Pakistan's Insurance Reforms, Postal Life Under Insurance Ordinance
ISLAMABAD: Federal Minister for Commerce Humayun Akhtar Khan here on Thursday unveiled a comprehensive insurance sector reforms strategy and said that the government has decided to bring Postal Life under the ambit of the Insurance Ordinance 2000. The Minister for Commerce said this while addressing a crowded press conference here at a local hotel.
The Minister said that after promulgation of the Insurance Ordinance 2000 and related Insurance Rules in 2002 the insurance sector went through a major reform process.
He said since then direct insurance premiums (excluding reinsurance premiums receivable by PRCL) have grown by 22% per annum over the past five years, totaling approximately Rs.52.2 billion in 2006, being 43% of life and 57% non-life (excluding PRCL).
Humayun said that as a result of this high growth in premium insurance penetration has improved but continues to be very low (0.67% of GDP), especially in the area of life insurance where Pakistan has a much lower penetration (0.27% of GDP) as compared to India (2.53% of GDP) and even Bangladesh (0.42% of GDP).
He said that a review of the government policy for the sector was therefore urgently required, the major objectives being to increase insurance penetration (and especially life insurance which would give a boost to contractual savings) by introducing incentives (especially for personal lines), removing impediments including anomalies in the regulatory framework, strengthening the capacity of the industry, encouraging the spread of insurance to rural areas and fine tuning the regulatory framework for Takaful (Islamic insurance).
He said that over the past four months the Ministry of Commerce has carried out a detailed policy review, involving consultation with all stakeholders (including leading industry players, regulators, professionals, etc.), consideration of practices in other countries and detailed analysis of policy options.
Apart from the industry in general the role of the three insurers in the public sector (State Life, National Insurance Company and Pakistan Reinsurance Company) have been reviewed to further enhance their performance and efficiency.
He referring to a presentation made to the Prime Minister on April 13, 2007, said that with various proposals being put forward to meet the policy objectives.
“All the proposals were approved in principle by the Prime Minister”, he remarked.
Humayun Akhtar Khan said that the proposals included a number of fiscal incentives relating to personal lines (especially life insurance) as well as recommendations to remove certain anomalies in the tax laws.
These were approved in principle and are being sent to the Central Board of Revenue to consider for inclusion in the upcoming budget, he remarked.
He said that the general insurance industry had also pointed out prevalence of bogus insurance companies issuing spurious Motor Vehicle Third Party Insurance Policies for motor vehicle registration purposes.
The Prime Minister, he said has directed Securities and Exchange Commission of Pakistan (SECP) to examine ways to prevent the issue of bogus policies and take suitable action, which should include making provincial agencies aware of the identity of registered insurance companies.
Minister for Commerce Humayun Akhtar Khan said that the Ministry of Commerce, has initiated a proposal to introduce a standard compensation scheme relating to third party liability to be underwritten by registered insurer which will be soon taken up with provincial governments.
Humayun Akhtar Khan said that the analysis carried out by the Ministry of Commerce indicated that insurance industry had failed to penetrate rural areas and provide insurance cover to socially deprived people.
He added that in order to address this, two initiatives would be taken.
Details
Firstly group insurance would be made compulsory, so that all workers would be compulsorily insured under the labour laws, he remarked.
He said that the necessary process to achieve this is being initiated in consultation with the Ministry of Labour and Manpower.
Secondly a framework would be developed under which all insurers would be required to write a certain proportion of their business in rural areas as well as amongst those socially deprived, he added.
“While the framework was being formulated the two state owned direct insurers, i.e. State Life and NICL, would immediately introduce micro-insurance schemes and would also co-ordinate the efforts of the task force to be constituted for this purpose by the Ministry of Commerce”, he remarked.
He said that a perception that conventional insurance is not allowed in Islam was another cause of low penetration.
He added that in order to address this the government had promulgated Takaful Rules in 2005, allowing dedicated Takaful companies to start writing business.
Recognizing that new companies would take some time to build up their distribution channels, the government had decided in principle to allow existing conventional insurer to write Takaful business through “window operations”. The SECP had started revamping the Takaful Rules accordingly, he remarked.
The Commerce Minister said that in order to ensure a level playing field and encourage the retention of insurance risks within Pakistan it was also necessary to rationalize the role of insurers in the public sector.
“One major anomaly is the non-applicability of the regulatory framework to Postal Life Insurance”, he remarked.
He said that the government has decided to bring Postal Life under the ambit of the Insurance Ordinance 2000.
