The Competition Commission of Pakistan (CCP) has released its comprehensive report on the State of Competition in Pakistan\u2019s Insurance Industry, highlighting key challenges and offering strategic recommendations for reform.
\nGlobally, the importance of insurance is evident, with the market estimated to reach a premium volume of $7.4 trillion in 2024.
\nThe global average insurance penetration was 6.7 percent, while Pakistan\u2019s was only 0.87 percent in 2022. By comparison, insurance penetration in regional countries such as India and China was about 4 percent of GDP. Pakistan\u2019s insurance density was US$14 (approximately Rs2000) in 2022, compared to India\u2019s US$82. For a population of over 240 million, only 7.8 million life insurance policies i.e., 3 percent of population, were sold in 2022.
\nIn his message, Dr. Kabir Ahmad Sidhu, Chairman of the CCP, emphasized: \u201cThe insurance sector is integral to Pakistan\u2019s economic growth, yet it remains hindered by monopolistic tendencies and regulatory protectionist policies entrenched in law. The report recommends crucial reforms to dismantle barriers to competition and encourage a level playing field, ultimately benefiting consumers and the wider economy.\u201d
\nThe Ministry of Commerce remains the line ministry for insurance as a subject. In 2000, the promulgation of the Insurance Ordinance 2000, led the foundation for the development of the insurance industry.
\nAccordingly, the regulatory oversight of the industry was transferred to the Securities and Exchange Commission of Pakistan (SECP).
\nThe key issues highlighted in the Report include, the nationalization of life insurance industry in 1972 led to monopolization in the life insurance sector.
\nDespite liberalization of the industry in 1991, the market dynamics did not change substantially.
\n With a 55 percent share in the life insurance market, State Life Insurance Corporation (SLIC) holds a monopoly position.
\nThe SLIC uses the sovereign guarantee as a marketing tool, hence its policies are more attractive to the consumers due to the Federal government\u2019s guarantee under Section 35 of the Life Insurance (Nationalization) Order 1972.
\nThe government\u2019s support to the State Owned Enterprises (SOEs) distorts competition.
\nFor instance, Pakistan Reinsurance Company Limited (PRCL) benefits from regulatory support under SRO 771 (1)\/2007, granting it the \u2018exclusive first right of refusal\u2019 to acquire at least 35 percent of the reinsurance business.
\nIn the general insurance category, Section 166 (3) of the Insurance Ordinance, 2000, grants National Insurance Company Ltd. (NICL) exclusive rights to underwrite and insure public sector firms, their assets, and properties.
\nThus, creating a monopoly where NICL occupies 100 percent share in the public property insurance.
\nAnother competition concern is the restriction on procuring facultative reinsurance from outside Pakistan.
\n Rule 18(1) of the Insurance Rules, 2017 mandates that no insurer may purchase facultative reinsurance for any insurance business underwritten in Pakistan outside the country without obtaining permission from SECP.
\nThis restriction creates a barrier for domestic insurers intending to procure facultative reinsurance from foreign players.
\nIn bancassurance, the insurance providers use banking channels to sell their products. Sometimes, banks impose additional internal limits on the amount of business insurance companies can conduct through banks.
\nThis practice constitutes as refusal to deal and contradicts the spirit of competition.
\nThe banks usually have large cliental, which the insurance provider targets.
\nIt has been found that the bank\/insurer staff do not properly guide the customers about the details of the insurance products, and the terms and conditions applicable.
\nAt times the information is in fine print, which misleads and exploits the vulnerable customers.
\nThe jurisdiction of the Federal Insurance Ombudsman (FIO) has been restricted to only the private sector insurance companies, while the jurisdiction over the government owned insurance companies (SLIC and Postal Life) lies with the Wafaqi Mohtasib.
\nOn the one hand this jurisdictional issue between FIO and Wafaqi Mohtasib leads to confusion among the policyholders about filing a complaint, and long time for disposal of the cases.
\nAs per Insurance Ordinance of 2000, the insurance Industry comes under the Ministry of Commerce, SECP regulates it and the Ministry of Law and Justice is responsible for the appointment of the Insurance Ombudsman.
\nThis fragmented system leads to failure to foster this sector.
\nWhile the provincial sales tax on insurance premium is paid by the policy holder, the provincial sales tax on reinsurance premium is paid by the insurer.
\nAt the reinsurance stage, the same insurance premium collected by the insurer is subject to sales tax for procuring reinsurance services.
\nThis creates a tax anomaly as sales tax is levied on already taxed premium.
\nFurther, sales tax is applicable on reinsurance even when exempted on life and health insurance and some general insurance.
\nThe taxation anomalies create a tax burden on the insurance industry at reinsurance stage, and increases the cost of doing business.
\nSection 94 of the Motor Vehicles Act, 1939 makes it obligatory for every motor coming on road in public place to have third party insurance.
\nHowever, presently, only 3 percent of the motors are insured. The reasons being lack of awareness of the law, non-availability of a mechanism for verification of third-party insurance by the traffic police, lack of centralized database, and non-enforcement by relevant agencies.
\nIn 1989, the Government of Pakistan imposed a Federal Insurance Fee of 1 percent on the premium of non-life insurance policies. The fee was to be used to raise awareness about insurance in the country. However, the fee has not been used for this purpose, and instead adds an extra cost for non-life insurers.
\nThe recommendations by the CCP is essential to discontinue the decades\u2019 old preferential treatment to SOEs.
\nThe government needs to consider amending SRO 771 (1)\/2007 to fully open the reinsurance market to the private sector. This SRO gives PRCL the first option to select its preferred reinsurance business.
\nThe preferential treatment granted to the SLIC should be abolished to ensure a level playing field for all market participants.
\nCurrently, the market for public property insurance is entirely closed to private sector participation, and an amendment to the Insurance Ordinance, 2000 is proposed. This change would allow private insurers to compete with the NICL, leading to better market outcomes.
\nAmending Rule 18 of the Insurance Rules, 2017 would permit insurers to choose freely between domestic or foreign reinsurers, increasing competition and fostering market efficiency.
\nTo improve bancassurance, the State Bank of Pakistan needs to issue appropriate guidelines to banks to prevent restrictive practices of dealing with the insurance companies.
\nStrict regulations be made by the State Bank of Pakistan (SBP) to ensure bancassurance carry genuine benefits for the customer, and misleading sales practices are not used to sell insurance, and the insurance terms & conditions are clearly laid before customer.
\nIn cases of disputes, mis-selling or breach of agreement, it is further recommended that the jurisdictional conflict between the FIO and the Banking Ombudsman is resolved through better coordination and clear working boundaries.
\nTo enhance insurance penetration, the study recommends enforcement of Motor Third Party insurance.
\nThe study emphasizes the need to rationalize taxes and duties.
\nThe federal insurance fee may be withdrawn to reduce the insurers transaction cost.
\nThe CCP remains committed to its mandate under the Competition Act, striving to ensure free competition, enhance economic efficiency, and protect consumers from anti-competitive behaviour.<\/p>\n","protected":false},"excerpt":{"rendered":"
The Competition Commission of Pakistan (CCP) has released its comprehensive report on the State of Competition in Pakistan\u2019s Insurance Industry, highlighting key challenges and offering strategic recommendations for reform. Globally, the importance of insurance is evident, with the market estimated to reach a premium volume of $7.4 trillion in 2024. The global average insurance penetration […]<\/p>\n","protected":false},"author":2,"featured_media":293095,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-473064","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business"},"yoast_head":"\n