BR Research: What is the major challenge as the dominant player in the insurance sector for State Life Insurance?
Shahid Aziz Siddiqui: Life insurance penetration in Pakistan is abysmal; close to 0.35 percent of the population. So unlike many other industries where the existing firms are in intense competition; here the real challenge is bringing a significant proportion of the population towards insurance coverage.
The strength of State Life Insurance is in the rural areas. Our ticket size, or the periodic contributions that a policy holder has to make towards the policy, is typically between Rs13,500 and Rs15,000, so we have a vast market outside the posh areas of the major urban centres. That is also a part of our mission, under the Insurance Ordinance 2000, that we have to bring life insurance to the doorstep of as many Pakistanis as we can.
Through its partnership with the Benazir Income Support Programme, State Life is covering 4.1 million of the poorest among the nation. As that Programme continues to be rolled out the beneficiaries of these policies who are entitled to Rs100,000 will number closer to six million by the end of 2013.
Recently we have entered an agreement with Nadra to offer life insurance to CNIC Smart Cardholders. Under a two-year contract, Nadra will pay the premiums on behalf of the cardholders. At present there are about 500,000 Smart Cardholders, but that tally is expected to double by the end of this year. So collectively, these two initiatives are adding a sizeable number of policyholders to State Life Insurance (SLIC).
BRR: How does the Company reach out to a wider market?
SS: We are supplementing these efforts to reach out to the nation, with our commission-agent approach whereby we have 155,000 agents sprawled out from Karachi to Gilgit, Chitral, Gwadar and dozens of towns along the way. That's a huge number of people that are earning their livelihoods as a consequence and are not a strain on government. Operationally we have divided the market into four regions and 26 zones and the agents are trained at the zonal level.
Many of them are fairly educated people and they make good money because in the initial phase of any new policy that is initiated by them, they receive a major chunk of the premium. The number of policies they bring in is directly proportionate to the amount of money they make. They continue to make significant proportions from those policies over the next two years, so it is in the interest of agents to stay with their clients until those clients have become fairly well acquainted with their policies.
Under the Insurance Ordinance of 2000, State Life Insurance has to pay 97.5 percent of its actuarial surplus to policyholders, while the rest 2.5 percent goes to the Government of Pakistan as dividend for its equity in the Corporation. That makes our premiums attractive for policyholders because by comparison, other life insurance companies pay about 90 percent of their profits to policyholders.
We believe that the commission-agent model is very well suited to Pakistan for a number of reasons. Foremost, the agents are able to earn their livelihoods. Then they are usually working in their local areas, so they are familiar among prospective policyholders. That is very important in our society where people are organised in Baradaris and kinship ties.
BRR: Life insurance companies in the country have been thwarted in their attempts to launch Takaful services. Do you consider that a huge blow to the insurance companies considering that religion is pivotal in financial considerations for many people?
SS: There is a stay order against opening a Takaful window at life insurance companies, but we are quite hopeful that there will be some progress in that case soon. The ability to operate a Takaful window will definitely bring more people to SLIC. If you consider the investments that we make, they are also quite compatible towards Takaful as even now SLIC is mostly invested in real sectors such as oil, energy, power and manufacturing concerns; not heavily in the banking sector.
If you consider the example of Saudi Arabia, they have translated Takaful as Family Security Policy. If you ponder over it, we are not really insuring anyone's life. A life insurance policy is similar to an investment; a nest egg for the future of your family. Consider the example of a person that initiates an insurance policy for one million rupees at the age of 30 years. In about 20 years, that policyholder would probably receive about one crore rupees at an annual rate of close to 13.5 percent.
Quaid-e-Azam Muhammad Ali Jinnah was himself quite keen on extending insurance coverage to Pakistanis and it was at his request that EFU Life Insurance was set up by its founders. I am personally searching for a document that shows that Allama Iqbal held a policy with Muslim Insurance Company of Lahore.
Opening up the Takaful sector for larger companies will also be a service to the people of Pakistan. The existing companies in that sector will not be wiped out by SLIC; instead they will also gain access to a wider market as the bigger companies create inroads to the peri-towns and villages of the country. Offering life insurance can lead millions of people to financial inclusion and help secure the future livelihoods of their families.
We believe that all stakeholders, including the Securities and Exchange Commission of Pakistan should consider providing that opportunity to the life insurance companies and through them, to the people of Pakistan.