STRUCTURE OF INSURANCE MARKET IN PAKISTAN

Pakistan is one of the largest countries with total population over 180 million people out of which approximately 97% are Muslims. Due to stringent religious beliefs, people have been reluctant to accept insurance as a way to improve their living condition. About 67.5% of population lives in rural areas and 73.6% are living below poverty line i.e. earning less than $2 per day. As a result of low disposable income, low literacy rate together with stringent religious beliefs and awareness insurance industry in this country could not progress well as compared to other countries in the region e.g. India and Srilanka. The insurance market in Pakistan is broadly categorized in two main classes, life insurance and non-life insurance. At the time of independence, the country had 5 domestic and 77 foreign insurance companies. . These companies were regulated under the Insurance Act of 1938.The government in 1948 established the Department of Insurance within the domain of Ministry of Commerce to supervise the affairs of insurance industry and to safeguard the interests of the insured. The Act was amended in 1958 for the first time keeping in view the requirements of domestic market and to have effective control over the insurance premium rates. The Department of Insurance further created the Controller of Insurance for the same purpose that was abolished in 2000 when SECP was made responsible for supervising insurance business in the country. However, the number of foreign companies decreased from 77 in 1947 to 25 in 1972 due to political uncertainty and separation of East Pakistan. Since then, various amendments have been made in the Act. By consolidating the business of 41 nationalized insurance companies in 1973, the government created State Life Insurance Corporation with a purpose of encouraging

life insurance business and to safeguard the interests of policyholders and then National Insurance Corporation (presently National Insurance Company Limited) was established in 1976 to provide government a more conducive environment for undertaking insurance and to reduce its cost In 2001, State Life Insurance Corporation (SLIC) and National Insurance Company Limited (NICL) constituted 80.5% of the total assets of the whole insurance industry. Till 2005 this share remains 74% of the total insurance market. Moreover, the country has one reinsurance company that carries out reinsurance activities and further spreads the risks that is the Pakistan Reinsurance Company Limited. The insurance market is highly concentrated in urban areas and at present there are 55 insurance companies out of which 50 companies offer non-life insurance and 5 offer life insurance services.. Till now there are insurance companies involved in general insurance business out of them 49 are private companies while one is state owned i.e. National insurance company Limited. Out of these 49 private companies, 44 are local insurers while two are foreign insurers. three companies have been registered as Takful. Moreover, in order to strengthen capital base of insurers, minimum paid-up capital requirements under new ordinance of SECP 2000 for life insurance and non-life insurance companies have been increased to Rs. 150 million and Rs. 80 million, respectively, while life insurance companies are also required to maintain statutory funds.

LIFE INSURANCE BUSINESS

Life insurance business in Pakistan is concentrated in two major areas: individual and group life insurance. Individual life insurance has greatest share in the life insurance business 79% share. Both individual and group life insurance constitutes about 99% of total life insurance business in the country. Other types of life insurance products like annuity plan, pension plan, children education plan and accident & health insurance are not much popular and have

negligible share of about1% share in total life insurance business. There is ample growth potential in life insurance business of these products in Pakistan as they meet the true needs of the people and provide them protection from economic downturns. Historically, life insurance business is dominant by state owned company in Pakistan. State Life Insurance Corporation (SLIC) of Pakistan is the only state owned company in the country that was created from the consolidation of 41 insurance companies during the process of nationalization in the early 1970s. Since then, SLIC has continued to remain a dominant insurance company in the country and contains 76% of the total life insurance business and 13% of EFU and 7% of the NJI. Though share of state owned companies SLIC and NICL has been decreased and share of private domestic and foreign companies has been increased, still insurance industry in Pakistan could not grow as compared to international market. Being an Islamic ideological state, where Islamic way of life is rooted in the lives of people of Pakistan, religious beliefs of the people regarding validity of insurance is a big hurdle in the promotion of insurance business in the country. There is urgent need on the part of government and concerned authorities to take effective measures to boost up insurance business according to true needs of people.Net profit for the year 2001 was estimated to be Rs.302 million that increased to Rs.510 million in 2005. It has shown an average increase of about 14% per anum.

GENERAL INSURANCE BUSINESS

National Insurance Company Limited (NICL) is the only state owned company involved in general insurance business in the country. National Insurance Corporation was established in 1976 with an initial paid up capital of Rs 5 million for the sole purpose of insuring public

properties. Beside this, there are 49 private insurance companies involved in general insurance business in Pakistan. There are five categories of general insurance named fire, motor, health, marine and miscellaneous. Motor insurance has the largest share and constitutes of 48% of the total general insurance business. Increase in motor insurance is mainly characterized by rapid increase in number of cars in recent past as a result of increased loans and car financing schemes in the country. Marine insurance accounts for 21% share of total general insurance business. It is associated with international trade and increases with imports and exports of goods and services. Fire insurance is the third largest category and accounts for 18% of general insurance. It is associated with growth of construction and industrial sector. Health insurance accounts for 6% of general insurance. Miscellaneous category includes aviation insurance, travel related insurance and cash insurance etc. It accounts for 7% of general insurance business in Pakistan (IAP, 2006). Contrary to life insurance sector, general insurance sector is largely dominated by private companies. National Insurance Corporation Limited (NICL) constitutes 14% share of total general insurance. The business is highly skewed towards few private companies that account for 82% share of general insurance as seen in the chart above. Among these private companies, there are top ten companies that account for about 80% share of total private business. Among these ten companies, two companies i.e. EFU General Insurance Ltd. and Adam jee Insurance Company constitute about 67% share of total private business. In the past few years, the share of state owned company, NICL, has been decreased and two Takful operators have participated in general insurance business in the country. Net profit for the year 2001 was estimated to be Rs.1514 million that increased to Rs.5454 million in 2005. It has shown an average increase of about 52% per anum. In spite of some fluctuation, it shows

consistent performance of insurance industry as there is steady increase in total assets during 5year period. Takful business has gained momentum in Pakistan after 2005 since the promulgation of Takful Rules 2005 by SECP. Pak-Kuwait Investment Company (PKIC), a joint venture between Pakistan and Kuwait, started its efforts in 2002 to introduce Takful in the country. Its major shareholders include Takful National of Malaysia (25%), PKIC (30%), Meezan Bank (10%) and others (35%). In 2007, a second Takful company, Takful Pakistan Limited, started its operations in the country. In Aug 2007, Pak-Qatar Takful Group obtained two separate licenses from SECP to start operations in family as well as in general takful business in the country. Window operations have also been principally allowed, although the industry is waiting for this amendment to the rules, which should boost the industry as a whole. In fact, Pakistan has become the focus of international investors and they are keen to explore this emerging potential market for Takful.

PAKISTAN REINSURANCE COMPANY LIMITED

Since the business of insurance companies is to spread the risk, therefore, the need for establishment of a domestic reinsurance company was felt so the Pakistan Reinsurance Corporation (presently called as Pakistan Reinsurance Company Limited) was established in 1953. It was also aimed to reduce the outflow of foreign exchange that was earlier used as reinsurance premiums made to reinsurance companies mainly in the U.K. Pakistan Reinsurance Company Limited (PRCL) was formed by the Government of Pakistan to provide reinsurance capacity to the local insurance industry. A number of foreign reinsurers from Europe, Middle East and Asia are also supporting this market.

List of some Insurance Companies in Pakistan: