SECP issues directives to insurance companies

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued directives to insurance companies to improve their performance in order to arrest the decline in the sector.
It said that insurance plays a vital role in the growth of economy. However, the insurance industry continues to show sluggish growth and the current insurance penetration in Pakistan is only 0.7 per cent of GDP, which is also one of the lowest in the region.

Two insurance companies are in the process of liquidation, while the regulator has directed eight insurance firms to wind-up operations due to irregular activities.

“The SECP has initiated action against these companies as they are failing to meet the regulatory criteria,” an official said.

It has also issued public warnings not to enter into contract with 11 other insurance companies, which have been failed to fulfil their commitments to the clients. These companies are, however, allowed to maintain their existing contracts.

The SECP official said that with a population of 170 million there is immense potential of growth in the personal business, but the industry has been focusing only on the commercial side of insurance.

Insurance density in Pakistan is limited to around $6.5 per capita as the companies have been focusing on business-to-business deals, the official said adding that this model became expensive and has begun to erode profits and reserves.

The sector is growing by only six per cent annually and most of the companies were not providing cover against terror attacks despite the fact that it was a key threat to individuals and the business concerns in the country.

During the last year, underwriting of 12 companies was ceased due to capital and solvency deficits, while the winding up proceeding against 12 companies is in process.

The information technology has totally transformed the world and the pace of change has to be matched by the industry.

The market is rapidly maturing and the margins are shrinking and to survive this impact the industry will have to reposition itself and change its business model, the official added.

The net expense ratio of the sector stands at 36 per cent, which is extremely high and the profit margins of the industry are likely to shrink further. However, the progress of the insurance sector is still slow and the both the industry and the SECP have yet to release the latest insurance sector figures for the year 2009.

According to the 2008 data, there are 32 general (non-life) insurance companies operating in the market. Approximately, 63 per cent of the market share is with the top three players.

In the life insurance business the private sector is constantly penetrating into the market share of State Life Insurance Corporation (SLIC).

There are nine life insurance companies in the market, but the top 3 insurers hold 96 per cent of the market share.

The share of two Family Takaful operators is merely 0.38 per cent.