Muhammad Aminuddin is the Chief Executive Officer of TPL Insurance Limited. He is an experienced professional in the field of global financial services. He began his career with American Express and went on to work with ABN AMRO and RBS within the Global Commodity Finance, Financial Institutions and Capital Markets Groups. He also headed Trade & Working Capital for Africa for ABSA Bank, Barclay’s African subsidiary bank. More recently, Mr. Aminuddin held the position of CEO of United Bank, UK and Deputy CEO and Executive Director of IGI Life Insurance Limited. In January 2018, Mr. Aminuddin qualified as a Chartered Director, a corporate governance qualification under Royal Charter and he is now a Fellow of The Institute of Directors, UK.

Following are the edited excerpts of a conversation BR Research had with Mr. Aminuddin that revolved around the general (non-life) insurance sector’s performance in Pakistan recently:

BR Research: Can you give your view of Pakistan’s insurance sector today’s digitally enabled world? And how has it sailed during the COIVD-19 pandemic?

Muhammad Aminuddin: Despite significant growth in many portfolios and the customer base, Insurance penetration in Pakistan remains one of the lowest across the world (merely 0.8% for Life and Non-Life combined), and it has been at this level since Pakistan came into existence. Unfortunately, the Insurance sector has not been able to attract sizable investments, especially in the retail segment, and the causes are broadly lack of customer awareness driving inaccurate customer perceptions leading to unmet expectations. The Pakistani market will take its time to accept Insurtech solutions but with the increasing tele-density and growing digital awareness, the prospect of growth is fairly high. TPL Insurance Ltd. has been here for sixteen years, and the company has seen the Insurance sector grow alongside the Tech sector.

The world has become a drastically different place since 2019. As the broader economy recovers and responds to the pandemic, Insurance companies continue to face challenges and disruptions. Rising operational costs and competitive premium pricing are an on-going struggle for the industry. The pandemic also brought opportunities amid challenges for the Insurance industry. As per Key Financial Data 2020 report issued by Insurance Association of Pakistan (IAP), despite the impact of COVID-19, non-Life insurance grew at 10 percent compared to one percent growth in Life insurance sector. To adapt to the new normal, Insurance companies have started investing in digitally evolved products for the B2C market and are boosting awareness to communicate the value Insurance can offer in securing the customers’ future.

Collaboration with banks shows some growth in the Life segment, and through technology and digitization, insurance companies in Pakistan are evolving, introducing innovative solutions in Life and non-Life segments. Despite low penetration levels, the regulator has been introducing policies to encourage investors, resulting in a keen interest towards investment in Insurtech. Recently, DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH, a wholly-owned subsidiary of KfW Group based in Cologne, Germany, re-entered the Pakistan insurance market by acquiring a 20 percent equity stake in TPL Insurance. This investment is significant for the industry as well because it comes after a very long time, and I am confident that DEG’s re-entry to the Pakistani market will provide an impetus to foreign investments in the country and boost economic growth.

BRR: Could you shed light on the issues and challenges, emerging risks and future products in the non-life insurance sector?

MA: Speaking of challenges, let me start with the most obvious one: Global Climate Index 2021 shows Pakistan at eighth position on the list of the most vulnerable countries to climate change. Climate has a long-term impact on the industry, as heavy rains lead to significant losses, as witnessed last year. With a pandemic like COVID-19 coupled with depleting health infrastructure in the country, claims costs are expected to keep rising in the health sector. This can be an opportunity for insurers; unfortunately, it does not inspire much confidence from international reinsurance partners.

During COVID-19, one positive development for the insurance industry was the customer’s enhanced confidence in digitization. The industry has started to realize Pakistan’s evolving digital habits and the customer’s requirement for online solutions and products. Digital initiatives help provide access to insurers across the country without significant investment in branch networks. It’s more cost effective and measurable.