The process for achieving this is being initiated by the Ministry of Commerce in consultation with the Ministry of Communications, he added.
SLIC Operations
The Minister said that State Life’s (SLIC’s) operations are currently constrained of provisions in the Life Insurance Nationalization Order, 1972 under which SLIC was formed.
He added that it has been decided to convert SLIC into a private limited company under the Companies Ordinance 1984.
At the same time necessary changes will be made to enable SLIC to distribute a higher proportion of surpluses to shareholders in line with private sector companies, he remarked.
He added that after converting it to a registered company a proportion of SLIC’s shares would be floated in the Karachi Stock Exchange. Management control would, however, continue to be retained with the Federal Government.
The Commerce Minister said that the insurance of public properties (other than strategic assets), which was the sole right of the National Insurance Company Limited (NICL), would now be opened up to the private sector, with a proviso that the first Rs. 500 million of each risk should be retained within the country.
At the same time NICL would enter the private sector market, acting as a lead risk capacity provider and participating in the insurance of private sector risks through coinsurance and reinsurance acceptances, the objective being to retain the maximum risks within Pakistan and reduce the outflow of reinsurance premiums, he remarked.
He added that the capital base of PRCL is to be increased by realizing capital gains and capitalizing the reserves thereby created.
“PRCL’s right of first refusal of 35 % of reinsurance treaties of private sector insurers is to be reinstated in order to limit the outflow of reinsurance premiums from the country”, he remarked.
“While it has been decided to continue to retain control of the three public sector insurers (SLIC, NICL and PRCL) with the Federal Government, it had also been decided to introduce changes in the governance structure so that these companies be run along commercial lines”, he said.
In this regard, he said it has been decided to make the Boards of Directors totally autonomous and fully empowered to take decisions relating to operational, financial and administrative matters without a need to consult the government departments”.
This, he said will include their ability to hire and remunerate expertise, including professionals, on market based salaries.
Humayun Akhtar said that finally the Ministry’s analysis has indicated a dearth of qualified insurance professionals in the country.
Accordingly steps are needed to enhance the supply of trained manpower, he said.
He said that government has been decided to convert the Pakistan Insurance Institute (PII), Karachi into the Pakistan College of Insurance and Takaful (PCIT) so as to address the shortage.
PCIT, he said would run dedicated training programmes comprising diploma and degree courses.
PCIT would seek affiliation with institutions such as the IBA of University of Karachi, he added.●
The Minister said that after promulgation of the Insurance Ordinance 2000 and related Insurance Rules in 2002 the insurance sector went through a major reform process.
He said since then direct insurance premiums (excluding reinsurance premiums receivable by PRCL) have grown by 22% per annum over the past five years, totaling approximately Rs.52.2 billion in 2006, being 43% of life and 57% non-life (excluding PRCL).
Humayun said that as a result of this high growth in premium insurance penetration has improved but continues to be very low (0.67% of GDP), especially in the area of life insurance where Pakistan has a much lower penetration (0.27% of GDP) as compared to India (2.53% of GDP) and even Bangladesh (0.42% of GDP).
He said that a review of the government policy for the sector was therefore urgently required, the major objectives being to increase insurance penetration (and especially life insurance which would give a boost to contractual savings) by introducing incentives (especially for personal lines), removing impediments including anomalies in the regulatory framework, strengthening the capacity of the industry, encouraging the spread of insurance to rural areas and fine tuning the regulatory framework for Takaful (Islamic insurance).
He said that over the past four months the Ministry of Commerce has carried out a detailed policy review, involving consultation with all stakeholders (including leading industry players, regulators, professionals, etc.), consideration of practices in other countries and detailed analysis of policy options.
Apart from the industry in general the role of the three insurers in the public sector (State Life, National Insurance Company and Pakistan Reinsurance Company) have been reviewed to further enhance their performance and efficiency.
He referring to a presentation made to the Prime Minister on April 13, 2007, said that with various proposals being put forward to meet the policy objectives.
“All the proposals were approved in principle by the Prime Minister”, he remarked.
Humayun Akhtar Khan said that the proposals included a number of fiscal incentives relating to personal lines (especially life insurance) as well as recommendations to remove certain anomalies in the tax laws.
These were approved in principle and are being sent to the Central Board of Revenue to consider for inclusion in the upcoming budget, he remarked.
He said that the general insurance industry had also pointed out prevalence of bogus insurance companies issuing spurious Motor Vehicle Third Party Insurance Policies for motor vehicle registration purposes.
