUI: The performance of insurance sector follows the same trend as to the overall economic performance of the country. As the GDP growth rate rose from 3.1 per cent in 2001 to 6.6 per cent in 2005, the growth rate of non-life insurance market swelled from 14 per cent in 2001 to 35 per cent in 2005 in tandem.

Subsequently, when the economy started to cool-off as evident by the fall in the GDP growth rate to 2 per cent in 2009 the growth of non-life insurance market also plunged to 2 per cent in 2009. With a modest yet fragile economic recovery in 2010, the non-life insurance market also grew by 8 per cent in 2010. This growth seems more like a result of staggering inflation as it fails to beat the double digit figures of prevailing inflation rate. As a whole the industry still seems to be stagnant save the growing life insurance and Family Takaful sector that continues registering average 20 per cent growth.


ALI SIDDIQUI: The non-life sector shall continue to face significant external challenges relating to economic slowdown, excessive capacity and intense competition coupled with internal challenges of low quality of human resource, underwriting indiscipline, unbalanced growth policies, rising business acquisitions and administrative costs and poor risk management. The sector has been and shall continue to operate an unsustainable business model of relying on investment income, which is vulnerable to market volatility to offset underwriting losses.

If we review the sector's last five years' performance, it becomes more obvious as the combined pre-tax profits fell by approx 70 per cent from 2006 to 2010 discounting 2007 when all major players realized their capital gains avoiding taxation thereof from next year. I view the insurers' persistently poor underwriting performance combined with rising costs as a negative factor that could potentially shock the industry's growth if it remains unchanged.


ALI SIDDIQUI: Unfortunately, since the time Pakistan came into being, insurance industry has never received attention it deserved as an important segment of the financial sector from the successive governments. The first significant policy change that we witnessed was in the year 2000 when Insurance Ordinance 2000, repealing Insurance Act 1938, was promulgated. The new insurance law primarily aims to ensure the protection of insurance policyholders' interest and to promote sound development of the insurance industry. The shifting of regulatory/supervisory responsibilities to the securities and exchange commission of Pakistan from ministry of commerce has also been a positive development but more can still be done to improve the industry.

The industry has been collecting and depositing one per cent federal insurance fee in the government's coffers for more than a decade now. This amounts to billions of Rupees that were supposed to be spent on the development of the insurance industry through insurance education and promotion but we do not see any such activity so far.

The excise duty on the non-life insurance has been raised to a level of 16 per cent from three per cent in a country where people still keep insurance at the bottom of their priority list. There has been a persistent shortage of human resource at the regulator's level as well.

The absence of Central Shariah Board at SECP level has also added to the challenges facing the nascent Takaful Industry since varied Shariah opinions of the Shariah board members of the respective operators has resulted in non-standardized practices.


ALI SIDDIQUI: There are 35 active nonlife insurance companies including three Takaful operators, one specialized health insurer and the state owned company and 10 life insurance companies including two Takaful operators and two state owned companies.

One can now easily imagine the level of competition between these companies in an environment where insurance is most people's least priority and economic activity has become sluggish - the competition is 'cut-throat'. The premium has fallen to an unsustainable level and everybody is writing risks hoping they would be able to offset the underwriting losses from the investment income indefinitely.

The idea of long-term relationship seems to be fading as most of the consumers seek tenders from the market at each renewal and makes a discount from the existing insurer contingent to the continuation of the relationship.


ALI SIDDIQUI: The sector has to show resilience in its core operational profits in order to attract investment. The current reliance on the investment income to generate profits does not give enough incentive to a potential investor to put its money in the sector when he can earn more or the same level of profit by directly investing the money in the same avenues from where these insurance are actually earning their profits. The dismal performance of most of the new entrants during last five to six years also discourages a potential investor.

More underwriting discipline and focus on risk management along with efficient use of resources by the management of the companies can generate sustainable profits that can attract new investors to venture.

Furthermore, the five-year moratorium on Takaful Windows of conventional insurance companies has expired in September last year. Apparently, the move will certainly enhance the outreach of Takaful owing to well entrenched sales outlets of established conventional insurance companies but it would deprive the embryonic dedicated Takaful operators of a level playing field since the later, by the very essence of their existence, cannot similarly open a conventional insurance window within their Takaful operations. This would also put substantial foreign investment under further stress and shall make a potential investor weary of changing regulations. Persistent regulation is also important to attract further investment as potential for growth is immense in the insurance sector. Despite presence of a large number of companies, insurance penetration and density in Pakistan is at the lowest level in the region. Appropriate regulation such as mandatory own damage motor insurance or mandatory group health insurance can boost the demand for insurance and thus can attract substantial new investment.