Pakistan, our home, is at a crucial point in its journey. As we navigate the ups and downs of the global economy and work towards greater financial stability, the importance of a strong insurance sector, particularly life insurance, becomes crystal clear. It’s about building a safety net for our people, ensuring that families can weather any storm. This special edition by the Pakistan & Gulf Economist is a great opportunity to discuss where we stand, the challenges we face, and how we can pave the way for a more secure future for every Pakistani.
“Insurance isn’t just a financial product; it’s a promise of security and peace of mind,” says Kapeel Kumar. “It’s about empowering individuals and families to face the future with confidence.”
Understanding the Landscape: A Quick Look at Pakistan’s Insurance Sector
The numbers tell a story of immense potential. Pakistan’s insurance market is projected to reach USD 11.52 billion in 2024, with life insurance holding a significant share at USD 6.83 billion. However, despite this seemingly large figure, Pakistan’s insurance penetration, measured as a percentage of GDP, remains low. Reports indicate a penetration rate of less than 1% of GDP. This highlights the vulnerability of many families to financial shocks arising from unforeseen life events.
This low penetration is particularly concerning given the socio-economic realities of Pakistan. As the World Bank’s 2024 report indicated, poverty rates have, unfortunately, increased, pushing more people into financially precarious situations. In such a context, the security net provided by life insurance transforms from a luxury to a vital necessity.
The Stark Reality: Pakistan’s Life Insurance Gap
While life insurance constitutes the largest segment of Pakistan’s insurance market by volume, its penetration remains relatively low. This suggests that a significant portion of our population remains uninsured, leaving families potentially exposed to severe financial hardship if the primary income earner passes away.
Several factors contribute to this gap. Traditionally, insurance has been viewed with skepticism by some and considered an unaffordable expense by others. A lack of financial literacy and limited awareness about the benefits of life insurance further exacerbates this issue.
We need to change the narrative around insurance “It’s not just for the wealthy; it’s a fundamental tool for financial planning and protection for everyone.”
Learning from Global Experiences: Lessons from India and Kenya
The experiences of other developing nations offer valuable lessons for Pakistan.
- India: With its ambitious “Insurance for All by 2047” vision, India has made significant strides in increasing life insurance penetration, which is notably higher than Pakistan’s. This progress has been supported by a proactive regulatory environment and initiatives to simplify insurance access.
- Kenya: Kenya provides another interesting case study. It has leveraged mobile-based microinsurance platforms, such as M-Tiba, to increase insurance access, particularly in rural areas. According to the World Bank, these digital solutions have played a role in expanding affordable health insurance coverage through mobile technology in Kenya (World Bank). This demonstrates the potential of leveraging existing technology infrastructure to reach a broader population.
A Way Forward for Increased Penetration: The Promise of Digital Insurance
Digital insurance, or insurtech, is emerging as a potentially powerful tool to overcome traditional barriers to insurance penetration in Pakistan. By leveraging technology, insurers can:
- Enhance Accessibility: Digital platforms, including mobile apps and online portals, can reach a wider audience, particularly in areas where traditional insurance distribution is limited.
- Reduce Costs: Automation and streamlined processes can potentially lower operational costs, making insurance products more affordable.
- Improve Customer Experience: Digital solutions can simplify the insurance purchasing and claims process, enhancing convenience and transparency for customers.
- Promote Financial Inclusion: Microinsurance products offered through digital platforms can cater to the needs of individuals and small businesses, fostering greater financial inclusion.
The Securities and Exchange Commission of Pakistan (SECP) has acknowledged the potential of digital insurance and is working to promote its development through supportive regulations and directives, such as those facilitating the sale of life insurance savings products through technology-based channels.
I believe Digital innovation is a game-changer for the insurance industry, It allows us to reach more people, offer tailored solutions, and provide a seamless customer experience.
State Life’s Contribution and Leadership in the Industry
As a leading player in Pakistan’s insurance sector, State Life Insurance Corporation has consistently worked to expand its reach and provide financial security to a wider segment of the population. Under the leadership of Mr. Shoaib Javed Hussain, State Life has experienced significant growth and strengthened its position in the market.
Key highlights of State Life’s performance in 2023 include:
- A substantial increase in Gross Written Premium (GWP), reaching PKR 286 billion plus.
- Market leadership with a market share exceeding 70%.
- Significant growth in total annual income to PKR 526 billion, a 37% increase from the previous year.
- Growth in total assets to PKR 1.93 trillion plus, a 20.5% increase.
- A 10% increase in premium income, reaching PKR 268 billion plus.
- Investment income of PKR 258 billion plus, with an investment yield of 13% p.a.
- Policyholder bonus payout of PKR 122 billion plus, a 23% increase.
- Claim payments of PKR 248 billion plus, a 41.2% increase.
State Life’s focus on building a strong organization, while striving to meet the needs of its stakeholders, has not only driven its own success but also contributed to the development of the insurance sector in the country. The corporation recognizes the existing protection gap and is actively exploring and adopting innovative strategies, including digital channels, to enhance accessibility and awareness of life insurance.
The State Bank of Pakistan’s (SBP) Financial Stability Review 2024 highlights the overall growth of the financial sector, with the insurance industry playing a crucial role in providing financial risk mitigation. Life and family segments are important contributors to the insurance industry, holding a significant share of the overall sector’s gross premium. The SECP is actively working to expand insurance coverage to more people through digital and micro-insurance initiatives.
The way forward
Achieving greater life insurance penetration in Pakistan requires a multi-pronged approach:
- Prioritizing Financial Literacy and Insurance Awareness: Focused efforts are needed to educate the public about the benefits of life insurance and address any misconceptions. Utilizing digital channels, given Pakistan’s increasing mobile and broadband penetration, is essential for reaching a wider audience with accessible information.
- Evolving the Regulatory Framework: Drawing inspiration from regulatory practices in other countries, Pakistan can create an environment that encourages innovation in insurance while ensuring consumer protection. The development of micro-insurance products with affordable premiums demonstrates the potential of this approach.
- Addressing Market Specificities: Tailoring products to meet the diverse needs of the Pakistani population is important for wider adoption. Collaboration between fintech companies and insurance providers can be valuable in developing accessible and relevant solutions.
Education is key to bridging the insurance gap and we need to empower people with the knowledge to make informed decisions about their financial future.
Securing Pakistan’s Future, One Policy at a Time, bridging Pakistan’s life insurance gap is a significant endeavor, but it’s an achievable one. By leveraging the potential of digital technology, encouraging a supportive regulatory environment, and prioritizing financial literacy, Pakistan can work towards empowering its citizens with the security and peace of mind that life insurance can provide. The journey towards greater coverage will require continued collaboration and innovation, with the ultimate goal of building a more resilient and financially secure future for all.
The future of insurance in Pakistan is bright by working together, we can create a society where everyone has access to the protection they need to thrive.
The Author is Regional Head Underwriting, State Life Insurance Corporation, Southern Region