- Despite low penetration, Takaful, health, and microinsurance are reshaping coverage across diverse populations
The concept of insurance in India predates modern systems, with roots in ancient texts like the Manusmriti, Dharmasastra, and Arthashastra (circa 600 BCE–300 CE). These texts describe resource pooling to mitigate risks from calamities like fire, floods, epidemics, and famine, a precursor to modern insurance. Early forms included marine trade loans and carriers’ contracts, which spread risks for maritime commerce.
Modern insurance in India emerged during British colonial rule, influenced by England’s insurance practices, particularly marine and fire insurance, spurred by the Industrial Revolution. The East India Company introduced marine insurance in the 17th century to protect its trade interests, formalizing risk coverage for maritime voyages. As per records the Oriental Life Insurance Company was the first Insurance company established here in 1818, is Calcutta (now Kolkata) by European settlers, primarily British, with Bipin Behari Das Gupta. However, the first life insurance company in India, it catered to the European community. It failed in 1834 due to financial mismanagement and lack of actuarial expertise. Before Pakistan’s independence in 1947, the insurance industry in the regions that became Pakistan was underdeveloped compared to India. Life insurance was influenced by Christian communities, with companies like Christian Mutual (Lahore, 1847) and Indian Life (Karachi, 1892, later Ideal Life in 1956) catering to niche groups. General insurance was limited, with foreign firms dominating.
Upon Pakistan’s creation in 1947, the insurance sector faced significant hurdles:
- Underdeveloped Market: Only five domestic insurers existed, with many Indian insurance staff leaving Pakistan, disrupting operations.
- Uninsured Migrants: Muslims relocating from India were largely uninsured, straining the nascent industry.
- Foreign Dominance: In 1950, foreign companies held 80% of non-life premiums and 52% of life premiums.
The government established the Department of Insurance under the Ministry of Commerce in April 1948 to regulate the industry. Early domestic players included EFU Insurance (founded 1932 in British India) and Habib Insurance (founded 1942 in British India), relocated in 1950). In 1953, the Pakistan Insurance Corporation (PIC) was established, a partly state-owned entity requiring all insurers to cede 10% of their business (increased to 30% by 1957). The Insurance Ordinance, 2000 (with roots in earlier laws) formalized regulation, covering life, general, and health insurance. The National Insurance Corporation (NIC) was established in 1976 under the National Insurance Corporation Act 1976 to provide general insurance for public sector assets in Pakistan. It was reorganized into the National Insurance Company Limited (NICL) in 2000. 1971: After East Pakistan’s secession (becoming Bangladesh), Pakistan nationalized its insurance industry. The State Life Insurance Corporation of Pakistan (SLIC) was created in 1972 to manage life insurance, absorbing private life insurers. National Co-Insurance Pool was State-controlled enterprises (e.g., Pakistan International Airlines) were required to insure through a national pool, reducing foreign insurers’ market share to 20% for property insurance by the late 1970s. The National Insurance Corporation (NIC) was established in 1976 under the National Insurance Corporation Act 1976 to provide general insurance for public sector assets in Pakistan. It was reorganized into the National Insurance Company Limited (NICL) in 2000 under the NIC (Reorganization) Ordinance 2000, becoming a public sector company under the Companies Ordinance 1984.
It is to be noted that the National Co-insurance Scheme (NCS) is not a company but a collaborative arrangement or pool among multiple Pakistani insurance companies, including NICL. It was created to strengthen the local insurance industry by sharing risks for large or high-value public sector insurance contracts. PRCL is Pakistan’s sole reinsurance company, providing reinsurance support to insurance companies (including NICL) operating in Pakistan. Reinsurance is insurance for insurers, where PRCL takes on a portion of the risk from primary insurers to reduce their financial exposure. The objective was to provide reinsurance capacity to local insurers, reduce dependence on foreign reinsurers, and retain insurance premiums within Pakistan. There is a strong interconnection between NICL, NCS, and PRCL, as they work together to strengthen Pakistan’s insurance industry and reduce reliance on foreign entities.
In 1972, the nationalization of Pakistan’s insurance industry, intended to centralize and strengthen the sector, was later recognized as a misguided decision and a strategic misstep. This move had a profound and detrimental impact on the industry, leading to significant setbacks and long-term challenges. The nationalized industry faced inefficiencies, limited product innovation, and low penetration due to cultural and religious reservations about insurance, particularly life insurance, which some viewed as conflicting with Islamic principles. The market remained dominated by SLIC and a few general insurers like EFU and Habib, with minimal private sector growth. In year 2000 The Securities and Exchange Commission of Pakistan (SECP), Insurance Division, was established to regulate the industry, replacing the Department of Insurance.
