Insurance is defined as a promise of compensation for specific potential future costs in exchange for a periodic payment basically Insurance is to safeguard the financial well-being of an individual, company or other entity in case of an emergency or unforeseen accident/loss. Insurance policy is a contract between the Insurance Company and an individual, organization or other entity called Insured and Insurer. In exchange of payment /premium from the Insured, the Insurer pays certain amount / sum of money to the policy holder in case of occurrence of some event.
Baffling a public that wants to trust their insurers is not a good long-run strategy—especially when it appears to spin underwriting profits from smoke and mirrors at policy holders’ expense.
“Insurance in Pakistan can be separated into two broad segments: Life and General. Life Insurance companies usually deal with life (savings based known as unit link and pure life) and health insurance products and are strongly regulated. General Insurance companies deal with Motor, Fire, Travel, Property, Marine insurance etc and have fewer regulations. According to Insurance Association of Pakistan reports, there are 8 life insurance players and 29 general insurance players in Pakistan as of 30-September-2020.” Gross premiums are at 0.92% of GDP for Pakistan according to a recent Insurance Association of Pakistan (IAP) report
The insurance market in Pakistan is broadly categorized in two main classes, life insurance and non-life insurance. Moreover, the country has one reinsurance company that carries out reinsurance activities and further spreads the risks. The insurance market is highly concentrated in urban areas and many insurance companies are subsidiaries of large industrial groups that were created mainly to reduce the outflow of funds in the form of premiums, to manage the risks of these industries and to generate profits out of it. At present there are 54 insurance companies out of which 49 companies offer non-life insurance and 5 offer life insurance services. The non-life insurance industry also includes six companies that also provide health insurance coverage.
As per report of Insurance association of Pakistan (IAP) 2020, “The age-old method is the agent led model where-in a person sells insurance products through in person meetings in exchange for a commission on the sale. This model is slow, expensive, prone to mis-selling and doesn’t scale well. The other traditional channel is sales through banks, more popularly known as Banc assurance. Here savings based life insurance products are sold to customers who maintain healthy balances and other insurance products are sold as a bundle with loans that are given out by the bank (car insurance + car finance, home insurance + home finance etc). This model is much more targeted but again is prone to miss-selling and pushy selling (remember Ainak Wala Jin above?) and is also expensive (commission sharing with bank and its employees). ”
The report further says that,”The third and more recently developed channel has been telecommunication companies, which has allowed insurance companies to reach bottom of the pyramid customers with micro insurance products. A customer is pitched an insurance product (usually health or term life) over a call and gives consent via USSD code and daily balance starts to deduct from their phone. While this model has had success in Pakistan, it has its limitations since it is a pushed product, not cashless and customers do not receive anything physically. Additionally, telecoms charge huge commissions of up to 30%, having reached revenue saturation with their main lines of business, increasing the price of the product for the end customer. According to industry insiders, more than 90% of insurance in Pakistan is generated through traditional agent led and banca models. Corporate sales forms 80% of general insurance sales and only 10% of life insurance sales.”
Pakistan Insurance Industry has been small as compared to the other industries in the region. The industry’s penetration and density has remained low but over the last 5 years Life Insurance has shown rise in growth. This increase is because of the change in the mindset of people as they have started to consider Insurance policy as a security for prosperous future if some unfortunate accident happens. This change is very encouraging. Moreover, through right set of Macroeconomic reforms e.g. Liberalization & Market based regulatory and supervisory regime, substantial development can be expected in the future.
Among all types of policies, Life Insurance policy is mostly in demand and is significantly affecting social and economic structure of the economy. Life Insurance growth rate is 30 – 35 % annually and it has tremendously increased because Industry has practiced operational innovations as per consumer need and there has been a strong competition among the players despite the challenges of uncertain economic conditions. The industry is also getting benefit from the changes in the regulatory environment and expansion of distribution channels and opening of Window Takaful Operations to target the market, which was previously not touched due religious aspect. Insurance is a private contract and seems to focus personal interest but actually insurance is for public interest. Consumer trust has been built through regulatory laws, prevention of unfair trade practices, The most financial solvency and Insurance products standardization.
