The economic potential of Pakistan is tremendous. This needs to be properly tapped and channelised for the social development in our country. The father of the nation, Quaid-e-Azam Mohammad Ali Jinnah, had said that the challenge was for us to exploit all resources to the advantage of our country. We have to go a long way in translating his dream into reality for the benefit of Pakistan. Source: Extracted and calculated from: the Annual Report 2008, State Life Insurance Corporation of Pakistan, PP 62-63 and earlier reports. The above box presents a statistical analysis. It shows how slow is the progress and how big is the potential. The following conclusions can be drawn: (Million) Index Index
Agricultural development needs to be organised on scientific lines to usher in an era of great prosperity and stability of the country on wider front. A sound mineral policy is the crying need of today. The infrastructure needs to be strengthened. All told, a vibrant social economic development ought to be the hot agenda of today for us.
However, this piece focuses exclusively on one niche-concentrating on the role of life insurance for socio-economic development. In particular, emphasis will be given to the social challenges facing Pakistan and defining ways and means of how these social challenges can be met, so the instrument of life insurance can be used effectively across the board in Pakistan.
Some of these challenges include:
1. Generating employment to reduce the level of unemployment.
2. Reducing poverty through first alleviating poverty in the short run and later eliminating it in the long run.
3. Tapering off tension levels on the social front by providing a mechanism for watering these down and laying a foundation for a hassle-free society.
4. Ensuring a steady rise of standard of living to usher in an era of prosperity on a wider scale across the board.
5. Targeting social stability for peaceful living in the country.
However, this piece looks at one tool, namely employment promotion with consequential benefits through development of life insurance sector in Pakistan on an exponential scale. In this respect, this piece has been divided into the following parts:
THESE ARE NOW EXPLAINED BELOW:
To our regret, this object has yet to be materialised in our country. In the second one, he presented his address in Edward College, Peshawar on April 18, 1948, where he emphasised on the importance of specialised education, including insurance. Much to our misfortune, no university (private or public) except the University of Punjab responded positively to the clarion call of the father of the nation.
For the first time in the history of Pakistan, the University of Punjab, through its constituent college namely, Hailey College of Banking and Finance, commenced full-fledged professional education in insurance by offering various programmes, including a four-year BBA (Hons), regular MBA morning and MBA evening for executives in 2006.
This humble effort contributed towards offering services of professionally qualified personnel for the insurance sector. This was logistically backed up through excellent co-operation of The Insurance Association of Pakistan, Lahore. Qualified teachers, with field experience, have helped in accelerating human resource development for the benefit of the insurance sector in the country.
The state declared a monopoly in this respect - killing the initiative of the private sector. This was a crushing blow to life insurance, which always met two objectives namely, protection and investment. Fiscal incentives, available for development and expansion of the life insurance sector, were eliminated. Savings got a disincentive and the gap between savings and investment continued to widen, necessitating more and more loans for the country.
The government enjoyed expanding their role beyond their traditional roles, which were relegated to low priorities. Till today, with the passage of 38 years, the SLIC virtually enjoys a monopoly in life insurance. Despite tall claims published in newspapers, it has manifested dismal progress.
This price will present a quantitative analysis as a wake up call for all of us to see its progress. In some dimensions, group life has shown static, if not negative growth.
If a deflator of 10-12% is introduced, the overall progress is negative which is a matter of serious concern. If quick action of privatisation through the stock exchanges is not undertaken, matters will further worsen to the despair of the social sector, particularly the rural areas of Pakistan.
The two elected governments, during the late 1980s and early 1990s, made a small start of offering life insurance companies to the private sector. However, the efforts were half-hearted and only four life insurance companies are listed on the Karachi Stock Exchange, as on February 08, 2010, with a total paid up capital of Rs 2.29bn (0.28%) of the total paid up capital of the listed companies of KSE. Market capitalisation represents 0.49%.
However, their performance is better, which is reflected in the market price quoted on the KSE. The market price of one life insurance listed company is around Rs 140, against the par value of Rs 10. Another is around Rs 45, with expanding business. Their effort in introducing new products through the employment of professionally qualified, energetic persons is producing productive results.
This spirit is lacking in the public sector, which has its own constraints to follow the best global practices. Based on the available information, from the arrival reports of the SLIC, we have carried out some analysis, which is now presented for the readers and SLIC to draw their own conclusions to assess their own performance as food for thought. Based on the 2008 SLIC report, there is an emphasis on achieving these objectives.
1. One of the objective includes "maximising" returns and "economising expenses". This objective is a laudable one and is well-appreciated. However, the results are the opposite during 2008.
a) Income increased by 15.46%.
b) Expenses increased by 21.87%.