The Insurance Ordinance, 2000, set minimum paid-up capital requirements, forcing some smaller insurers to merge or close. On the other hand to address religious concerns, Sharia-compliant Takaful insurance was introduced. Companies like Pak-Qatar Takaful (founded 2006) offered Family and General Takaful, gaining traction among conservative customers. By 2010, the industry included 30+ insurers, with SLIC, EFU, and Jubilee Insurance as market leaders. The gross written premium grew steadily, reaching PKR 401.2 billion ($2.4 billion) by 2021. The SECP introduced directives for financial transparency, governance, and market conduct, aligning with global standards. The Insurance Rules, 2017, and Takaful Rules, 2012, strengthened oversight. The among local market leaders, The State Life Insurance Corporation, EFU Life, Jubilee Life Assurance, Adamjee Insurance and Pak Qatar. Only 1–2% of Pakistan’s population is insured, due to low awareness, religious concerns, and economic constraints. Inflation and currency depreciation (e.g., PKR devaluation) impact premium affordability and claims payouts. Smaller insurers struggle with SECP’s capital and solvency requirements, leading to consolidations. There are certain growth drivers for the national Insurance industry:
- Takaful Expansion: Sharia-compliant products have increased market acceptance.
- Health Insurance: Rising healthcare costs drive demand for health coverage.
- Microinsurance: Initiatives for low-income groups enhance financial inclusion.
- FDI and Innovation: Limited foreign investment (due to regulatory caps) but growing interest in insur-tech.
Islamic insurance, or Takaful, is a Sharia-compliant alternative to conventional insurance, adhering to Islamic principles that prohibit interest (riba), uncertainty (gharar), and gambling (maysir). In Pakistan, with a 97% Muslim population exceeding 241 million, Takaful addresses religious and ethical concerns, offering a cooperative, ethical insurance model. The roots of Takaful in Pakistan trace back to the 1980s, influenced by global Islamic finance developments. The First International Conference on Islamic Economics in Makkah (1976) declared conventional insurance non-compliant with Sharia, prompting Pakistan’s Council of Islamic Ideology to issue a similar ruling in 1983. Formal Takaful operations began with the Takaful Rules 2005, introduced by the Securities and Exchange Commission of Pakistan (SECP). The first Takaful company, Pak-Kuwait Takaful Company Limited, was established in 2005, marking the industry’s formal entry. Takaful operates on mutual cooperation, with participants contributing to a shared fund managed by a Takaful operator. There are different forms of Takaful lie General Takaful which Covers non-life risks like property, motor, marine, and accidents. Example: Insuring a factory against fire.. The Family Takaful: Provides life-related coverage (death, disability) with savings components. Example: A savings plan with death benefits. The Micro-Takaful: Affordable insurance for low-income groups, covering health, crops, or livestock. Example: Crop protection for farmers via mobile platforms.
The conventional insurers like Jubilee Life offer Takaful through Islamic windows, expanding reach via bancassurance. The years 2005–2010 witness the slow growth post-2005 rules, with five Takaful companies by 2010. Limited awareness hindered progress. In 2011–2015: SECP’s 2012 window operations boosted growth. Takaful contributions grew at a 39.2% CAGR, outpacing conventional insurance (28.6% CAGR). Micro-Takaful policies rose from 2.5 million (2012) to 7.4 million (2013). Soon, the Digitalization and regulatory reforms increased Takaful’s market share to 5–7%. Family Takaful led due to demand for life products. Currently, the Takaful’s share reached 8–10% by 2023, with a projected global market of $126.8 billion by 2032. Digital micro-insurers and health Takaful drove growth. In 2022 the Insurance Market share was PKR 513.2 billion, with life (60%) and non-life (40%) segments. Whereas the Takaful share was estimated at 8–10% in 2023, up from 5–7% in 2020. Family Takaful dominates. The Islamic banking holds 20% of the banking sector, targeting 30% by 2025. Takaful aims for 15–20% by 2030.The Micro-Takaful covers millions in the informal sector (80% of workforce), reducing vulnerability. It boosts savings and Shariah-compliant investments, with a proven link to GDP growth. The Local Takaful reduces reliance on foreign insurers, retaining premiums. Moreover, Takaful operations created over 1,000 jobs in 2015 alone, supporting the 8.5% unemployment rate. Aligned with Islamic values, improving insurance perception and resilience. The low penetration (0.7% of GDP), standardization issues, and competition from conventional insurance limit impact.
Currently, Pakistan’s insurance industry is valued at approximately $2.5–3 billion in gross written premiums, with life insurance (40%), general insurance (50%), and health insurance (10%) as key segments. The SECP’s focus on governance, coupled with Takaful and digital platforms, positions the industry for growth, though penetration remains low. Emerging trends include micro insurance for rural areas, cyber insurance, and parametric insurance for climate risks.
The author, Nazir Ahmed Shaikh, is a freelance writer, columnist, blogger, and motivational speaker. He writes articles on diversified topics. He can be reached at nazir_shaikh86@hotmail.com