The Insurance Industry growth depends upon macroeconomic, regulatory and demographic factors. In 2011 the Insurance penetration was only 0.7 % of GDP, which was really low when compared with India and Bangladesh. The multinational companies are not interested in utilizing innovative products of Insurance industry due to unstable security and political environment.
Insurance companies needs to invest in the training competencies & skills of their employees and they should also be equipped with technical ability to innovate new products. There is also need to inculcate ethics and good business practices among human resources of Insurance Companies. The most important aspect is customer service, as customer wants to know about demand value and differentiation in return for their loyalty and long – term relationship. If insurer delivers an exceptional and engaging customer experience, it eventually translates into profit. There is a need to work continuously for the improvement in innovation techniques of customer dealing and insurance products.
All over the world, globally Insurance Sector is going through prominent changes and Insurance Companies to achieve efficiency are restructuring in both organizationally and operational dimensions. It has led to a new change in the financial risk management and uncertainties. Life Insurance Policy is to be sold to the people by clearly explaining the advantages of the policies. If the employees are fully trained and knowledgeable then they can transfer motivational force into the people and this could result in the emergence of Insurance Industry and Economy as a whole.
With the passage of time the revenues of the Insurance Companies are increasing and there is a strong demand for Insurance of Vehicles, Property, Health and other insurances across the Pakistan. Growing Life Expectancy, Savings through Insurance policies and Tax incentives on buying insurance products have also encouraged customers across all types of Insurance segments.
Throughout the globe, Insurance market is dominated by Vehicle Insurance with a growth rate of CARG 6.45 %. Pakistan Insurance Industry is facing competition not only from Insurance Companies as they compete with each other but also from risk retention groups, governments and self- insurance. This competition is based on the quality of services insurance company is providing and price of the insurance products. Now many large organizations are self- insuring their employee’s health coverage which has also slowed down the working of Insurance Companies.
Economic growth, increased government expenditure, technological innovations and consumer awareness about the insurance products has increased the insurance penetration in Pakistan. Digital distribution is also helping insurers to get policies easily. There are digital distribution channels like Insurtech, messaging platforms and online sales to encourage the image of Insurance Industry of Pakistan.
Businesses, individuals and organizations are getting benefit of varying quality of Insurance products to meet the needs of end user customers and propel net sales. The life Insurance Industry appears to have emerged out of pandemic COVID – 19 unscathed.
All major performance indicators like premium, assets to profitability and number of employees were stronger at the end of March 2021 than a year ago. Pandemic brought “notable change” in the life style of life insurance consumers. Now people are more interested in insurance protection rather than savings propositions. For the first time people were eager to invest in life insurance policies.
Life Insurance is a “bundled proposition” in which people invest for 10 – 12 years for protection against death or disability while accumulating “Disciplined Savings” for a specific purpose like children’s education or retirement.
“The last one and a half years have shown us that people are actually more concerned about the future now. They worry that how their families will survive if something happens to them.
The spokesperson of of Security Exchange Commission of Pakistan who regulates insurance sector said in second half of 2021, “Since penetration of Insurance Sector in Pakistan is already low so the impact of Covid-19 has not deteriorated the financial status of the insurance companies.”
Life Insurance penetration, which reflects premium as a percentage of GDP, is moving inch by inch and is 0.6% of GDP, which is significantly low compared with other economies. But naturally there was effect of Covid-19 on the insurance industry especially that hit was stronger in the short run. The worst period for the industry was from March to June 2020, due to countrywide lockdown which restricted movement and access of insurance agents.
As a result, premium which is the mainstay of the life insurance company dropped down to 4.6% in 2020 to Rs 233.1 billion. In contrast there was a significant increase in death claims that insurers paid but to policy holders during the same period was 20.2% to Rs 12.6 billion gross. The growth rate of death claims dominated the premium. There was an increase in the overall premium but first year premium dropped down to 3% in 2020 and it was pronounced high during March-June 2020.
