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Review of ongoing trends in Insurance sector in Pakistan and recommendations for future

Insurance is the second-largest sector in the financial industry and constitutes 5.3 percent of Pakistan’s total financial sector assets. According to SBP Financial Stability Review 2017, the Insurance sector’s asset base and gross premiums have registered an increase of 12 percent during 2017. The assets of the non-life insurance sector have increased by 4.8 percent to PKR 179.6 billion in 2017. Overall the sector has a positive float, which allows money to be used for further investing activities, which has been increasing over recent years boding well for the industry.
It has one of the lowest penetration percentages in the region. The Insurance penetration of a country represents the premium volume collected by the companies as a percentage of GDP.
According to the Tahir Ahmed Managing Director & Chief Executive of Jubilee General Insurance: “Insurance penetration in Pakistan is just about 1% which is the lowest among countries like India, Iran, UAE, Saudi Arabia etc. However, it also means that there is a tremendous potential to grow especially in personal products like personal motor, personal health, personal accident, home and travel. In developed countries, personal products represent almost 40-45% of total non-life premium whereas in Pakistan it is only 10-12%. There are many reasons for low insurance penetration of personal insurance in Pakistan but couple of reasons stand out namely; lack of awareness/availability of such products and lack of digitalization. Sharia aspect too plays on the minds of individuals but by and large Takaful has taken care of that.”
This has been the reflection on the poor business environment in the country, stringent government regulations not encouraging the insurance industry, a large rural population and low income and literacy rates which mean that people don’t understand the importance of insurance or cannot afford it.
Tahir Ahmed say: “By its very definition, inflation has reduced the purchasing power of individuals. Prices of consumables and non-consumables have sky rocketed. Car sales are substantially down and more so financing cost has escalated as policy rate has climbed to 13.25%. Obviously, this is not good news for motor insurers but then there is more of sale-purchase activity in old/used car segment. The latter presents an opportunity but asks for far more vigorous sales effort. Along with education, health is one area where we in Pakistan are probably nearer to the bottom rung of the ladder. In high inflation environment, while people hold on to their money but rising medical costs gives rise to anxiety and sense of helplessness. Some effort to reach out to masses by individual health insurer like Jubilee General can act as a catalyst to grow the health insurance market in these trying times because people are more likely to buy health insurance rather those consumable goods. However, it all depends on the insurer’s reach & quality of messaging.”
Furthermore, government regulations such as allowing conventional insurers to transact window Takaful business have helped to improve profit opportunities for insurance companies.
Improvements in technology and expanding communications have also encouraged the industry to become more operationally efficient.
He further says: “As they say, ‘the more the merrier’ . . . we need more serious minded insurers entering the personal/digital field. Similarly, more insurance aggregators like and others will also help do the trick. This would create competition, more marketing, more knowledge, and more products. Both insurers and aggregators will have to invest in increasing out-reach and image building. Of course! Key to more penetration is also efficient and judicious claim settlement giving rise to a body of satisfied clients and increasing penetration.”
Giving an overview of the Insurance Industry during the past 12 months, Nadeem R. Malk IGI Life Ex-Director, Regional Market Insurance Industry says: “Half yearly 2019 results of both Life & Non-Life insurance combined witnessed single digit growth compared to corresponding period of last year. Lower than last 5 years CAGR; this deceleration was expected given the current macro financial environment. The sector is exposed to concentration risk, where the gross premiums written by Life sector largely comprise of Investment Linked or Endowment plans and non-life business is skewed towards corporate. Therefore concerted efforts are required from life side to grow pure protection book through retail channels, while non-life should focus on personal lines.”
The performance of the whole region is below par. The data from 1990 to 2014 shows that out of the six countries i.e. India, Pakistan, China, Sri Lanka, Bangladesh and Iran, the penetration levels of only two are close to 2% of GDP: Iran and China. According to the Indian Brand Equity Foundation (IBEF), the non-life insurance industry in India is set to touch the $24 billion benchmark.
In a 2016 according to Swiss report, Pakistan came 85th in the world on the list of the most penetrated countries by the insurance sector. South Korea and USA topped the list with penetration levels of 4.75% and 3.21% respectively. Other countries in the region such as China, India and Bangladesh also had unsatisfactory performances as they were well below on the list too.
According to major non-life insurance products and recent trends of the insurance industry, fire and property, motor, health and marine and aviation have traditionally remained the major products of the general insurance industry. According to Nadeem R. Malik, “There have been sporadic initiatives taken by few players in terms of product innovation, processes reengineering and diversification of distribution channels. This includes Insurtech initiatives led by Insurance Companies as a well as 3rd party intermediary such as etc. The regulator too has demonstrated a forward looking approach and willing to support the technology led initiatives to expand the outreach beyond brick and mortar. Historical growth trajectory suggests that current products, processes and distribution channels alone cannot significantly outpace the GDP growth, thus reflecting any meaningful increase in penetration. Therefore, it is inevitable to embrace the digital revolution to reach out to huge underserved population. Digital Channels such as Insurance Company’s own online web store or third-party technology-based solutions such as Mobile Network Operators or Aggregator Platforms are the distribution channels of future to effectively and efficiently serve the future consumer as well as underserved segments of the Society.”
