State Life gets better business from smaller cities

Bulk of insurance giant’s business has shifted from Karachi to other cities.

KARACHI: Many would be surprised to learn that the State Life Insurance Corporation of Pakistan (SLICP) generated a larger amount of first-year individual life insurance premiums from Sialkot than from Karachi in 2011; even though the number of people living in Sialkot, as per the most recent national census report, account for only 5% of Karachi’s total population.

Not only Sialkot, but Faisalabad, Lahore and Multan were also ahead of Karachi in terms of new premiums for the country’s largest life insurance company in 2011.

While talking to The Express Tribune, SLICP Chairman Shahid Aziz Siddiqi said that Faisalabad, for example, generated new premiums of Rs1.14 billion in 2011, as opposed to Karachi’s Rs780 million in the same period, because of State Life’s traditionally effective sales and marketing team in the city.

However, a more likely reason seems to be the strong presence of private life insurance companies in Karachi which, according to Siddiqi himself, are neck and neck with State Life as far as individual life insurance is concerned.

The fact that private insurance companies are able to compete with the life insurance giant, at least in Karachi, shows that they have come a long way since 1992 – when the private sector was first allowed to participate in the life insurance business in Pakistan. Life insurance operations of 32 companies had been nationalised by Zulfikar Ali Bhutto in 1972 and merged under the SLICP, which remained the sole player in the life insurance market till 1992.

State Life is still by far the dominant player in the life insurance sector in Pakistan: out of 4.1 million individual life insurance policyholders, it caters to 3.7 million – representing a market share of over 90%. While State Life’s total assets in 2010 were booked at Rs251.48 billion, collective assets of the six private companies operating in the life insurance business in the same year were just Rs39.43 billion; less than 16% of State Life’s total assets.

So, while private life insurance companies may have managed to grab a considerable market share in Karachi at least, smaller cities and towns are still dominated by State Life. According to Siddiqi, one of the reasons why State Life has consistently performed well in rural areas is its sales force – about 67% of its 110,000-strong sales force is based in small towns and rural areas.

In 2007, State Life’s annual new premiums were Rs3.70 billion. They increased to Rs11.64 billion in 2011 – a rise of 214.6%. Similarly, the number of State Life’s individual life insurance policyholders increased from 2.3 million in 2007 to 3.7 million in 2011 – spiking about 61% in the period.

“Continuity of policies and management for a reasonable amount of time ensures better governance and creative, new products,” Siddiqi said in this regard. A former civil servant belonging to the District Management Group (DMG) of the Central Superior Services (CSS), Siddiqi was appointed as SLICP chairman in June 2008 and has been continuing in that capacity since.

As of December 2011, the investment portfolio of State Life stood at Rs275.11 billion. Its investment income for the year was Rs31.17 billion.

A close look at the investment structure and returns of State Life reveals that while more than 70% of its investment portfolio consists of government securities, their share in total investment income in 2011 was 66%.

On the contrary, only 9% of its investments were in equities by the end of 2011, although their share in investment income for the same year was over 13%; signifying the fact that increasing investments in equities may lead to higher levels of income from investments.

However, Siddiqi disagrees. “We’re very cautious when it comes to investing in equities. We’re a repository of the trust of our policyholders. We don’t want to expose them to risk, and that’s why we invest in blue-chip companies only.”

He says 88 out of every 100 insurance policies at State Life mature within the policyholders’ lifetime. The average annual yield of different insurance products of State Life is 13.5%, he adds. “Linking life insurance solely to death is unfair. It’s as much about savings as it’s about hedging against unforeseen events in life.”

Published in The Express Tribune, June 11^th, 2012.