Proposal for reforms in insurance sector

The purpose of writing this article is to outline the reforms required in the Insurance sector in Pakistan and analyse the Role of Insurance Regulatory authority in the Development of Insurance Sector in Pakistan i.e. the Securities & Exchange Commission in Pakistan. The SECP, being the apex regulator of the insurance industry, has a strategic priority and commitment to strengthen and maintain an effective regulatory environment in which insurance, takaful, insurance brokerage and surveying business can flourish and prosper in a transparent manner.
The insurance industry in Pakistan is relatively small compared to its peers in the region. The insurance penetration and density remained very modest as compared to other jurisdictions, the insurance penetration is hanging around 0.08 of GDP while the insurance sector remained underdeveloped relative to its potential. As of December 2016, the industry's total premium revenue stood at over PKR 265 billion sharing 180 billion by life insurance companies and 85 billion by non-life insurance companies with an average growth over last five year 8% of non-life insurance companies and 15% growth of life insurance companies. In addition, a government owned reinsurer continues to benefit from a mandatory minimum 35 percent share in the treaties of non-life insurers.
The insurance penetration has also witnessed the growth from 0.7 percent in year 2001 to 0.91 percent in year 2016. Total gross premium of the insurance industry by the end of the year 2016 was PKR 265 billion out of which Life Insurance related premium was PKR 180 billion and non -Live premium was 85 billion as reported in the SECP annual report. If we compare the public Life verses private life, the private non-life gross written a premium was PKR 96 billion in 2016 while the public life was 84 billion which make the public sector life insurance the i.e. State life is the one of the major players of Life insurance sector which is securing more than 46% of the insurance market. If we compare the performance of public non-life verses private non-life companies it is reveal that the performance of NICL the only non-life insurance company is very poor as compare to its assets based, resources and strengths available with them that also shows the in effectiveness of the regulatory body i.e. the SECP who criminally ignored the issues of NICL. Current contribution of public non-life is PKR 5 Billion while the private non-life is 80 billion
Problem facing by Pakistani insurance sector
1. SECP enforcing fixed capital regime which is a dead signal for small companies, paid up capital should be flexible and liked with the premium written / risk under taken by the insurer.
2. SECP enforcing and tightening small insurance companies and avoiding large scale companies which is involved largely in the corruption.
3. Due to gaps in insurance regulatory frame no reinsurance companies entering into Pakistani market as a registered re-insurance broker and billions of Rupees premium every year going outside Pakistan
4. People regulating insurance sector don't know about the dynamics of Pakistani insurance market
5. Insurance surveying rules are pending , despite having consensus
6. Out dated Insurance Ordinance 2000 required urgent updating, already complete comprehensive amendment proposed done by me during my tenure.
7. http://www.pakistaneconomist.com/2017/01/16/pakistan-needs-financially-strong-insurance-industry-prompt-need-set-independent-regulatory-authority/ (my article)
8. Need to provide equal level playing field to all insurance companies.
Recommendations:
This is the fact that the regulator has tired achieve significantly but we still find out a wide gap , Pakistan insurance penetration is lowest among the peer countries and the SECP being the apex regulator of the Insurance sector need to do more for the development and protection of insurance sector in Pakistan. The major area where the regulator need to work are as follows;
1. Amendments in Insurance Ordinance 2000
While the Insurance Ordinance 2000 has introduced a number of laudable reforms, but has omitted a number of elements that are key to a modern risk-based supervisory regime. It represents a significant shift from the previous Insurance Law of 1938. The resultant problems, including limited prompt corrective action power, are exacerbated by a lack of in-house specialist (including supervisory) skills. Also it is clearly not addressing the risk based supervision as required by the industry and licensing requirements. Also the law is clearly silent on the provisions of the Anti-Money Laundering etc.
2. Gap between Assessment and Implementation of IAIS Insurance Core Principles
Pakistan is the first country who have successfully completed assessment of insurance core Principles but unfortunately the recommendations and Gaps identified by the IAIS is still not implemented neither even the regulator is willing to implement the gaps arises during assessment.
3. Bogus Insurance Companies
The general insurance industry is facing prevalence of bogus insurance companies issuing spurious Motor vehicle Third party insurance Policies for motor vehicle for Registration Purposes. To eliminate the issuance of bogus motor third party insurance certificates by unauthorized persons/ entities and to ensure that uninsured vehicles on the country's roads have proper insurance cover issued by registered insurance/takaful companies, there is a clear need to develop comprehensive legislation by involving all concerned stakeholders.
4. Terrorism Pool
Large scale terrorist attacks can threaten insurers' assets from two sides: insurance companies would sell assets to generate the liquidity required to pay major claims in multiple business lines - life, health, property, etc. - and at time see the values of those assets considerably diminished due to the reaction of the capital market to the terrorism event. As a result, the overall potential loss for insurance may be significantly higher than the loss from the coverage alone. The only answer is the concerted efforts in which governments work hand in hand with insurers and reinsurers. Effective solutions involve a risk partnership among insured's, insurers, reinsurers, capital markets and governments. Most of the countries in the world have developed Terrorism Pools as a result of public-private partnership. Pakistan also needs a Terrorism Pool on urgent basis. Some initial work and consultative session already in place and SECP and PRCL already did some ground work in this respect, there is a need to expedite these
5. Microinsurance
So far this has been a failure to launch and promote insurance in rural areas. Microinsurance is a term increasingly used to refer to insurance characterized by low premium and low caps or low coverage limits, sold as part of atypical risk-pooling and marketing arrangements, and designed to service low-income people and businesses not served by typical social or commercial insurance schemes. The institutions or set of institutions implementing micro-insurance are commonly referred to as a microinsurance schemes. There is a strong need to draw a comprehensive regulatory framework for microinsurance as well as encourage the insurance companies to manage this product line actively.
6. Crop Insurance
SECP must provide comprehensive guidelines to the insurance industry to enable them to develop this product and cater to the huge demand in the market. This product will also increase the insurance penetration in the country.
7. Set up of an Independent Regulatory Authority
Last but not the least there is a dire need to set up an independent regulatory authority namely The Pakistan Insurance Regulatory Authority (PIRA) is the need to the day so that the insurance subject and industry may get special attention which would be wholly responsible for the affair of insurance sector, it's development and growth in Pakistan .
(The writer is former Director/HOD Insurance Division - SECP)

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Country       Total Insurance

                   Premium as

                     % of GDP

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China                   2.98%

Germany                 8.57%

India                   3.86%

Pakistan                0.80%

Turkey                  1.45%

USA                     14.1%

Indonesia               1.85%

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