Historically, the non-Life segment has been driven by an agency-and-broker-based model. While there are benefits of this model, it is not always suited for the development of the retail segment. Agents tend to focus on larger risks where premiums are high and neglect serving the individual or ignore smaller risks. This results in creating a negative perception of insurance for the mass market; and the public perceptions and experience drives potential customers away from the benefits of insurance. There have not been enough efforts to develop awareness about insurance products and benefits, and industry players must focus on driving awareness on insurance to develop not only the industry as a whole but also create and sustain positive customer perception for insurance and insurance products.

Another aspect is that several insurance companies are small sized; their ability to invest in a physical presence for the broader market is limited. This is contrary to banks where branch networks create a sense of trust and give confidence to customers with the widespread geographical presence and human interaction.

BRR; What distribution channels in this evolving landscape does the non-Life Insurance sector adopt?

MA: The industry relies on agents, brokers and B2B2C distribution models where the distribution partner is both banks, NBFIs, dealerships, travel agents, etc. Recently, we have observed insurance aggregators and digital brokers establish an online presence as another mode of B2B2C distribution. For direct B2C product distribution, some non-Life insurance companies are investing in digital platforms, which allow customers to buy and access insurance services directly.

Moving forward, digital aggregators and platforms will be one of the most effective ways io connect with the masses. TPL Insurance is leading the Insurtech drive and has developed web and mobile based platforms that provide end to end insurance services. TPL Insurance is striving towards growth through better understanding of customer needs and provision of innovative and convenient solutions.

BRR: How do you see the regulatory environment for the insurance sector, and what is the tax structure like?

MA: In the recent past, the regulator has shown a keen interest in the development of the insurance sector. Introduction of Window Takaful Operations for existing insurers, improvement in regulatory framework for insurance companies, floating of regulations for digital-only insurers and provision of regulatory sandbox for development of latest ideas are a few good initiatives taken by Securities and Exchange Commission of Pakistan.

On one hand, rules like mandatory third-party motor insurance exist, but are not enforced effectively, resulting in non-compliance and loss to insurance companies. On the other hand, mandatory insurance for travelling or health insurance for corporate employees, etc. do not exist, which are a customary practice around the world.

On the tax front, insurers do not have much support from the various tax authorities which collect sales tax by each province. This is fairly high and is detrimental for the development of the industry. For insurers, all types of income are taxed under a single basket.

BRR: Coming to TPL Insurance, what are you doing differently in the non-Life segment?

MA: Being Pakistan’s leading Insurtech, TPL Insurance continually innovates to utilize the digital paradigm to redefine insurance. During the course of the past couple of years, we capitalized on our digital assets and utilized rich data to ensure the most hassle-free policy issuance, claims and renewal processes.

TPL Insurance has disrupted the existing insurance ecosystem by servicing its customers through integration with multiple business partners, spanning startups and established players. These initiatives have enabled us to achieve new industry benchmarks, processing claims instantly while focusing on customer convenience and maintaining superior service standards. We offer all lines of general insurance including Auto, Fire, Marine, Health, Home, Travel and Agriculture with both conventional and Takaful (Islamic insurance) solutions for our customers.

We launched Pakistan’s First Insurance app to further cater to a variety of customers’ insurance and non-insurance needs. Our omni-channel strategy is more focused as we have expanded our supply chain, partnered with micro insurance brokers and invested in new B2C digital capabilities to offer highly personalized experiences. Our claims and underwriting expertise ensure that we are ideally positioned to meet the shifts in the market.

BRR: How much do international events dictate insurance premium at home. What is the global market like currently and what are the new products opportunities that could invigorate interest in the non-Life segment in the next few years locally?

MA: Insurance is founded on the concept that the premiums of many pays for the claims of the few – a powerful principle, but when the cost of claims exceeds the total pool of premium, it becomes a challenge. A range of factors contribute to the increasing cost including natural catastrophes, urban sprawl, interest rates, and claims inflation. By design, each insurer has a limit to how much insurance they can provide – known as their capacity. Since there has been a dramatic increase in claims globally, insurers have become more cautious about taking on large risks and pricing. Since these coverages rely on the support offered by reinsurers, any restrictions on premium pricing model suggested by them has a significant impact on what our country can offer. Offering COVID-19 cover under travel insurance has escalated premium rates at home. However, when it comes to invigorating interest in insurance, we witness that the investors are showing interest in products like Cyber frauds, pay as you drive – Auto insurance products, domestic travel insurance that offers coverage against flight delays and cancellations, etc.

