Imran Mateen describes an emerging scenario in the Pakistan insurance industry.

Newspapers everyday are splashed with accidents that result in loss of lives and mega financial losses. Fires, mid-air collision of planes, road accidents, dacoities, thefts, etc, have become a routine part of life; incidents which are related to insurance in one way or the other.

The socio-economic changes in addition to the deregulation, liberalisation and privatisation programmes introduced in Pakistan during the last few years have opened up a whole new vista for the insurance industry as quite a number of new insurance companies have entered into insurance business in the country.History of insurance in Pakistan

1947 - Pakistan inherited a total of five indigenous insurance companies and 77 foreign companies.
1952 - Pakistan Insurance Corporation (PIC) was established under Pakistan Insurance Act. Initially, 10% of all business was to be ceded to PIC, but the obligatory cession was increased to 30% in 1958. It was reduced to 20% as of January 93. Under the Compulsory Reinsurance Act 1976 all insurers were made to cede 25% of the remaining 70% to PIC which was increased to 35% in 1993.
1971 - the total number of foreign companies had declined to 25 from 77.
1972 - State Life Insurance Corporation (SLIC) was established.
1976 - National Insurance Corporation (NIC) was formed to underwrite the property and interest of public sector only.
The present picture
Presently 60 general insurers are operating in Pakistan, including eight foreign companies, besides the state owned NIC and PIC.
The NIC is responsible for underwriting general business of the public sector, while the PIC is mainly looking after the reinsurance business of the local companies. The two state owned corporations earned profits of Rs 136.2 million and Rs 109 million respectively. General insurers wrote a total gross direct premium of Rs 8 billion in 1997. The industry has seen a consistent growth of nearly 15% pa. (see figure 1).
Figure 2 demonstrates the share picked up by the three business divisions of general insurance with a non-tariff segment over the three year period (Pak rupees, billions).

Life insurance
In 1972, as per the nationalisation policy of the government, life insurance was nationalised by establishing State Life Insurance Corporation (SLIC). The life fund in 1972 stood at Rs 1.3 billion and annual receipts at Rs 337 million while the total number of ordinary life policies enforced stood at 357,413.

Life fund and annual receipts increased to Rs 23.7 billion and Rs 4.88 billion respectively while investments stood at Rs 23 billion, total business enforced at Rs 208.5 billion while the total number of ordinary life policies enforced stood at 1.6 million in 1992. Group policies were over 5 million.

With the deregulation of life insurance since early 1990s, at present there are four private life insurance companies working in the country besides the state owned SLIC which had enjoyed a complete monopoly since 1972. Two local companies, EFU Life and Metropolitan Insurance, and two foreign companies, American Life Insurance Company (ALICO) and CGU are the new private entrants.

Insurance brokers
For upgrading and modernising the insurance industry of Pakistan, insurance brokers are a must. In Malaysia there are 37 insurance brokers. Foreign insurance and reinsurance brokers may also be allowed to operate in Pakistan. It will boost the growth of insurance industry as these brokers would bring a lot of innovative solutions in Pakistan.

There is a compulsory quota share cession to PIC. This quota share cession to PIC does not require any change. It is in the interest of all companies. In motor business, the PIC gives a 35% commission, which no other reinsurer allows to Pakistani insurers. In fire, the PIC gives 55% and in marine cargo 37.5%. Besides, the PIC provides additional risk capacity to small and medium sized non-life insurers. On to of it, PIC gives retrocession business to local as well as foreign companies, which in turn saves a lot of foreign exchange and increases local retention.

Future prospects
Power plants in the private sector, development of new seaports, terminals at existing seaports, an increasing fleet in the private sector, air carriers and other infrastructure developments such as highways and other civil and mechanical complexes in the country; all these developments after insurance opportunities. Introduction of crop insurance remains a reality as it was on the list of priorities of the government.

The minimum mandatory paid-up capital of both life and general insurance companies recently raised to Rs 40 million and Rs 100 million respectively. Discriminatory taxation on the insurance sector has been abolished, and it is allowed to function without the limitations that the same put on the sector.

The local insurance industry has the potential and the know-how to play its due role in the economy of the country. Though the economic indicators are not very encouraging, the insurance industry, private as well as public, seem undaunted by the gloomy and bleak economic scenario of the country, a fact which is evident from its vertical growth of 14.38% last year over the previous year.

In spite of all the problems, the private insurance companies have contributed substantially towards the economic development of the country, which is evident from their performance at the Pakistan stock market; in 1991 the number of insurance companies quoted on stock exchanges stood at 30 with a paid up capital of Rs 547.8 million, but the number increased to 32 with a paid-up capital of Rs 947.42 million in 1994 to 36 at present.

Imran Mateen is president of STOCK LINKS Investment Management Pvt Ltd, Karachi, Pakistan. Direct Tel (mobile): 0092321-224988; fax 009221-5674542; e-mail: