Financial institution

S2 assignment

Submitted To
Submitted By Hamza Qasim kahloon
FA16-BBA-140

Dated 6th December2020

Comsats University Islamabad Lahore Campus

Insurance sector of Pakistan

Insurance in law and economics is a tool for risk management .it is used to hedge
the risk of contingent loss. Insurance is defined as a tool for shifting the loss from
one entity to another entity against the premium. The insurance rate is a factor to
determine the amount the called premium. that will charge against the certain
amount of coverage. Risk management is practicing of risk evaluating and
appearing. Insurance management basically is a practices where we pay certain
amount of money against the premium and coverage after the when we loss and get
objected that entity we can claim that amount from insurance provider .it is a
contract and between the insurance provide and issuance holder.

History
Insurance evolved simultaneously with the evolution of human society. there are
two types of economies one is money economies and other non-money economies.
On-money include the financial instrument like bond etc. second kind of
economies is older than first. We insurance in older where the people help each
other in prevention and in loss situations. The Greeks and romans first time
introduced the formal health and life insurance in 670 Bc. they have introduced
benevolent society. That society care the families and provide the funeral expanse
for the families.in the late 17th century friendly society has been introduced .it is
basically run self-finance eco system where the people of England contribute some
income to that society and against that get the coverage at the time their losses.
Post renaissance period the insurance sector become the more spochicated and
specialized sector in England. In 1973 first insurance was introduced. Benjamin
Franklin helped to popularize and make the standardization if insurance sector in
USA. he has introduced the Philadelphia contribution which is basically a kind of
insurance company that became the modal for whole USA.

Insurance sector of Pakistan

The insurance industry in Pakistan, which should be described as a business rather
than an industry – has shown some rapid progress in recent years. When Pakistan
was established in 1947, there were 77 insurance companies in all. Today there are
52. In 1947, 70 of those 77 companies were foreign companies and/or their
branches. Today there are 10. The seven local companies have 47 years later
become 42, and might have been more had 32 of them not been nationalized on
March 18, 1972, when their life insurance business was brought into the public
sector, 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 is Understandable, 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 (including Engineering) 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 to some) to reinsure a mandatory 20 per cent (it used to be 30%) of their
insurance business with Pakistan Insurance Corporation (PIC), which was
established in 1952 to provide reinsurance facilities within Pakistan and overseas,
and to develop the insurance by offering technical and expert advice. PIC has
grown substantially since 1953, with its Gross Premium Income in the last five
years being above the 1 billion mark. Its overall profitability has wavered, falling
from an 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 largely to themselves and expected to be self-regulatory. Their Fire, Motor,
Workmen's Compensation and Marine classes of business are governed by a Tariff
which is determined by themselves through their Insurance Association. Their
maximum statutorily approved agency commission rates of 15 per cent for Marine
business and 20 per cent for Non-Marine business have become more gentlemanly
statements of intent than rigorously enforced standards.

ISLAMIC INSURANCE

Ibn Abidin (1784-1836) was the first scholar in the Muslim world to discuss the
meaning and legal character of insurance Islam city of insurance has been under
discussion since then. Opinions regarding legitimacy, adoption, and adaptability of
insurance are numerous. As a result, several Islamic takaful and solidarity
companies have been established since 1979.

A prime purpose of Takaful system and its products is to strike the right chord with
Muslim customers who may find conventional products unacceptable and buy
them reluctantly. The takaful system and product may be appealing to them.

TAKAFUL IN PAKISTAN

The takaful market is still in a formative stage and market projections estimate
growth rates between 15% and 20% over the next 10 years, reaching US$7.4
billion in premium by 2015.

Pakistan is among the top 10 most populous nations in the world. This makes it a
very fertile market for Takaful, one with some interesting challenges. Takaful is
the latest “wave” in financial protection. Pakistan saw its first Takaful operator, in
the General side, start in 2006. Since then, another two operators in General and
two in Family have entered the picture. Dawood Family Takaful being the most
recent entrant is the only Pakistani Owned Takaful Company and is highly
capitalized. Takaful is not just another tool for risk mitigation and financial
protection. Rather, it is a system which works as a source of good for those that use
it and the community at large. Tools like these are critical for developing nations,
especially those seeing rapid economic growth. Increasing personal debt, the
widening divide between the haves and have-nots, and other such issues regularly
plague those in rapidly growing developing nations. Pakistan is one of those
countries.
Whatever good that three volume report contained was interred with its bones; the
evils it hoped to exercise continued to live long after it. More recently, last year in
August 1993, another review took place when, in an Overview of the Insurance
Industry by one of the leading brokerage houses,

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

Insurance Corporation

* Poor quality of manpower and limited training facilities

It is already more than eight years since the Insurance Reforms Commission was
established. During this period, because of Deregulation and Privatization, the
whole financial services market has undergone an irreversible change. Further
privatization will bring about additional responsibilities, which means more costs,
as insurance of commercial risks becomes no longer a matter of choice but an
inescapable requirement. Businessmen of tomorrow will have to accept that
insurance policies are not a chance talisman against calamities. Used prudently,
they can be a resilient and reliable safety net, providing them and the economy
with a level of confidence to take risks which are quantifiable and knowingly and
prudently underwritten.

In another six years Pakistan will be in the 21st century. No one would expect that
all of the aspects of the insurance business whether legislative, regulatory or
commercial - will be in place by then. A reasonable expectation would be that
significant steps would be taken to move in those directions.
Reference:

 Insurance Assosiation OF Pakistan, Year book, 2007-2008

 www.iap.net.pk

 Wikipedia Encyclopedia

 F.S. Aijazuddin, Economic Review Of Pakistan, 1996

 https://dawoodtakaful.com/InsuranceIndustryinPak.aspx