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Review of Pakistan’s insurance sector

The studies revealed that insurance is one of the main and significant fields of the economy. To protect people from risks and from dangers is the main part of the insurance. As we know in modern period there are too many accidents, bad events and unexpected dangers. These risks can happen every time and unpredicted in life. Truly speaking, people always think about this problem, how to escape from these risks. For this cause insurance is considered the best tool for these problems. People use insurance to keep their assets and life under guarantee. So, insurance gained popularity globally. Insurance plays great role both in developed and developing countries’ economy.

In Pakistan statistics showed that the penetration of the insurance industry is absurdly low, even when compared to other states with same per capita income. During last year (2019), the insurance penetration in Pakistan was recorded 0.9 percent of GDP (gross domestic product). This is much lower than India’s penetration, at greater than 3.6 percent, the region’s average of 2.2 percent, the emerging markets average of 3.2 percent, and the worldwide average of 6.3 percent. Before one despairs, that figure is still a massive improvement on what it was previously: during 2012, it reached at a measly 0.67 percent. Pakistan insurance sector has one of the lowest insurance penetrations in the region, which is holding economy back.

The experts recorded that a main challenge facing this sector is lack of quality human resource. Insurance companies need to invest in developing the competencies and skills of their employees along with technical abilities to innovate new products. Further, inculcating ethics and good business practice is also crucial. Moreover, another main area of utmost significance is customer services. The needs of the customers are evolving and they rightly demand value and differentiation in return for their loyalty and long-term relationship. The insurers have to abide by various operational, regulatory and financial requirements, which makes it all the more complex and expensive. When insurers deliver an exceptional customer experience, it ultimately translates into profits. Therefore, continuous improvement and innovation is required in this area for insurance companies to excel. The insurance sector is going by a lot of changes globally, creating new issues and opportunities for both the insurers and regulators. Therefore, it is essential for insurance companies to go by organizational and operational restructuring to attain overall efficiency through avoiding financial risk and uncertainties. It is also said that the players in the insurance market should ensure that the life insurance is presented to an individual with all its advantages and benefits. Better education and awareness that would result from a fair and quality transfer of knowledge would itself represent a motivational force that could be highly beneficial for the economy in general and for the insurance sector in particular.


Presently, the country has 36 insurance companies, of which seven are life insurance companies. Those seven life insurance companies have a disproportionate hold on the whole sector, accounting for almost 63 percent of total gross premiums. The total size of the industry is Rs308 billion. Despite the low penetration rate, on the bright side, the gross premiums of Pakistan’s whole insurance sector has a 5-year compounded annual growth rate (CAGR) of 17.7 percent, from Rs136.3 billion in 2013, to Rs308 billion in 2018. Life insurance has a CAGR of 17.5 percent while non-life grew at a relatively lower CAGR of 9.6 percent. The experts of the sector also showed that this sector employs greater than 100,000 people directly and contributes almost Rs20 billion in various taxes and duties to the national exchequer. It is also said that the policy issues are impeding growth of this critical sector which include heavy taxation of over 17 percent on most general insurance business, which include high incident of taxation on health insurance. The experts also said that national assets are not permitted to be insured by private firms, which is resulting in absence of level playing field and losses to the government.

Furthermore in the country, third party motor insurance in not compulsory as is mandatory in other states as Pakistan has one of the lowest premium retention and premium is sent abroad mostly for large risks which causes huge foreign exchange loss to the country. The experts said on development of insurance sector the federal insurance fee is not spent and training of staff and unusual compliance requirements are set for general insurance firms which are very tough to follow by small establishments.

The Government of Pakistan should create pools for flood and natural catastrophe insurance with the assist of private sector and insurance sector should be recognised as industry and incentives should be given to increase it for potential employment of another 100,000 people. Interestingly, Pakistani insurance companies have not, not so far, advantaged from the Chinese entry into the market in any meaningful way. The reason is that Chinese firms have relied upon reinsurance by China-based large insurance companies. In the last few months, almost 6-month or so, after the present government took over, there is some change in the sense that domestic industry, counting Pakistani insurance companies, have started to get some business from Chinese investors, but this is as yet a new trend. Its consequences have to be assessed in time.

On the other hand, State Bank of Pakistan (SBP) permitted conventional companies to start Takaful window operations, which would additional boost for this sector as companies with their expansive distribution channels will be able to target the market, which was previously inaccessible because of religious causes. Takaful now gives this target market the opportunity to access the value proposition of insurance. It aims to target that market segment that deems conventional insurance against the Islamic rules.

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