When we talk about major players of Pakistan’s Insurance sector, it comes to our mind that the Pakistan insurance market is relatively liberalized, with 100% foreign ownership and control of insurance companies permitted. It is subject to the current minimum capital requirements of PKR 500 million (USD 4.3 million) for non-life insurers. According to the Insurance Association of Pakistan (2018), at present there are 30 non-life insurance companies operating in Pakistan, including three general takaful operators and one state-owned insurer.
Some of the major companies are Adamjee, EFU, United Insurance, Jubilee Insurance and TPL Direct Insurance. At present, nine non-life companies and two life companies have foreign investments, operating either as wholly-owned or as joint ventures with a local partner. Adamjee is the largest player in the industry and has close to 30 percent share of the general insurance market.
Initiatives taken by Insurance companies and Aggregators to transform the traditional market in order to provide maximum convenience and accessibility to the masses has done some remarkable breakthrough in technology through their platforms, some of the major landmarks are achievements are integrations for health and travel products, so that the customer can directly pay online via debit/credit card and receive policy in their email in matter of few minutes., from their platform, is also providing health plan with maternity benefit online, which can be availed by retail customers by getting it as an add-on in their policy. One distinguishing feature that offers is that it provides a list of hospitals in your city available/covered in your desired insurance company health insurance plan. has for the very first time enabled its customer to schedule their surveys online as per their availability and convenience, after the customer books the survey, within 24 hours the customer adviser will call and confirm your survey as per your desired time and location of the car.
It also provides more details for its car insurance customer, where they can see correctly spelt out the main coverage area, third party coverage (which as per government law is mandatory) and the value-added services which can be availed by the customers, actions taken primarily for customer facilitation.
Insurance companies have also made innovations to facilitate their customer base and to expand the insurance penetration in Pakistan are thinking out of the box. According to Tahir Ahmed, “Jubilee General has taken lead and still is the only company which has developed a bouquet of online/digital personal products both in conventional insurance and Takaful. Through our sales portal, individuals can choose to purchase paperless and cashless in just a few minutes. We have already launched smart Chabot to assist our website visitors. It is planned that our smart Chabot will fully takeover in about 6 months and provide information/answer questions 24/7. We keep upgrading our products and improving the sales journey. We believe this is a dynamic process and we must keep up with the expectations of millennial & z generation who represent the largest segment of our digital buyers. Our digital marketing is robust and our 20 seat Call Centre provides a continuous stream of leads. Furthermore, we have developed APIs which can be conveniently plugged into the systems of aggregators and other vendors. The APIs offer a perfect platform to our partners in doing their business with ease and transparency. It would not be out of place to say that Jubilee General is miles ahead of competition in digitalization in the insurance industry of Pakistan.”
Recommendations for the Insurance sector for 2020:
n In order for us to catch up with our neighboring countries in terms of penetration (insurance premium written as % of GDP), the Insurance Industry and Regulator need to join forces to create an enabling environment to propel this impending growth;
n Creating sandbox environment where industry players both insurers and technology led start-ups collaborate and experiment to create new avenues of increasing the insurance penetration;
n Fostering Joint Innovation – Bringing aggregators and insurance companies together to recalibrate products, processes, marketing, distribution and servicing for mass retail to mass affluent segments
n What would be the Advice that you would like to give to the insurance sector;
n Government too can play a vital role to support Industry’s efforts in increasing the demand. Some of the recommendations are as follows:
Group Life Insurance and Workmen Compensation to be made compulsory and enforcement through penalizing the non-compliant entities;
n Minimum health insurance covers too to be made mandatory and enforced through relevant Govt. authorities;
n 3rd party liability motor vehicle insurance must be made mandatory and enforcement through relevant Government authorities to be ensured (at the time of Registration, Transfer and Annual Motor Vehicle tax collection), while policies can be issued digitally at tax collecting Banks or authority’s own counters;
n Compulsory Mortgage Life insurance with home loans;
n Govt. to support the insurance industry and digital channels for seamless KYC and on boarding process, through leveraging NADRA infrastructure free of cost;
n Centralized database/repository maintaining policyholder’s profiles with history and information of in-force insurance policies and claims, so customers with better risk profile can be offered preferred terms while high risk customers can be dealt accordingly;
n Regulator should initiate and make it mandatory for the industry players to participate in joint awareness campaigns using mediums like social media, infotainment etc.;
Tax incentives for the insurance sector as well technology led start-ups in order to get growth in the market.

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