Role of Future Insurance Industry in Pakistan

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The insurance business in Pakistan and I would prefer to do describe it as a business rather than an industry - is an interesting application of this paradox. Over the years, the fatalism enjoined by Islam has been underwritten by a more pragmatic mechanism, which has offered various degrees of financial protection - on the assumption that whereas it may be advisable to submit unquestionably to the will of God, one should not necessarily be out of pocket as a result. Fatalism tempered by pragmatism, therefore, can be regarded as recurring attributes of the insurance business in Pakistan, even from the very first green days of our Independence. 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 nationalised 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 cant (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. In their business, insurance companies are monitored by the Controller of Insurance, an administrative arm not of the Ministry of Industries but of the Ministry of Commerce. They are regulated by Insurance Rules of 1958, approved in the same year as the distant Martial Law coup of 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 perhaps therefore add the world Archaism, for no sector of Pakistan's financial services market stands so deeply mired in its past, nor has as much need for deregulation and modernisation, if it is to prepare itself for the...
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