ISLAMABAD, July 16: The Securities and Exchange Commission of Pakistan (SECP) has issued show cause notices to 12 insurance companies over their failure to get their Claims Paying Ability/Financial Strength rated by recognized rating agencies in the country.

The Commission after assuming its role as regulator of the insurance business in 2000, an official source recalled, had received a large number of complaints from the policyholders and other insured parties that their claims, even after proper assessment, had not been paid by the companies.

In order to protect the interests of these clients of insurance companies, the SECP decided to enhance the capacity of the local insurance industry to honour the claims made on it.

Accordingly, a directive was issued by it in October last year to all insurance companies operating in Pakistan to make sound reinsurance arrangements with international re-insurers rated at least “A”.

Detailed scrutiny of the treaty arrangements filed by the insurance companies, however, revealed that as many as 21 out of the total 48 companies operating in the country were unable to make arrangements with “A” rated international re-insurers, as required by the SECP.

As an alternate measure, the Commission decided to ask these companies to get their Claims Paying Ability/Financial Strength rated by recognized rating agencies in the country. The final deadline for compliance with this directive, issued last April, passed on June 30.

In this connection, the companies concerned had also been warned that failure to get such rating done by the due date would render them liable to revocation of registration under the Insurance Ordinance, 2000. Alternatively, they were told, the SECP might instruct them to cease underwriting new insurance business.

So far, the source stated, only 9 out of 21 companies have taken steps to comply with the SECP’s directive, whereas 12 insurance companies had done nothing to comply with the aforesaid directive. Some of these companies, it was further disclosed, had also defaulted on account of Federal Insurance Fee dues as well as submission of annual accounts/returns.

In reply to a question, the source explained that the Insurance Ordinance, 2000 had been promulgated to regulate the business of insurance in the country with the prime objective of protecting the interests of the policyholders. The SECP, as regulator, often received complaints from the public against the companies guilty of non-payment of claims.

On investigation, it was usually observed that a company’s unwillingness or inability to pay the claim, even in cases where the claim was assessed and declared payable by an independent insurance surveyor, was due to lack of sufficient/sound reinsurance arrangements.

This state of affairs not only created uncertainty for the policyholders but also proved to be a hurdle in the development of insurance business in the country, he pointed out.