KARACHI, Oct 16: Pakistan’s beleaguered insurance companies are bracing for some tough time ahead as the international re- insurance companies have notified that they would not be extending re-insurance cover in respect of risks relating to ‘riot, civil commotion and terrorism’, from January 1, 2002.

The chairman, Securities and Exchange Commission of Pakistan (SECP), Khalid Mirza, who had earlier managed to stabilize the plummeting stock market by cobbling together a rescue package of Rs2 billion, was huddled for all of Tuesday with the head of leading insurance companies and chief executives of commercial banks to sort out the problems of the insurance companies as well as those between insurance companies and banks.

The SECP chairman told Dawn that he had set up — on the spot — a task force to draw up a ‘plan of action’ to mitigate the impact of the move by international re-insurers and also to recommend measures to address other problems of the insurance industry.

The task force is to be headed by Kamal Afsar, chairman PRCL, NICL and lists Moeen Fudda, country manager at Commercial Union and Basit Hassan Syed of IGI among the members. Realising the gravity of the matter, the Committee has been given less than a month’s time to submit the report by November 10, this year.

The SECP had also called on Tuesday a meeting of the heads of insurance companies and commercial banks to sort out some of the irritants between the two.

Insurance companies have been complaining of various grievances, foremost of them is the practice by big nationalised commercial banks to draw up their own panel of insurance companies and doing business exclusively with them. Insurance companies also are sore that in order to curry favour, they have to pay commissions to the banks; that the insurance companies were being asked to place deposits with banks/place deposits in lien and that banks were also scrutinising re-insurance arrangements made by the insurance companies.

A statement released by the SECP from Islamabad in the evening stated: “After listening to all the participants, it was observed that the conditions attached for enlistment of insurers with banks’ panel were neither fair/in accordance with the insurance law presently in vogue in the country, nor in line with the normal banking practice”.

The SECP stated that as a result of detailed deliberations and after considering the point of view expressed by banks as well as insurance companies, the chairman SECP, issued the following directives to the insurance companies and banks: “Henceforth, insurance companies should not follow the condition of making deposits for enlistment/acquiring business from the banks; any deposit already made and placed under lien for the aforesaid purpose with banks should be withdrawn and banks should withdraw their condition of asking the insurance companies for deposits, as attached with enlistment of the insurance companies on their panel.

“With respect to the insurance companies’ complaints regarding the receipt of commission by banks from insurance companies, chairman SEC constituted a committee—with representatives from SECP, banks and insurance companies— to look into the issue in detail and to recommend a policy within the next fortnight.”

It is pertinent to note that the ‘commission’ mentioned in the SECP statement should not be confused with ‘bribe’ or some sort of monetary gratification. It merely means that some banks had been asking for ‘commission’ just as is paid by insurance companies to their insurance ‘agents’.

But as the SECP chairman pointed out to Dawn, it would be disagreeable to mix banking with insurance business. But whether it is fair for a bank to ask for commission for soliciting business from insurance companies—whether it is acting as an ‘agent’ in doing so—needs to be looked into, for which the Committee has been formed.