In 2024, international researchers have projected that the global insurance market is set to reach an impressive market size of US$9.10 trillion. Within this expansive market, Non-Life insurance takes the lead with an anticipated market volume of US$5.42 trillion for the same year. On average, individuals are expected to spend approximately US$1.17k per capita in the insurance market in 2024.
According to the Marsh Global Insurance Market Index, global commercial insurance rates experienced a modest 1 percent rise in the first quarter of 2024, compared to a 2 percent increase in the preceding quarter. This marks a continuation of a three-year trend of moderation in the pace of rate increases, with composite rates falling in most global regions.
No doubt, this sector is an important contributor in the development of Pakistan. Furthermore, the events which occur in the national and international environment also affect the insurance sector. The insurance sector in Pakistan according to the Ministry of Finance FY2022, comprises of 11 life insurers, 30 non-life insurers and 1 state-owned national reinsurer. It is also said that a well-developed and efficiently working insurance sector can also play an important role in the economic and social development of a country by reducing uncertainty for economic agents, and pooling long-term financial resources.
Our country needs industry to track and embrace emerging trends as the worldwide insurance industry is undergoing technological advancements, evolving customers’ expectations, and a pressing need for sustainable practices, said experts.
Experts advised concentrating on lifting the low penetration ratio of this sector. Furthermore, Securities & Exchange Commission of Pakistan’s (SECP) 5-year strategic plan will set the tone for future policy, legal, and regulatory landscapes. Incorporating the recommendation of this sector reform committee would be a step in the right direction.
It is suggested focusing on mainstreaming worldwide best practices, reducing the cost of doing business, digitising the operations, and making effective use of technology generally.
SECP expects moreover, to capitalise on the digital ecosystem, increased outreach of insurance, growth in the Takaful sector, and enhanced reinsurance capability of the sector.
Experts commended the efforts of SECP to strategise the development of this sector in our country through a 5-year plan. Asian Development Bank (ADB) would continue to support such initiatives for the sustainable development of this sector. It is also said that in Turkey, the compulsory earthquake insurance model is a very well-designed system. Statistics showed that the 2023 earthquake in Turkey affected 14 million people, causing a total economic loss of $103 billion and an insured loss of $5 billion.
The sector also contributes in the development of other financial institutions and markets, thus indirectly facilitates economic progress in a country. Like many developing countries, the insurance sector in Pakistan has remained dormant. This is reflected in very low level of insurance density and insurance penetration in the country. In fact, both these indicators suggest that the relative size of the insurance industry is significantly smaller in Pakistan than in other regional countries like India and Sri Lanka. The sector in Pakistan to put in historical perspective, had been affected by nationalisation initiatives that perpetuated a limited and segmented insurance sector in the years ahead. Only a state-owned insurance company was operating on a monopoly basis which made no real effort in harnessing the depth and strength of the insurance market in Pakistan. In fact, even after financial liberalisation in 1991, which allowed introduction of private domestic and foreign life insurance companies in Pakistan, the state-owned corporation continued to dominate the life insurance sector. Additionally, the mushroom growth of small-sized domestic private non-life insurers with limited professional expertise restricted the development of the non-life insurance sector in Pakistan.
Ministry of Finance also mentioned that major achievements in insurance sector of Pakistan during July-March FY2023 are as follows:
Digital-only insurers and dedicated micro insures
SECP launched registration regime for digital-only insurers and dedicated micro insurers. This will promote digitalisation and enhance customer convenience by instant provision of services. The new framework is aimed at encouraging innovations, enlarging product range, and promoting financial inclusion. The registration requirements have been designed to reduce barriers to entry, in terms of minimum paid up capital and solvency requirements.
Unit linked product framework
The Unit Linked Product and Fund Rules, 2015, have been amended through SECP to include many improvement areas, like clarity on eligible investment avenues, parameters, exposure limits in particular instruments, broad categorisation and standardisation of investment policies and related communication requirements with the policy holders, guidance on risk categorisation on asset allocation of the fund, among others.
Exchange Traded Funds (ETFs)
The SECP issued amendments in the Insurance Rules, 2017 for enhancing the admissibility limits on investments in ETFs through insurers for solvency purpose. In Pakistan the aim of the amendments is to develop the nascent ETF market also to pass on the benefits of ETF to the insurance sector.
Risk Based Capital (RBC) regime
The SECP issued a concept paper on RBC regime, outlining the possibility of shifting from existing solvency-based regime towards an RBC regime for Pakistan’s insurance sector. The proposed framework is consistent with international best practice, aimed at enhancing corporate governance, enterprise risk management and public disclosure practices of insurers. The existing requirements of Insurance Ordinance 2000 and Insurance Rules 2017 prescribe a rule-based capital adequacy framework for insurers in Pakistan.