SOME banks have adopted policies towards the insurance industry that go against the best business practices. In the month of October, 2004, Allied Bank of Pakistan (ABL) removed 10 companies from the panel of its approved insurers including the second largest insurance company. The reason for delisting of these companies given by the ABL was that the exposure of these companies had become too large to bear vis-a-vis their capacity.
Subsequently, in the month of December, 2004, Muslim Commercial bank Ltd (MCB) while delisting 10 insurance companies from its panel of 23 insurers, stated that this reduction in number of insurers would help them in proper risk management and computerization of records of each individual insurance company.
And now the Bank of Punjab (BoP) has issued a circular( on February 16, 2005), restricting the panel of their insurance companies to seven only. One of them has been enlisted only for agriculture insurance and the other for life insurance risks only. These last two companies are not allowed to write any other type of insurance business.
The most surprising thing is that the BoP has not furnished any reason for its decision. It would have been better if the bank had given a cogent reason for excluding these companies from its panel.
However, what one can surmise is that the BoP might have considered only those companies having a close connection with the owners. Many banks and companies have common ownership in shares/stakes.
The inclusion of specified companies on the panel of BoP is understandable. But even a private limited company—not listed on any of the stock exchanges— has been included in the panel. What is the reason behind its inclusion? Are private companies more reliable than listed insurers?
A firm has been included because it is doing crops and other related agricultural insurance required by BoP, but it is debarred to write fire, motor, marine and other classes of insurance. What an irony! A company, which is doing the most tricky and risky insurance business, is stopped to do other classes of insurance.
Yet another firm included by BoP on its panel is a sister Concern—of one doing business with the bank— and is doing life insurance of farmers and agriculturists etc. along with its twin sister. What a wonderful selection? The life company which is at the bottom of life insurers has been selected against other good insurers. What does it all demonstrate?
The BoP has excluded from its panel some of the very sound companies which have made a name in the insurance market of Pakistan. What wrong has been committed by excluded insurers? If these firms have not paid the claims of the BOP clients, BoP is fully justified in blacklisting such companies.
If delisted firms are prompt in settlement of claims, these insurance companies have every ethical right to be included on the BoP panel of insurers.
It appears that the big cartels are popping up heir ugly heads again for which the Monopoly Control Authority (now under SECP) was established to suppress this evil. If big industrialists and businessmen are allowed to do so without any check, this scourge in the long run would help the rich to become richer and the poor, the poorer.
The BoP’s decision to exclude other insurers is not only arbitrary, it is also a blow to the insurance industry. If this trend of excluding, rather penalizing companies continues, many of the insurers would be out of business.
Today, bankers are patronizing their co-banker’s companies and tomorrow if such other groups start following this trend, then those insurers, who are without the prop of any cartel or clout, would be forced to pull down their shutters. What a pity!
One may ask what the State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP), which control and regulate sectors of banking and insurance respectively, are doing to remedy the situation. Will these regulating bodies remain mere spectators?
Is it not hurting the shareholders, policy holders and borrowers of loans who are deprived of their freedom to choose their own insurer? If these government institutions do not act swiftly and in just manner, who will come to the rescue of insurance industry?
One hopes that good sense will prevail and the BoP would reconsider its decision and enlist all those insurance companies, whose track record in respect of claims has been good. This is the only criteria of judging a good insurance company.
(The writer is a former chairman of Insurance Association of Pakistan).
