NICL has exclusive rights over insurance of public property. CREATIVE COMMONS
The anti-trust watchdog on Tuesday asked the federal government to amend an Act of parliament in order to break the monopoly of the National Insurance Company Limited in the public property insurance business.
In a policy notice, the Competition Commission of Pakistan (CCP) asked the federal government to amend section 166 of the Insurance Ordinance, 2000, which currently prevents competition in the non-life insurance market by extending exclusive rights to the NICL with respect to insurance of public property, according to an official handout.
Section 166 (3) of the Insurance Ordinance, 2000 provides that all insurance businesses relating to any public property, or to any risk or liability appertaining to any public property, will be placed with NICL only and will not be placed with any other insurer.
The NICL is the only state-owned company, under the administrative control of the Ministry of Commerce, which is involved in non-life insurance business in the country.
In pursuance to commitments under World Trade Organisation financial service agreement, in December 1997, Pakistan had opened the insurance market as part of its financial sector reforms. The actual impetus to the reform process came with the promulgation of the Insurance Ordinance, 2000. However, the federal government permitted only NICL to underwrite and insure public sector property/liability.
The CCP observed that this statutory monopoly of NICL harms competition in the insurance market. The government is the direct consumer and denying itself the benefits of competition such as improved quality of service and competitive premiums, it added.
The statutory monopoly of NICL can be distinguished from situations in which a business may have achieved a monopoly position through organic growth or development because of a superior product, business acumen, or historic accident, said the CCP. Monopolistic position of the NICL has emerged not because of business acumen but because of the use of government power to monopolise through the creation of statutory barriers to reduce competition.
The NICL has a share in the total industry assets of 22% but its share in Gross Written Premium was only 12%.
Such preferential treatment for NICL creates de facto subsidies and leaves no incentive for NICL to maximise its efficiency. Statutory monopoly of NICL limits opportunities for potential competitors because legislative exclusive rights create barriers for new entrants.
The policy note recommends the federal government to take measures to amend Section 166 of the Insurance Ordinance, 2000 in order to open insurance of public property to the private sector, excluding public property that is related to national security, which will create a level playing field for all nonlife insurers in the insurance market.
The CCP said that market power in conjunction with statutory protection allowed far-reaching negative effects on consumers in two ways. First, monopolist undertaking may act anti-competitively in its own market, where it can restrict output or raise prices. Secondly, a statutory monopoly for an undertaking can create distortions in another market by anti-competitively cross subsidizing into product and service in which there is competition.
Published in The Express Tribune, May 20th, 2015.
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