KARACHI:
Caretaker Finance Minister Dr Shamshad Akhtar has advised privatising state-owned insurance companies like the State Life Insurance Corporation of Pakistan (SLIC) to reduce public sector dominance, attract foreign investment, and provide a level playing field to the private sector to lift insurance penetration, which remains at less than 1% in Pakistan at present.
She urged insurance companies to introduce products providing financial security against threats of global warming like floods and drought and asked them to invest in infrastructure projects to reduce the impact of climate change, as economic uncertainty is increasing globally and locally.
Speaking in an online address at the inauguration of a two-day ‘International InsureImpact Conference 2023’ organised by the Securities and Exchange Commission of Pakistan (SECP) in Karachi on Wednesday, she said insurance companies have the potential to support economic growth, create job opportunities, and play a pivotal role in developing capital and debt markets in the country.
She also urged SECP to play its due regulatory role in fostering growth in the insurance sector, which holds the key to success for Pakistan, like happening globally. SECP Chairman, Akif Saeed, and Commissioner of Insurance, Aamir Khan launched the commission’s 5-year strategic plan to create an enabling environment and support the use of technology and innovation like artificial intelligence (AI) in the insurance sector to support its role in providing financial securities to households and businesses against growing risk factors and making insurance a sustainable sector by the year 2028.
Akhtar said there is a need further to enhance competition by offering a level playing field for private operators, by, among other things, reducing public domination.
The state-owned giant alone, SLIC (State Life Insurance Corporation of Pakistan), dominates with a market share of around 53%. Admittedly, it is on its way to reform itself. But with age-old practices, it will take us a long time. “We don’t have time. We should go for privatisation as well as getting for FDI (foreign direct) investments in the insurance sector.”
To recall, SLIC has remained on the privatisation agenda of different governments for over a decade now, as other power corridors oppose handing over management of the profit-making public sector company to the private sector. Pakistan’s insurance penetration rate stands at below 1%. “For reference, neighbouring countries like India and Sri Lanka had a penetration ratio of 3.76% and 1.25%, respectively.”
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The finance minister further said that the insurance industry plays a critical role in building resilience to climate change and has been a topic during COP28. By providing insurance coverage for climate-related risks such as floods, droughts and rain, wildfires, insurers can help individuals and businesses recover from disasters and rebuild their lives. Insurance companies can incorporate ESG (environmental, social, and governance) factors into their investment decisions, meaning they should invest in companies promoting renewable energy, sustainable agriculture, and clean technology.
The journey towards an insured Pakistan requires not only the enthusiasm of private sector players, including insurance companies, insurance brokers, agents, and other intermediaries but also a strong and vigilant regulator.
Akhtar urged local insurance companies to transform in line with global trends, as the efficient use of technology carries roads to the future. The global insurance industry is undergoing immediate and long-term significant transformation. It is driven by technological advancements, evolving customers’ expectations, and the present need for sustainable practices.
McKinsey estimates that new technologies could add up to $1.1 trillion in annual value for the global insurance industry through improved pricing models, underwriting risks, and AI-powered customer services and personalised offerings, she said.
The SECP statement quoted Asian Development Bank (ADB) in Pakistan, Deputy Country Director, Asad Aleem, commended the efforts of SECP to strategise the development of the insurance sector in Pakistan through a 5-year plan. “ADB would continue to support such initiatives for the sustainable development of the insurance sector,” he was quoted saying this.
SECP, Chairman, Akif Saeed said five years down the lane, SECP expects to capitalise on the digital ecosystem, increased outreach of insurance, growth in the Takaful sector, and enhanced reinsurance capability of the sector.
Published in The Express Tribune, December 14th, 2023.
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