SECP to resolve outstanding insurance premium issue
Change in rules to balance interests of policyholders, insurers.
Quite high: 21% is the total outstanding premium of the industry in Pakistan compared to around 2% in India. PHOTO: FILE
KARACHI:
The Securities and Exchange Commission of Pakistan (SECP) has proposed draft amendments to Rule 35 of the 2002 Securities and Exchange Commission (Insurance) Rules, which deals with outstanding insurance premiums.
In order to strike a balance between the interests of policyholders and insurers, the SECP has proposed to replace the provisions of the existing Rule 35 with a new rule as a prudent method of market practice, which will be called “Manner of receipt of premium and claims payment”.
In a statement issued on Tuesday, the SECP said the proposed amendments had been published in the official gazette of Pakistan to elicit public comments.
Currently, the figures for the premium receivable of the insurers show huge outstanding amounts with a high potential of default, which is also posing a large systemic threat, especially to the solvency of the insurers.
This phenomenon also seems unusual compared with the practices in comparable jurisdictions. For instance, the total outstanding premium of the industry in India is not more than 2% of the total premium compared to 21% in Pakistan.
In an interview with The Express Tribune last year, SECP Insurance Commissioner Mohammed Asif Arif stated that a high level of outstanding premiums was a key problem faced by the country’s non-life insurance industry.
“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 stated, adding outstanding premiums were almost nil in the life insurance sector.
Rule 35 of the 2002 Securities and Exchange Commission (Insurance) Rules says, “No insurance policy shall be liable to be avoided on the ground that the premium has not been paid... Nothing in this rule shall prevent the inclusion in a policy of a provision to the effect that (the) cover under the policy shall not commence until the premium has been paid or guaranteed to be paid in such manner as may be set out in the policy or otherwise accepted or agreed to by the insurer.”
According to the SECP insurance commissioner, the proposed move would make the insurance industry stable in financial terms. This would also lead to overall protection of the policyholders and further development of the insurance industry, he said.
The proposed amendment says, “No insurance cover shall commence unless the premium agreed between the insurer and the insured is received by the insurer.”
Any comments on the proposed amendments may be forwarded to the SECP by March 1, the statement said.
Published in The Express Tribune, February 5th, 2014.
The Securities and Exchange Commission of Pakistan (SECP) has proposed draft amendments to Rule 35 of the 2002 Securities and Exchange Commission (Insurance) Rules, which deals with outstanding insurance premiums.
In order to strike a balance between the interests of policyholders and insurers, the SECP has proposed to replace the provisions of the existing Rule 35 with a new rule as a prudent method of market practice, which will be called “Manner of receipt of premium and claims payment”.
In a statement issued on Tuesday, the SECP said the proposed amendments had been published in the official gazette of Pakistan to elicit public comments.
Currently, the figures for the premium receivable of the insurers show huge outstanding amounts with a high potential of default, which is also posing a large systemic threat, especially to the solvency of the insurers.
This phenomenon also seems unusual compared with the practices in comparable jurisdictions. For instance, the total outstanding premium of the industry in India is not more than 2% of the total premium compared to 21% in Pakistan.
In an interview with The Express Tribune last year, SECP Insurance Commissioner Mohammed Asif Arif stated that a high level of outstanding premiums was a key problem faced by the country’s non-life insurance industry.
“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 stated, adding outstanding premiums were almost nil in the life insurance sector.
Rule 35 of the 2002 Securities and Exchange Commission (Insurance) Rules says, “No insurance policy shall be liable to be avoided on the ground that the premium has not been paid... Nothing in this rule shall prevent the inclusion in a policy of a provision to the effect that (the) cover under the policy shall not commence until the premium has been paid or guaranteed to be paid in such manner as may be set out in the policy or otherwise accepted or agreed to by the insurer.”
According to the SECP insurance commissioner, the proposed move would make the insurance industry stable in financial terms. This would also lead to overall protection of the policyholders and further development of the insurance industry, he said.
The proposed amendment says, “No insurance cover shall commence unless the premium agreed between the insurer and the insured is received by the insurer.”
Any comments on the proposed amendments may be forwarded to the SECP by March 1, the statement said.
Published in The Express Tribune, February 5th, 2014.