KARACHI, Oct 22: Pakistan appears nowhere on the global terrorism map drawn up by international insurance and reinsurance companies, but it is coming under increasing pressures of prospective foreign investors to set in place a comprehensive insurance scheme that covers terrorism related risks.
Only three companies in Pakistan -— two private general insurance companies and one public sector -— are offering coverage to the losses that comes from terrorism related risks. The two private sector companies offer coverage up to Rs25 to Rs30 million, while the public sector National Insurance Corporation gives an insurance coverage of Rs200 million.
The NIC business remains confined to public sector entities. It has only five clients that are all energy related government-owned companies. The NIC paid Rs150 million compensation to Sui Northern Gas Limited, which suffered damages to its pipeline distribution system in Balochistan. Pakistan Petroleum Limited (PPL) with assets worth more than Rs25 billion has recently sought an insurance cover from the NIC after it suffered heavy losses. The PPL installations at Sui came under heavy attack following the rape of a lady doctor in a hospital early this year.
The two private insurance companies have a small number of clients that have bought terrorism related policies. One of these two companies paid compensations to two foreign eateries outlets in Karachi when these suffered some damages from fire and firecrackers.
Senior executives in the three insurance companies consider terrorism related business “profitable” as claims are still too few and compensation “not too telling on the resources”.
The agenda set by the economic team after Musharraf’s military takeover in October 1999 gave top priority to inflow of foreign investment. Foreign investors in fact were given a key role in the government’s disinvestment programme of public sector entities.
Foreign investors felt threatened and insecure in the absence of a comprehensive insurance coverage against political and violence related risks. This was a message Pakistan’s team of economic management received from their various interactions at different forums.
Therefore in 2002, the Pakistan government formally approached the Manila-based Asian Development Bank to give $175 million to cover selected violence related risks. The ADB offered $260 million loan to Pakistan for this purpose.
The ADB agreed to provide a guarantee cover to terrorism related risks provided the Pakistan government offers a counter guarantee. “ADB’s guarantee is redundant when the government indemnifies for the coverage of a risk,” a top executive of a private insurance company informed Dawn.
The negotiations, which continued for over two years and involved representatives from the ADB and senior officials of the government and senior executives of private and public sector insurance companies, remained inconclusive till this day.
Notwithstanding, Pakistan’s role as a frontline state in the US-led war on terrorism, the nature and intensity remains insignificant as compared to terrorists’ attacks elsewhere in the world.
Even before the 9/11 attack that claimed over 3,000 lives and economic losses worth more than $100 billion, there had been terrorist bomb attacks as early as in April 1992 on Bishop’s gate St Marry Axe that had caused a loss of 800 million pounds. The truck bomb attack on a government building in Oklahoma, USA, in April 1995 had claimed about 200 lives and caused economic loss of about $1 billion. After the 9/11, there have been terrorist attacks in Egypt, Saudi Arab, Israel, Manila, Bali in Indonesia, Spain and some other places.
Economic losses in these incidents were of big magnitude, forcing Alan Greenspan, Chairman of the Federal Reserve Bank, to admit before a financial services committee of the house in July this year that private insurers alone cannot handle risks of losses resulting from terrorists attacks.
Mr Greenspan perceives terrorism and geopolitical risks “permanent enduring features of the global landscape” while pointing out that “there is no way to a private system to handle that”.
The prescription is that support for losses resulting from terrorist attacks should come from governments’ budgets, with a small levy on policyholders and on companies.
How far is this prescription relevant to Pakistan? It is a question that has to be answered in context of the situation taking place in Pakistan. Not that Pakistan is free from terrorism. Terrorism is a gift to Pakistan from the US-led armed resistance on religious bigots to political changes in Afghanistan during the 1980s.
One of the major terrorist incidents that can be recalled is two bomb blasts in quick succession on July 14, 1987 at Bohri Bazar in Saddar, which claimed a large number of lives and damaged shops and buildings. The late Prime Minister Mohammad Khan Junejo had called bomb blast an attack on democracy while General Zia had blamed KGB, Khad and Raw agents for the blasts. But no insurance company collapsed from the impact of compensation payment.
Terrorism in Pakistan has been sectarian and ethnic oriented and majority of the victims were from the poor and middle class. There were a few cases of economic losses as was burning of KFC and McDonald outlets in Karachi. These losses were quickly compensated by the private general insurance companies after having processed the claims.
As many as over 200 multinational companies are operating in Pakistan and making big profits. Quite many of these multinationals have foreign nationals as their executives who apparently have no complaints. They are exposed to insecurities as much as Pakistanis are and have access to security arrangements.
There is also a marked difference between the terrorist attacks elsewhere in the world and in Pakistan. Elsewhere, the attacks are owned by groups. In Pakistan, no one has owned bomb attacks in Imam Bargahs, mosques, places of worships, markets and other places.
The insurance coverage to political and violence related risk is a worldwide problem because there is no agreed precise definition of terrorism. Before the 9/11, the terrorism risk was covered under fire and accidents policies in many countries.
In India, there is a pool of insurance companies that offers coverage to political and violence related risks. In Pakistan, attempts were made to set up such a pool. It could not be done. The size of insurance business in Pakistan is too small. It is hardly a $300-million business in a year, which is merely a fraction of about $100 billion national economy. Only two companies share more than 60 per cent business in the private sector. The NIC is gearing to enter into a competition with the private sector in the wake of fast track privatization.