The reality even runs opposite to the above conceived objective
2. Another objective includes to "widen areas of operations of life investment for the common man in towns and villages". This appears to be an agenda of tomorrow. Innovation is the crying need to develop "products" for the common man and its coverage needs to be widened to towns and villages. When will this be done? Is there a clear-cut road map? Who will prepare this? These soul-searching questions scream for a positive response from the SLIC.
3. It is interesting to note that at the top management level professionally qualified insurance experts are not working. Resultantly, there is a lack of innovation to meet the present needs of the customers. Strict legislation and its solid implementation is the crying need of today.
1. In today's vibrant world, expectations are paged very high. Mere achievement of satisfactory results is an ordinary approach, which needs to be replaced with "glorious" or "outstandingly outstanding" or "excellent" results. This is a challenge for the SLIC and it must positively respond in this direction.
2. Increase in the number of policies has been shown as 5.31%, which is negligible. At present, there are only 2.6 million policies in force as compared to the total population of 170 million, which comes to only 1.53%. This shows that one of the objectives for which life insurance business was nationalised, ie to widen the area of operation and to make it available to a large section of the population, is not being fulfilled. In fact, the updated potential is 98.47% of population of Pakistan.
3. Increasing lapsation rates are challenging tasks, which need to be urgently addressed in an appropriate and positive manner. The top management must address the issue seriously and the field staff must accept this challenge to reduce lapsation rates to negligible levels.
4. Based on the information available, training is being given to field workers. This training must ensure achieving high results and the bottom line must be beefed up, failing which "Value Creation" will not take place. Capacity building must be accepted as a great challenge in this respect.
5. Overall the expense ratio is very high and not appropriate in the life insurance business. Steps must be initiated to ensure its reduction on a staggered basis over a medium term of the three-year plan. The services of a practicing Cost and Management Accountant can be a logistical support in this direction. This be compared with the international benchmark and steps be initiated to ensure reduction for the benefit of all stakeholders in general and policyholders in particular.
===================================================
SLIC: Growth in policies in force: Individual Lives
===================================================
Percentage (%)
Year Number Base Rolling
(Million) Index Index
===================================================
2008 2.60 135 111
2007 2.35 122 108
2006 2.18 113 107
2005 2.04 106 106
2004 1.93 100 100
===================================================
1. Annual average growth in the above five years has been 7%.
2. Rolling index presents a sharper analysis and is a wake up call for an aggressive marketing strategy to be followed by the SLIC.
3. A breakthrough is needed to ensure a quantum jump in the number of individual life policies. This number is 2.60 million in a total population of 170 million.
4. To accomplish the objectives of the SLIC, a bold marketing approach is needed to "Widen areas of operations of life insurance for the common man in towns and villages".
5. There is a need to revisit the declared "objectives" of the SLIC and initiate a self-analysis. A Stakeholders' Conference may be held to help the SLIC to achieve its objectives.
6. Insurance Culture as a way of life needs to be cultivated through a market-driven approach. Synergy can be created through seminars, workshops, insurance fairs, puncturing the fears of potential policyholders and undertaking all steps which would ensure success of the cause of making insurance a way of life.
7. Qualitative and quantitative analysis of existing training courses for field orientation be undertaken for improvement and capacity building.
8. A strategic plan for manpower development for SLIC is the crying need of today.
9. Leading universities in Pakistan must start BBA (Hons) four year, MBA regular morning program for young students and executive MBA two-year evening program. Hailey College of Banking and Finance, the 5th Constituent College of the University of the Punjab, Lahore, has provided a lead in this respect, in 2006, for the first time in the history of Pakistan, in respect of offering courses to fill the gap of professionally qualified manpower for the insurance industry.
10. Degrees by leading universities in Pakistan be offered with a clear and transparent manifestation of "Insurance and Risk Management". This will broaden the scope of job openings. Their products will be available in several sectors and not in the insurance industry alone. The financial sector needs risk analysts with an insurance orientation.
==============================================
SLIC: Growth in Policies in Force: Group Lives
==============================================
Percentage (%)
Year Number Base Rolling
==============================================
2008 3.89 100 096
2007 4.06 104 104
2006 3.92 101 105
2005 3.73 096 096
2004 3.90 100 100
==============================================
Source: Extracted and calculated from: Annual Report 2008, State Life Insurance Corporation of Pakistan, P 61 and earlier reports. A careful analysis of the above box reveals the following:
1. Annual average growth during the last five years has been negative and shows declining trends.
2. Unfortunately in 2008, there were 3.89 million policies as against 3.9 million in 2004. This is a wake up call for SLIC. It appears that the aggressive and motivated private sector in life insurance seems to be capturing the share of market and thus the base index and rolling index have shown a declining trend. This feedback be taken with a positive spirit and the trend must be reversed. The strategic thinkers of SLIC must at least target an annual increase of 10%, rather than stay content with the present situation of static and negative growth.
