The insurance industry of Pakistan has undergone a rapid structural transformation in the last three years that effectively reversed a 60-year-old trend. While premiums of life insurance companies traditionally remained less than those of non-life insurance companies for almost six decades, the life insurance sector grew so rapidly in 2010, 2011 and 2012 that its premiums now account for over 60% of the industry-wide figure.
According to provisional data maintained by the Securities and Exchange Commission of Pakistan (SECP), total premiums of life and non-life insurance sectors in 2012 were Rs85 billion and Rs56 billion, respectively.
Now the question arises: is the reversal in the decades-old trend due to growth in the life insurance business or stagnation in the non-life insurance business? A look at the industry’s growth patterns proves the phenomenon is a result of both growth in life business and stagnation in non-life business.
The provisional figure for growth in premiums of the life insurance sector for 2012 is 21%. The comparable figure for growth in the non-life insurance segment is hardly 6%, or less than one-third of the growth rate achieved by life insurance companies.
Similarly, year-on-year growth figures for the non-life insurance sector for preceding three years were 4%, 9% and 13%, barely beating inflation. On the other hand, growth in the life insurance sector was 22%, 27% and 30% over the same years.
“Insurance is a game of numbers. If you don’t have numbers, you can’t make informed decisions. Unlike their counterparts in the life insurance segment, non-life insurance companies are simply not willing to share data with each other. In the absence of credible data, they don’t know whether a risk is feasible at a certain rate or not,” SECP Insurance Commissioner Mohammed Asif Arif told The Express Tribune in an interview.
In this regard, he cites the recently signed agreement between life and family Takaful operators and the Central Depository Company (CDC), which will now maintain life insurance database to help all companies make sound business decisions.
For example, CDC will now have the database of all people that any life insurance company has turned down on medical grounds, thus ensuring that another company does not accept the same case on the basis of fudged reports.
CDC will also prepare a negative list of insurance agents who have been involved in fraud, so that they don’t get hired by another company.
Apart from a lack of authentic data, Arif says, a key problem that the non-life insurance industry faces is the high level of outstanding premiums. “Non-life companies’ outstanding premiums are 28% in Pakistan while they are either zero or less than 1% worldwide,” he said.
Arif says if the size of the non-life insurance sector is taken as Rs60 billion as of today, its receivables come around a little less than Rs17 billion.
“If they simply invested the amount equal to their receivables, they’d make far more money than the core income of all non-life insurance companies combined,” he says. Outstanding premiums are almost nil in the life insurance sector.
Arif says at least three new life insurance companies are expected to start operations in the next three years because of improving returns on investment in the life insurance business.
However, he doesn’t foresee any new company in the non-life segment in the near future. “Non-life insurance can be viable if their receivables are minimised. Only then new players will enter this market,” he says.
Published in The Express Tribune, July 11th, 2013.
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