KARACHI, Nov 17: Pakistan’s national insurance industry has serious reservations on the proposal of instituting a Special Pool Fund to provide reinsurance cover after the international reinsurance companies have decided to pull cover from January next under the nomenclature of political risks, terrorism, strike, riots and civil commotion.

“Unfortunately, neither Pakistan’s economy nor its insurance industry is financially resourceful enough to establish an arrangement in respect of terrorism, on the lines similar to Pool Re in the UK,” is the position reported to have been taken by the Insurance Association of Pakistan (IAP) that represents more than 50 insurance companies in Pakistan.

A talk with a few insurance operators on Friday and Saturday revealed that there is no consensus in the industry on the definition of terrorism and there is a sharp conflict of interest when it comes to determine the share of contribution from each company for the Special Pool Fund, if it is to be set up.

Pakistan’s insurance industry wants the government to convince the foreign reinsurers to continue providing their “patronage and umbrella” over the risks associated with terrorism, civil commotion and riots. But the foreign insurance companies consider the task of convincing foreign reinsurers on Pakistan’s situation is “formidable”.

But insurance industry’s reluctance to participate in setting up of the Pool Fund has virtually thrown a spanner on the task force that was expected to draw up its action plan by November 10. The task force was set up by the Securities and Exchange Commission of Pakistan (SECP) after receiving notice from the international reinsurers last month that they are going to suspend reinsurance cover under terrorism risk from January next.

Headed by the Chairman of Pakistan Insurance Corporation, the Task Force included few other members drawn from the national and foreign insurance companies. It has not been able to come up with a consensus definition of terrorism, even after a week of the deadline set for its report.

Insurance circles say that risks under terrorism, civil commotion, riots and strike in Pakistan are generally covered under the fire insurance business. Last year (2000) the premium under fire business stood at Rs3.28 billion. It is the biggest single segment of Pakistan’s non-life insurance business. It is almost one-third of about Rs11 billion total annual insurance business in Pakistan.

Private sector share in fire business was Rs2.78 billion while Rs503 million fire business was done by the government controlled National Insurance Corporation.

“Claims pattern in fire for the past many decades has commercially been favourable for both insurers and reinsurers,” a senior executive of a leading insurance company said. He said that the experience with regard to terrorism, riot and strike and civil commotion risks “has been exceptional”.

“Pakistan industry’s past and present experience against these risks does not support the stance indicated by some of the reinsurers regarding their inability to cover strikes riots and civil commotion,” an insurance operator claimed. Hence the national insurance companies want their foreign reinsurers to continue to extend the risk cover.

Insurance business in Pakistan is very lopsided. Out of 51 companies, there are hardly ten companies that are major players in the game. Only one company commands over Rs4 billion share out of total of about Rs11 billion annual insurance business. The public sector NIC share is about Rs2 billion. Two private companies are reported to be having Rs2 billion share each. It means that only four insurance companies out of 51 command a market of Rs8 billion or 72 per cent of total business. Next five companies share Rs2 billion and more than 40 companies share less than one billion rupees in insurance market.

Obviously, the major players would have to contribute amount proportionate to their shares in the overall insurance business which is too telling for them. The small companies too shy away for the cash flow problem they suffer.

The four foreign insurance companies enjoy tied business relationship because of their global operations. Their global operations also ensures reinsurance cover for them where they want.