BRR: What are the sector’s insurance premium on average and what is TPL Insurance’s strategy?

MA: With a mission to provide incomparable services and create sustainable value for its stakeholders, TPL Insurance Limited is constantly working to create new and innovative methods to understand its customers' needs, ensuring a hassle-free claim settlement experience. Capitalizing on speed, transparency, convenience and reliability to ensure high standards of customer relations, we follow a set of pragmatic core values reflected in attitudes, decisions and behavior of our exceptional human capital.

According to IAP’s Key Financial Data 2020 report, Pakistan’s private non-life insurance sector crossed Rs100 billion in 2020 with Fire, Motor, Health and Marine as major lines of business. TPL Insurance follows a multi-pronged strategy to develop and consolidate its footprint across all segments of non-life insurance. Historically, the company has focused on retail and will continue to surpass industry growth by capitalizing on retail via cutting edge technologies and introducing innovative products. Having said that, in the past couple of years, we also developed our footprint in the corporate segment and aspire to continually contribute to it.

BRR: How do you describe the claims in non-life insurance segment in Pakistan when compared to the regional peers?

MA: For non-life insurance, as reflected in IAP’s Key Financial Data reports for past five years, the average insurance industry loss ratio ranges between 50 and 55 percent - which is considered a good loss ratio internationally. There are particular lines of businesses like health insurance where loss ratios are fairly high and a cause of concern. Health segment, however, is a loss contributor in most businesses. Given the small size of the industry and ceding of major risks to reinsurers abroad, one significant risk has the ability to distort the claims ratio of the industry.

BRR: What is your investment strategy for diversifying risk?

MA: Investment is a core function for TPL Insurance. With recent capital injection from Germany and Finland based investors, TPL Insurance has an investment pool which helps it in maintaining stable business and financial capacities. As an investment approach, we diversify and focus on safe avenues. For us, investment is beyond putting money in government bonds, mutual funds and shares. We believe in investing in a tech-driven state of the art infrastructure, creating value for our people and building a brand loved by our customers. We aim to move forward with a long-term vision where these investments give profitable returns and sustainable advantage over our competitors.

BRR: What segments do you see bringing most growth in general insurance going forward: auto sector, agriculture, micro, takaful, travel or health?

MA: Owing to the reduction in discount rates and improved stability of the exchange rate, the economy is back on a growth trend. Motor sales have strengthened, export numbers are improving, import of machinery is rising, and travel is expected to return to normalcy in the near future - all positive signs for the industry.

Micro segment was neglected by insurers however some successful models have become known, which are giving investment confidence to insurance companies in the segment. Similarly, efforts shown by the government to develop agriculture sector, housing industries and electric bikes production are all positive signs in the right direction.

BRR: Which segment is TPL Insurance focusing on? Tell us about your key partnerships and affiliations in this regard.

MA: TPL Insurance is working to become a broad-based insurer with multi-channel and multi-product approach. We are targeting all market segments according to their specific needs which demands that we work with multiple partners, catering to products that serve those specific and targeted needs.

We value our relationships with our partners, like banks, telecoms, large digital platforms which support TPL Insurance to distribute our products. We strive towards strengthening our agency and broker network across the country. Customer relationship management tools have also been introduced for better servicing of and engagement with clients.

TPL Insurance will continue to invest in digitalization to fulfill the needs of its customers. Since the pandemic began, we have partnered with leading banking platforms to digitize claims and automate the process of premium collection end-to-end. With these new initiatives and the increasing depth of our distribution channels, we are determined to continue achieving sustainable profitable growth in the future.