3. For achieving the suggested target of 10%, mentioned in para (2) above, a strategic plan be prepared and its implementation be periodically monitored to help achieve positive results.
4. A "Mapping Chart" approach be used to ensure proper analysis, field visits to potential sectors and define all logistical goals to achieve the foregoing suggested results.
5. An institutionalised approach of MIS, through computer assistance, can help achieve the foregoing suggested objectives. Nothing succeeds like success. Targets for annual growth be established and achieved through financial and non-financial incentives.
WAY FORWARD We believe that we can implement a way forward for tackling the problems confronting Pakistan. Suggested strategy for consideration of stakeholders is given below:
1. Political will is needed to consider life insurance on a priority basis, with a sense of priority.
2. The Ministry of Commerce must rise to the occasion and unlike in the past, give serious thought to develop an insurance policy for our country. A stakeholders moot is the crying need of today and the world of academics be also associated with it.
3. Regulatory bodies including the Securities and Exchange Commission of Pakistan (SECP) and State Bank of Pakistan be assigned to develop a vibrant insurance policy draft for discussion and finally evolve a comprehensive insurance policy, in consultation with stakeholders.
4. The role of the government be defined, in terms of oversight and monitoring the business of life insurance. Accordingly, the SLIC be denationalised immediately to reduce the size of the government in the public sector. The earlier this is done, the better for Pakistan and also in the interests of the life insurance sector of our country.
5. The share of life insurance in the GDP be targeted, at a minimum of 4% to 5%. This strategic target can serve as a rejoinder to accomplishing the above aim. The government is urged to give this suggestion a serious thought.
6. Life insurance (conventional or Takaful) be popularised on a massive scale, through employing young, professionally qualified graduates. These be given quality training and they must swing into action in the field to spread the message of life insurance with revolutionary sprit. The frontiers be not restricted to the urban heart of Pakistan, but the untapped rural areas of Pakistan deserve special attention. Takaful can be sold as a new product, if conventional insurance is not acceptable.
7. All existing listed business companies of Pakistan be immediately allowed to open a special window for "Takaful" in their existing set-up, to open a new vista for the private sector to unleash their initiatives for expansion on an exponential basis for life insurance in our country. State Bank of Pakistan has permitted the existing scheduled banks to open special windows for "NIB" (non-interest banking). A similar facility be immediately extended to the existing listed insurance companies of Pakistan.
8. "Takaful" be included in commerce, business and public administration courses in private and public universities of the country. Curriculum for teaching be restructured accordingly, to the acceptability of market-driven needs.
9. Qualified MBAs, M. Coms and related disciplines in general and MBAs, specialised in insurance and risk management, in particular be employed to strengthen the manpower of the life insurance sector. The old one be replaced immediately, as new initiatives can only be unleashed by professionally qualified people. A practiced in Singapore and popularised by their founding father, Lee Kuawn Yee, "Meritocracy" be strictly introduced for manpower selection process. It may be remembered that one wrong selection of an officer in the life insurance set up will be the beginning of long term problems of the insurance industry. This may be given a serious thought by all stakeholders. Professionally qualified people will be instrumental in creating an innovative environment, with new products to be introduced to serve the existing, emerging and future needs of the users of life insurance products.
10. The current emphasis of the "Nine-Point" agenda of the Finance Minister of Pakistan includes emphasis on "Human Resource Development". This is in line with the current emphasis of the World Bank. However, a solid start to institutionalising the existing set up, for the training and development of young people and middle management is the crying need of today. A strategic move in this respect is the need of the hour by all stakeholders, including the Insurance Association of Pakistan.
11. Democratic Pakistan must use life insurance as a niche to tackle the social problems facing us. If the foregoing suggestions are given serious attention, a new dawn in our country will be discovered and the objectives for which Pakistan was born will be accomplished, to the happiness and prosperity of the people. This will be helpful for the social stability of country, which would strengthen our foundations, achieve high standard of living.
CONCLUDING COMMENTS All stakeholders are humbly urged to positively respond to the foregoing suggestions. If implemented, life insurance will be a major engine for growth, will generate employment, will alleviate poverty, will significantly reduce social tensions, will help develop the habit of saving, will narrow the gap between saving and investment, and eventually accelerate socio-economic development of Pakistan. Let us commit ourselves to this noble objective and also strengthen the democratic set up of our country, to enable its fruits to be enjoyed by the beneficiaries. The earlier this is done, the better.
LET US START WITH A SLOGAN: "Life Insurance for all and all for Life Insurance".