The Securities and Exchange Commission of Pakistan (SECP) is considering to introduce 'Fit and Proper Criteria' for insurance companies to ensure that such companies must be run by competent executives with adequate know-how of insurance business.
According to a press release of the SECP issued on Monday, the SECP on the basis of its assessment has observed that a large number of insurance companies are being headed by individuals who neither have any qualification nor any experience of 'direct relevance' to the conduct of insurance operations, as laid down in the Insurance Ordinance 2000.
Resultantly, the companies are not being managed in a sound and prudent manner. Many of them are struggling for survival. During the last 2 years, the underwriting of 24 companies has been ceased, out of which 12 companies will be going through the winding up proceedings. The 'Fit and Proper Test' guidelines are practised and implemented by regulators globally, in order to promote good corporate governance and to encourage the Managing Director/Chief Executive and the management team to play an effective role for the capacity building of their institution.
In Pakistan's financial sector, the 'Fit and Proper' criteria have been strictly enforced by the State Bank of Pakistan in case of banks and by the SECP in case of non-banking financial institutions (NBFIs). This criterion has now also been implemented on the stock markets. The insurance sector is the only exception in the financial sector of Pakistan where this criterion is not enforced.
The analysis of failed companies showed a great spread of causes but only one common factor: the failure was caused by the decisions and strategies adopted by top management of the companies.
It is pertinent to point out that in order to prepare the insurance sector to face the impact of globalisation and shrinking margins and also to avoid maladministration, the insurance companies must be run by competent executives with adequate know-how of insurance business.
It is likely that if the action is not taken by the Commission in this context, the insurance industry may also be caught unprepared like the textile sector. It is, therefore, the primary responsibility of the Commission to bring in effective legislation so that other companies do not meet the same fate. Keeping in view the importance and urgency to implement the 'Fit and Proper Test' on the insurance sector in line with the Insurance Ordinance 2000, the Commission commenced it discussions with the Insurance Association of Pakistan.
This was done with the spirit of devising objective criteria by taking the views of the stakeholders. Unfortunately, printing misleading news in the newspapers before these discussions reached their conclusion is viewed by the Commission as highly unprofessional and premature.-PR
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