THE insurance business is not among the favourites in Pakistan. The penetration at a low 0.7 per cent of the country’s GDP pales in the face of even the regional peers like India with penetration of 2.5 per cent.
The rich economies boast the figure as high as seven per cent of their GDP. “For the last 58 years, general insurance was ahead of life insurance, but in the last two years, life insurance penetration at 0.4 per cent of the aggregate, is leading the race”, SECP Commissioner Insurance Division Mohammed Asif Arif told this scribe in answer to queries.
He would not suggest a reason, but it is understood that the deteriorating law and order situation which has put lives in peril, has sent people to seek the safety of life insurance.
The risk underwritten by life insurance companies is mainly death.
One major company in the field carries with its logo the slogan “zaroori hai” (it is essential). Yet in a Muslim country like Pakistan, where religion takes precedence over other concerns, many people still consider life insurance as an ‘un-Islamic’ act.
And those are by no means religious bigots.
Even enlightened people sometimes shun insuring their life. “Don’t confuse me with a religious fanatic or something, but the fact is I am not inspired by insurance”, says Majyd Aziz Balagamwala, a former chairman Karachi Chamber of Commerce and Industry. And he is not alone in his disenchantment for insurance, mainly with insuring life.
It is to address the concerns of issues in life insurance associated with religion that the Securities and Exchange Commission of Pakistan (SECP)launched new Takaful Rules on July 13. Takaful is understood to be the Islamic alternative of insurance.
It is a scheme based on the principles of mutual assistance in compliance with the provisions of Shariah and which provides for mutual financial aid and assistance to the participants in case of occurrences of certain contingencies and where the participants mutually agree to contribute to the common fund for that purpose. Pakistan is the second country in the world, after Indonesia, which has allowed such ‘window’ of Takaful operations.
Commissioner Arif said that at present two Family Takaful (life insurance) companies are operating in the country: Pak Qatar Family Takaful, which last year showed 94 per cent growth, followed by Dawood Family Takaful with 62 per cent growth.
But even the conventional life insurance business is on the rise.
“In the last two years, the life insurance industry has reported growth of 55 per cent. The total life premium last year stood at Rs120 billion”, says an industry expert.
A couple of private life insurance companies operating since 2005, have managed to find a firm footing in the industry.
An official in the stock-market listed life insurance company contended that with the growth rate at 55 per cent in two years and 33 per cent the previous year, the lion’s share in the life business still vests with the largest government-controlled State Life Insurance Company (SLIC).
Chairman SLIC Shahid Aziz Siddique told Dawn that the market share of his company was about 70 per cent of the industry. He said that in the last four years, the company had shown consistent growth; the life fund of the company soared from Rs170 billion to Rs272 billion and the annual premium for 2011 stood at Rs46 billion.
The SLIC distributed 97.5 per cent of the actual surplus to policy holders and the government received Rs540 million in dividend last year.
He did not subscribe to the view that savings in life insurance evaporated over time due to inflation, contending that SLIC was providing policyholders a yield of 13 per cent, far higher than by some other avenues like banks.
“The stock market may be giving out a higher yield but investment in stocks, unlike life, is not risk-free”, he argues. SLIC’s Takaful “window” is likely to be opened by 2013.
The SLIC chairman conceded that coming back into operation from 1992, private life insurance companies were offering competition, but said that out of the 4.3 million policy holders countrywide, 3.8 million were insured with SLIC.
The reason cited was that while SLIC offered as tiny as “committee policy” of Rs25,000, most private companies kept their ‘ticket size’ for bigger clients, between Rs0.35 to 0.5 million.
Four private life insurance companies — all listed on the stock Exchange — are struggling to wrest their share in the business, with mixed success. Not many equity analysts at large stock brokerage houses follow life insurance companies, since the scrips are unattractive due to their smaller free-float.
Until 1972, when life insurance was nationalised, the EFU Life stood out as the largest company writing more than half of the country’s life business.
Following the re-opening in 1992 during the era of Prime Minister Moin Qureshi, the company was the first to take the plunge.
Jubilee Life started operations in 1996.
American Life Insurance started in 1995 and around the same time came East West Life Insurance. All the four companies have come up to meet the statutory requirement of minimum paid-up capital at Rs500 million.
But two of those companies — EFU and Jubilee have taken a lead with consistent flow of profit and distribution of dividends to shareholders.
From a loss of Rs473 million suffered in 2008, EFU Life climbed to profit of Rs578 million in 2011; the company paid cash dividend to investors at Rs5 per share.
Jubilee Life, posted similar performance to transform loss of Rs55 million suffered three years ago in 2008 to a profit of Rs375 million earned in 2011. The company distributed dividend at Rs3 per share last year. At the stock market, the shares in both companies trade at about the same price of around Rs73, evidencing heavy premium over the par value of Rs10 per share.