KARACHI, May 28: Adamjee Insurance Company Limited (AICL) launched “livestock insurance” on Thursday last. Looking at the advertisement in newspapers, one was compelled to ask company officials: “Suppose the impoverished looking peasant, riding the buffalo were its owner, would he be able to pay premium for insurance of his cattle?”
Mr Yahya Hamid head of product development at AICL responded: “In paying premium he would surely lose something, but if his big fat buffalo were to die or be stolen, he would be left with nothing”. But that was just a simple idea. The dimensions of the new product introduced by the company are far bigger and wider, he said.
“Livestock insurance” is the second retail product of the company; earlier it had introduced travel insurance with the brand name “Fasley Asaan”. The largest non-life insurance company is also to enter the lucrative “life insurance” business by the end of this year. The company official said that talks for a joint venture with a foreign insurer were in advanced stages.
Other big insurance companies are also striving to be bigger. Market analysts believe that going forward insurance sector could also see consolidation as witnessed in the banking sector, with lean and thin forced to leave the scene.
Most analysts consent that insurance sector could be one of the major beneficiary of the upcoming budget. They believe that the extension of capital gains tax exemption for another year would be formally announced, which would enable insurance companies to boost their income and hence profitability.
“The government is likely to approve new insurance policy and tax incentive package in FY08 budget,” says Hettish Karmani, head of research at Atlas Capital Markets in his pre-budget report.
And Ali Hussain, head of research at InvestCap mentions in his ‘budget outlook’ regarding insurance sector, possibilities of “introduction of fiscal (tax) incentive to promote micro-insurance in the rural areas to enhance penetration of insurance business to rural areas (where majority of our population resides) who are not yet exposed to the benefits of insurance services”.
Ovais Siddiqui, head of research at JS Global, stated in a report on AICL plan to enter livestock insurance that the segment holds great promise for Adamjee, because of its sheer size and its significant growth.
As per 2006 census, the livestock animals in the country stood at 146.9 million, Ovais stated, estimating the value of livestock market to be of the size of staggering Rs2.5 trillion.
Further, the analyst may have startled many who scarcely gave a thought to the fact that: “Last year, the value of milk (being the primary output of this sector) produced was higher than the combined value of wheat and cotton crops”.
The JS Global report mentioned three various dealing channels which the management was considering to better approach livestock farmers. Those included: The company could have some arrangement with banks to get their livestock loans insured. The government was stated to be encouraging banks to lend more to agriculture sector, where banks have been traditionally hesitant to get into.
“However, we expect the government to announce some tax incentives in budget FY08 to encourage banks to expand their agriculture loan portfolio,” says the analyst, adding: “This augurs well for livestock insurance as banks could use it to lower their credit risk in lending to livestock sector”.
The second approach could be to offer insurance to those farmers who supply raw milk to UHT milk-producing companies, like Nestle or Engro. Alternatively, it could be offered through those companies.
The third channel would be approaching large-scale business of livestock farmers, who face significant business risk in terms of death and theft of animals.
