The Securities and Exchange Commission of Pakistan (SECP) has introduced a comprehensive framework for third-party administrators for health insurers, which act as intermediaries in facilitating the expeditious processing of the health claims by abridging the insurers, the policyholders and the medical service providers (hospitals).
Giving top importance to the promotion of insurance industry, sources said that the SECP is consistently pushing the insurers to explore micro-insurance market by offering small-ticket insurance and Takaful products to the masses especially those living in the rural/remote areas.
Insurance plays an important role in the financial sector because it is an important financial intermediary. The insurance industry sells various insurance policies, and invests the proceeds in a variety of financial assets such as shares, corporate bonds and real estate etc. These operations protect policyholders by efficiently spreading the risks of economic losses.
They also make credit markets more liquid and efficient, which lowers the costs of borrowing and raises the return to policyholders who save with life insurers. By providing a significant amount of funds to credit markets, the insurance industry improves the liquidity and efficiency of these markets. Savers are able to invest in a greater assortment of assets, and borrowers face a more ready source of funds and lower borrowing costs. Most of the assets held by the insurance industry are government/corporate bonds.
Although the SECP has framed rules for micro-insurance in 2014, the micro-insurance market in Pakistan is nascent, where though its need is intuitively rooted in the many different kinds of risks that low income households face, the availability of appropriate micro-insurance products is limited and insurance penetration is low (around 0.7%). Traditionally, insurance companies in Pakistan have had limited success or interest in targeting low income households, with micro-insurance forming less than five percent of the gross written premium of insurance providers in the country. This reluctance comes from (i) lack of experience and understanding of this population segment, (ii) business and corporate models structured to cater to the upper end of the market, (iii) little insight into lessons from some experiences in microinsurance in the country, and (iv) lack of data and analysis on client needs and risks. The absence of a regulatory framework in the past has also led to the lack of a strategic direction of the industry. However, the Commission is now consistently pushing the insurers to explore microinsurance market by offering small-ticket insurance and Takaful products to the masses especially those living in the rural/remote areas. Moreover, in order to facilitate the growth of health insurance sector, the Commission has introduced a comprehensive framework for third-party administrators for health insurers, which act as intermediaries in facilitating the expeditious processing of the health claims by abridging the insurers, the policyholders and the medical service providers (hospitals).
They said that the Alternate Distribution Channels are not being fully developed to offer insurance products in Pakistan. Traditionally, the insurance products are sold through specialised networks such as brokers and agents, but for the last couple of years there have been a greater focus on reaching the consumers through the use of technology ie from point-of-sale system and web-based solution to a highly sophisticated telecom based solution to provide their customers with real-time pricing, payments and obtain documentation, with the possibility of varied product delivery mechanisms. This diversification and quickening of technology spread is changing the market place radically. Efforts are needed to develop such products and create awareness among masses to buy such products through alternate distribution channels.
With all other factors, the insurers and Takaful operators now have a better access to remote areas through Bancassurance business, which has made it much easier for the insurers and Takaful operators to distribute their products among low-income people through cost effective means like banks' branch network. The Commission has introduced Bancassurance Regulations in the year 2015, which is a comprehensive framework whereby various key aspects have been covered for engaging banks in procuring insurance business. The Commission has also framed the Small Dispute Resolution Committees (Constitution & Procedure) Rules in the year 2015, whereby three committees have been constituted in the cities of Karachi, Lahore and Islamabad, and each committee comprises of an accountant, a lawyer and an insurance expert, aimed at expeditious resolution of disputes arising between insurers and policyholders.
Having said this, it would not be out of context to assume that all these reforms will bring about surprising results in the days to come. They said that the insurance penetration is measured as the ratio of premium underwritten in a particular year to the Gross Domestic Product (GDP) of that year. Insurance penetration indicates the level of development of insurance sector in a country. World over, insurance penetration is considered to be one of the key economic indicators assessing the size of an insurance market.
About the fact of considering insurance to be an un-Islamic Product, experts highlighted that insurance, in general, in the masses is considered to be contradictory to their basic beliefs and forbidden in Islam. This understanding leads to the fact that the insurers have to go a step ahead to sell insurance policies. However, Takaful (alternative to conventional insurance), a relatively new concept has emerged as the solution for the masses on the issue. It is envisaged that development of Takaful sector shall lead to increase in the insurance penetration in Pakistan.
Masses are not aware about importance of the insurance due to low literacy rate in Pakistan. After all, the primary reason consumers purchase life insurance is to receive money in the event of the policyholder's death. In fact, the general public is unaware of the other benefits of insurance.
In this regard, the Commission, on its own motion, has taken a remarkable initiative in order to create awareness among the public at large about saving, investing, financial planning and protection of the investors through education, by launching an investor education web portal named JamaPunji (located at JamaPunji.pk). Subject of insurance is one of key elements contained in the said portal. It has also been noted that there have been some advertisements sponsored by the insurance companies for the promotion of their products but still a lot needs to be done by the insurance and Takaful industry for inculcating awareness among the masses, they added.
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