Insurance companies were facing fear of business failures but due to recovery during second half of 2020, the drop in business was limited.
Life insurance industry faced the challenge of Covid-19 head-on despite there was increase in death claims by one fifth within a year. EFU, the second largest Insurance company, paid out Covid-19 related claims in excess of Rs 900 million as per the statement of Deputy managing director of EFU Life Insurance. During the second half of 2020 the amount registered an increase of 15% because the potential customers were more focused on the protection element. Due to uncertainty of life due Covid-19 they wanted to secure the life of their loved ones and wanted to leave handsome amounts for their off springs and beloved family members.
The Deputy managing director of a highly reputed insurance company said, “we also observed a surge in Protection based mass market policies distributed in alternative channels such as telecom companies, branchless banks and digital platforms.” The small ticket policies with premium as low as Rs 2 per day that provide insurance cover of up to Rs 100,000 a month. When interviewing one of the EFU Manager, he told that during outbreak of COVID -19 time period, for the very first week offices were completely closed but management devised work strategy of reopening offices, shifting to digitalization. Marketing and sales activities were continued by sharing posts on Facebook and making video calls to the clients. Through video conferencing consultants and management was connected. Social media was extensively used. During that time sale was more than the normal time sale because of the uncertainty of life. Many people lost their lives and during that time span who had bought different insurance plans got benefits for their families and almost 3 billion was paid to the families of the deceased. Along with the old clients there were many new clients who approached the first largest private Insurance Company EFU and bought many life and disability plans like Life Insurance, Health Insurance and Children’s Education plans. EFU gave insurance coverage of one lakh to both old and new clients irrespective of the fact what is the value of their policy. One client bought Life Insurance policy during December 2021 and died in February 2022 and few days back there has been given 4 million rupees as insurance claim. There was noticeable increase in the purchase of these policies and now even when the pandemic effects have subsided there is an upsurge in the demand of policies. People seeing the pandemic death rates so closely are now more conscious and rationally willing to buy securities for their wives and children. To safeguard, protect and help all the cadres of employees, a loan facility was announced by the higher management for new inductions specifically and others in general so that during holy month of Ramadan and on festive occasion of Eid people can fulfill their needs. The loan recovery was in the form of monthly instalments from their accounts. No doubt it was a very practical approach of Human Resource Department to safeguard the rights of employees and solve their financial problem. In these days of severe job crisis many individuals even with higher degrees were accommodated in these insurance companies as employees. So, these companies provided jobs to many people.
To get more information about the working and procedures followed by the insurance companies, a telephonic interview from another branch manager of a different well known insurance company was conducted. While responding to different questions he told that EFU being the largest private insurance company is selling more than 30 insurance products. On average 80 % of the securities are sold to the males because they are the earning members in most of the cases. They usually buy “Prosperity for life plan” and make their wives children and wives nominees. There are 10 – 20 % women buy insurance plans since they have to support their families as single mothers, as singles or being supporting members in case there is no male member in the house. The success rate of Prosperity for Life plan is 50- 60 %. for this plan both the parties get benefits as the sales agent has long span of earning and high rate of commission and client has opportunity to get disability and death benefit immediately.
During COVID – 19 when there was lock down the sales dropped down to low. The Sales jobs demands face to face meeting in which clients are given presentations, they raise many questions for which they need favorable answers. There is a success ratio of 1:20 to sell any insurance product. Though digitalization plans were made by the company, video calling was used to connect up the clients but the success rate was minimal. The earnings and commissions of the employees were very low. Few of the employees also become prey of this deadly pandemic and lost their lives. Their families also got their insurance claims from the company. Since many people lost jobs during COVID- 19 and due uncertainty people were reluctant to invest so it was really very difficult to sell insurance products to them.
Employees receive both on the job training and some presentations and workshops are also arranged for the employees. Some junior employees imitate seniors in learning the art of sales man ship.
All too often, the property-liability insurance industry tries to do something new which may make good legal, actuarial, or financial sense to those of us whose careers revolve around insurance, but which baffles the general public.