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Insurance Industry Scenario In Pakistan
The insurance industry in Pakistan, which should be described as a business rather than anindustry – has shown some rapid progress in recent years. When Pakistan was established in1947, there were 77 insurance companies in all. Today there are 52. In 1947, 70 of those 77companies were foreign companies and/or their branches. Today there are 10. The seven localcompanies have 47 years later become 42, and might have been more had 32 of them not beennationalised on March 18, 1972, when their life insurance business was brought into the publicsector, and consolidated under the aegis of the State Life Insurance Corporation of Pakistan.Today, Pakistan has 52 companies conducting general business. They offer primarily Fire,Marine, Motor and Accident cover. The composition of general insurance business isUnderstandable, considering the lack of sophistication of our domestic environment. In 1993,Fire (including-Profits) accounted for 32.2 per cent of the Gross Direct Premiums, Motor for 33.1 per cent, Marine (including Hull) Premiums for 23 per cent and Accident (includingEngineering) for 11.7 per cent.The concentration of business amongst the insurers themselves presents a curiously disjointed picture. The 10 foreign companies have only a 10.5 per cent share of the Gross Direct Premiums,and of the 41 Pakistani companies operating in the market, 35 of them share 18 per cent of the business, while only 6 companies command and control 71.5 per cent of the general business.What these companies share in common, though, is an obligation (an onerous one according tosome) to reinsure a mandatory 20 per cant (it used to be 30%) of their insurance business withPakistan Insurance Corporation (PIC), which was established in 1952 to provide reinsurancefacilities within Pakistan and overseas, and to develop the insurance by offering technical andexpert advice. PIC has grown substantially since 1953, with its Gross Premium Income in thelast five years being above the 1 billion mark. Its overall profitability has wavered, falling froman all time high of Rs. 119 million in 1991 to below Rs. 50 million in 1991.Apart from this obligation to reinsure with PIC, the general insurance companies are left largelyto themselves and expected to be self-regulatory. Their Fire, Motor, Workmen's Compensationand Marine classes of business are governed by a Tariff which is determined by themselvesthrough their Insurance Association. Their maximum statutorily approved agency commissionrates of 15 per cent for Marine business and 20 per cent for Non-Marine business have becomemore gentlemanly statements of intent than rigorously enforced standards.
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In their business, insurance companies are monitored by the Controller of Insurance, anadministrative arm not of the Ministry of Industries but of the Ministry of Commerce. They areregulated by Insurance Rules of 1958, approved in the same year as the distant Martial Law coupof Ayub Khan. And they are governed by a law - the Insurance Act of 1938, promulgated a year  before the outbreak of the Second World War. To fatalism and pragmatism, one should perhapstherefore add the world Archaism, for no sector of Pakistan's financial services market stands sodeeply mired in its past, nor has as much need for deregulation and modernisation, if it is to prepare itself for the future. than the insurance business sector in Pakistan.There is no equivalent to the Companies Ordinance 1984 in the insurance sector. There is noappropriate counterpart to the Corporate Law Authority, to give an impetus to its development or to safeguard the interest of the public. The recent spectacular growth in the financial servicessector, in my opinion, was no accident. It was the direct fertile result of an environment madereceptive by regulated incentives and governmental initiative.Can the insurance business of Pakistan achieve the same sort of success? I cannot see why not.What than should be the direction of the insurance sector? What should be its role? An attemptwas made seven years ago to answer these questions when, in 1987, a Government Commissionwas constituted to diagnose the malaise in the insurance sector. The report, submitted to theGovernment three years later, identified some of its more reprehensible practices - for example,the methods used by insurance companies to obtain business particularly through banks,irregularities in settlement of claims, the indisciplined and unethical practices of insurancesurveyors, methods of rebating, commissions to agents, and discounts.Whatever good that three volume report contained was interred with its bones; the evils it hopedto exercise continued to live long after it. More recently, last year in August 1993, another reviewtook place when, in an Overview of the Insurance Industry by one of the leading brokeragehouses, Khadim Ali Shah Bukhari Limited, the major problems were identified as:* Excessive Government controls* Compulsory reinsurance with PIC* High capital gains tax on investment gains* Higher rate of tax on dividend income than 10%* Inaccessibility to public sector business, which is the domain of the National InsuranceCorporation* Poor quality of manpower and limited training facilities
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It would be hard to question the justification for these complaints. It would be even harder to justify why the insurance companies have done so little to assuage them. If the future role of theinsurance business sector is to grow and match the expanding requirements of Pakistan'seconomy, there are key areas in which the insurance companies must themselves take theinitiative. The first must be education. No one should be allowed to forget that insurance being acustomer service oriented business, its success depends heavily on the quality and calibre of its personnel. In the United Kingdom, it was once considered enough for a new entrant into the business to have five GCEO levels and then spend his life within the same organisation learningthe job on the job. Today, anyone wanting to make a career in Insurance should expect to beready to tackle very focused courses, like those conducted by the College of Insurance inLondon.Apart from such foundation topics as Personnel Development Skills, Surveying and Risk Management, Reinsurance, Aviation and Marine, the students at the College are also offered suchspecialised subjects as European Law, the Use of Annual reports and Accounts for Errors andOmission Avoidance, Insolvency Rules and Regulations, and Financial Reinsurance andDerivatives.Insurance may have been a business by men; it is rapidly becoming one managed by women. Aninteresting aftermath of the second income phenomenon has been that in the United Kingdom,out of a total employment in the insurance business of almost 400,000 employed, 49.3 per centhave been women. Another significant feature has been that 8 per cent are the total strength isself-employed.This emphasis on education, though needs to go beyond the potential or existing employees ininsurance companies. Another audience whose knowledge of the insurance business should never  be presumed but whose ignorance can have damaging consequences is that of the lawmakersthemselves. It took Great Britain over a century to recognise the significance of this advantage.Only as recently as 1991 was an All Party Parliamentary Group on Insurance and FinancialServices formed to act as a bridge between the lawmaking MPs and a law-abiding industry.Without a better understanding of the business of insurance, should one honestly expectlegislators to be able or equipped to promulgate sound and appropriate laws? And what about thelaws themselves? Can there be legislation of any adequacy without an accepted definition of such simple but crucial words in a policy as 'theft', or 'flood', 'accidental bodily injury' or 'reasonable steps to safeguard any property insured? Are we ourselves clear on what we allunderstand by Warranties, Responsibilities for Disclosure, Misrepresentations, and the Broker'sresponsibilities to his or her clients?Such legislative clarity is difficult to achieve but necessary to attain, for without such a suitablelegal framework, and a regulatory environment which is both sensitive to and responsive to
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