The Prime Minister, he said has directed Securities and Exchange Commission of Pakistan (SECP) to examine ways to prevent the issue of bogus policies and take suitable action, which should include making provincial agencies aware of the identity of registered insurance companies.
Minister for Commerce Humayun Akhtar Khan said that the Ministry of Commerce, has initiated a proposal to introduce a standard compensation scheme relating to third party liability to be underwritten by registered insurer which will be soon taken up with provincial governments.
Humayun Akhtar Khan said that the analysis carried out by the Ministry of Commerce indicated that insurance industry had failed to penetrate rural areas and provide insurance cover to socially deprived people.
He added that in order to address this, two initiatives would be taken.
Details
Firstly group insurance would be made compulsory, so that all workers would be compulsorily insured under the labour laws, he remarked.
He said that the necessary process to achieve this is being initiated in consultation with the Ministry of Labour and Manpower.
Secondly a framework would be developed under which all insurers would be required to write a certain proportion of their business in rural areas as well as amongst those socially deprived, he added.
“While the framework was being formulated the two state owned direct insurers, i.e. State Life and NICL, would immediately introduce micro-insurance schemes and would also co-ordinate the efforts of the task force to be constituted for this purpose by the Ministry of Commerce”, he remarked.
He said that a perception that conventional insurance is not allowed in Islam was another cause of low penetration.
He added that in order to address this the government had promulgated Takaful Rules in 2005, allowing dedicated Takaful companies to start writing business.
Recognizing that new companies would take some time to build up their distribution channels, the government had decided in principle to allow existing conventional insurer to write Takaful business through “window operations”. The SECP had started revamping the Takaful Rules accordingly, he remarked.
The Commerce Minister said that in order to ensure a level playing field and encourage the retention of insurance risks within Pakistan it was also necessary to rationalize the role of insurers in the public sector.
“One major anomaly is the non-applicability of the regulatory framework to Postal Life Insurance”, he remarked.
He said that the government has decided to bring Postal Life under the ambit of the Insurance Ordinance 2000.
The process for achieving this is being initiated by the Ministry of Commerce in consultation with the Ministry of Communications, he added.
SLIC Operations
The Minister said that State Life’s (SLIC’s) operations are currently constrained of provisions in the Life Insurance Nationalization Order, 1972 under which SLIC was formed.
He added that it has been decided to convert SLIC into a private limited company under the Companies Ordinance 1984.
At the same time necessary changes will be made to enable SLIC to distribute a higher proportion of surpluses to shareholders in line with private sector companies, he remarked.
He added that after converting it to a registered company a proportion of SLIC’s shares would be floated in the Karachi Stock Exchange. Management control would, however, continue to be retained with the Federal Government.
The Commerce Minister said that the insurance of public properties (other than strategic assets), which was the sole right of the National Insurance Company Limited (NICL), would now be opened up to the private sector, with a proviso that the first Rs. 500 million of each risk should be retained within the country.
At the same time NICL would enter the private sector market, acting as a lead risk capacity provider and participating in the insurance of private sector risks through coinsurance and reinsurance acceptances, the objective being to retain the maximum risks within Pakistan and reduce the outflow of reinsurance premiums, he remarked.
He added that the capital base of PRCL is to be increased by realizing capital gains and capitalizing the reserves thereby created.
“PRCL’s right of first refusal of 35 % of reinsurance treaties of private sector insurers is to be reinstated in order to limit the outflow of reinsurance premiums from the country”, he remarked.
“While it has been decided to continue to retain control of the three public sector insurers (SLIC, NICL and PRCL) with the Federal Government, it had also been decided to introduce changes in the governance structure so that these companies be run along commercial lines”, he said.
In this regard, he said it has been decided to make the Boards of Directors totally autonomous and fully empowered to take decisions relating to operational, financial and administrative matters without a need to consult the government departments”.
This, he said will include their ability to hire and remunerate expertise, including professionals, on market based salaries.
Humayun Akhtar said that finally the Ministry’s analysis has indicated a dearth of qualified insurance professionals in the country.
Accordingly steps are needed to enhance the supply of trained manpower, he said.
He said that government has been decided to convert the Pakistan Insurance Institute (PII), Karachi into the Pakistan College of Insurance and Takaful (PCIT) so as to address the shortage.
PCIT, he said would run dedicated training programmes comprising diploma and degree courses.
PCIT would seek affiliation with institutions such as the IBA of University of Karachi, he added.●