Insurance Industry: CCP offers strategic recommendations for reform

ISLAMABAD: The Competition Commission of Pakistan (CCP) has strongly recommended to end support to the State-Owned Enterprises (SOEs) and fully open the reinsurance market to the private sector.

The CCP has released its comprehensive report on the State of Competition in Pakistan’s Insurance Industry, highlighting key challenges and offering strategic recommendations for reform.

Globally, the importance of insurance is evident, with the market estimated to reach a premium volume of $7.4 trillion in 2024. The global average insurance penetration was 6.7%, while Pakistan’s was only 0.87% in 2022. By comparison, insurance penetration in regional countries such as India and China was about 4% of GDP. Pakistan’s insurance density was USD 14 (approximately Rs2000) in 2022, compared to India’s USD 82. For a population of over 240 million, only 7.8 million life insurance policies i.e., 3 percent of population, were sold in 2022.

In his message, Dr Kabir Ahmad Sidhu, Chairman of the CCP, emphasised that the insurance sector is integral to Pakistan’s economic growth, yet it remains hindered by monopolistic tendencies and regulatory protectionist policies entrenched in law. The report recommends crucial reforms to dismantle barriers to competition and encourage a level playing field, ultimately benefiting consumers and the wider economy.

The key issues highlighted that nationalisation of life insurance industry in 1972 led to monopolisation in the life insurance sector. Despite liberalisation of the industry in 1991, the market dynamics did not change substantially. With a 55 percent share in the life insurance market, State Life Insurance Corporation (SLIC) holds a monopoly position. SLIC uses the sovereign guarantee as a marketing tool, hence its policies are more attractive to the consumers due to the Federal government’s guarantee under Section 35 of the Life Insurance (Nationalisation) Order 1972.

The government’s support to the State-Owned Enterprises (SOEs) distorts competition. For instance, Pakistan Reinsurance Company Limited (PRCL) benefits from regulatory support under SRO 771 (1)/2007, granting it the “exclusive first right of refusal” to acquire at least 35% of the reinsurance business.

In the general insurance category, Section 166 (3) of the Insurance Ordinance, 2000, grants National Insurance Company Ltd (NICL) exclusive rights to underwrite and insure public sector firms, their assets, and properties. Thus, creating a monopoly where NICL occupies 100 percent share in the public property insurance.

Another competition concern is the restriction on procuring facultative reinsurance from outside Pakistan. Rule 18(1) of the Insurance Rules, 2017 mandates that no insurer may purchase facultative reinsurance for any insurance business underwritten in Pakistan outside the country without obtaining permission from SECP. This restriction creates a barrier for domestic insurers intending to procure facultative reinsurance from foreign players.

In bancassurance, the insurance providers use banking channels to sell their products. Sometimes, banks impose additional internal limits on the amount of business insurance companies can conduct through banks. This practice constitutes as refusal to deal and contradicts the spirit of competition.

Banks usually have large cliental, which the insurance provider targets. It has been found that the bank/insurer staff do not properly guide the customers about the details of the insurance products, and the terms and conditions applicable. At times the information is in fine print, which misleads and exploits the vulnerable customers.

The jurisdiction of the Federal Insurance Ombudsman (FIO) has been restricted to only the private sector insurance companies, while the jurisdiction over the government-owned insurance companies (SLIC and Postal Life) lies with the Wafaqi Mohtasib. On the one hand this jurisdictional issue between FIO and Wafaqi Mohtasib leads to confusion among the policyholders about filing a complaint, and long time for disposal of the cases.

As per Insurance Ordinance of 2000, the insurance Industry comes under Ministry of Commerce, SECP regulates it and the Ministry of Law and Justice is responsible for appointment of Insurance Ombudsman. This fragmented system leads to failure to foster this sector.

The federal insurance fee may be withdrawn to reduce the insurers transaction cost, the CCP added.

Copyright Business Recorder, 2025