ISLAMABAD (April 20 2007): The government has announced an incentives-laden proposed Insurance Policy-2007, offering a number of new sectors to the insurance companies for business. Commerce Minister Humayun Akhtar Khan announced the salient features of the new policy here at a press conference.

The policy proposes end to third party insurance and suggests introduction of the new concept of micro-insurance to provide insurance cover to the rural economy. It limits the private sector''s role by excluding them from insurance of strategic assets/departments.

The new policy suggests more powers for the Security Exchange Commission of Pakistan (SECP) for effective regulation of the insurance sector. It notes that public sector companies will function under independent boards. It also opposes sell-off of public sector insurance companies and asks for their reformation to help grow on fast track.

Humayun Khan termed the proposed policy as a bold step to promote insurance sector in Pakistan, saying Prime Minister Shaukat Aziz approved, in principle, the proposed insurance policy.

He said the sell-off of the public sector insurance companies was not a viable option. He said under the new insurance policy the SECP would have more powers and strict laws for checking bogus insurance companies and their agents.

He said Takaful Rules-2005 will be propagated to remove perception that conventional insurance was not Islamic. He said under the new policy insurance companies will be allowed to write Takaful business through window operations and postal insurance will also function under Insurance Ordinance - 2000.

The minister said the government will restructure public sector insurance companies to make them vibrant and complete with the private sector for business. Humayun Akhtar said the State Life Insurance Company (Slic) will be converted into a private company to float a portion of its share on the Karachi Stock Exchange (KSE).

He said the new policy will open up many new areas to the insurance companies. He also underlined the importance of trained professionals for the insurance sector and said the institutions will train manpower to meet the demand for growing insurance business in Pakistan.

According to the new policy under Insurance Ordinance-2000, and related Insurance Rules in 2002, the insurance sector went through a major reform process. It said that direct insurance premiums (excluding reinsurance premiums receivable by PRCL) grew by 22 percent per annum in last five years, totalling approximately Rs 52.2 billion in 2006, 43 percent of life and 57 percent non-life (excluding PRCL).

It said as a result of high growth in premium insurance penetration has improve, but it remained low (0.67 percent of GDP), especially in the area of life insurance (0.27 percent of GDP) as compared to India''s 2.53 percent and Bangladesh''s 0.42 percent of GDP. It said the review of the government policy for the insurance sector was urgently required.

It said major objectives of the new policy are to increase insurance penetration, especially life insurance and give boost to contractual savings by introducing incentives, especially for personal lines, removing impediments such as anomalies in regulatory framework, strengthening capacity of the industry, encouraging spread of insurance to rural areas and fine tuning the regulatory framework for Takaful.

It maintained that in past four months the commerce ministry carried out a detailed policy review in consultation with the stakeholders. It said apart from the industry in general the role of the three insurers in the public - State Life, National Insurance Company and Pakistan Reinsurance Company - was also reviewed. It noted that proposals included a number of fiscal incentives relating to personal lines, especially life insurance as well as recommendations to remove certain anomalies in the tax laws.

The new policy noted that insurance industry pointed out prevalence of bogus insurance companies issuing spurious Motor Vehicle Third Party Insurance Policies for motor vehicle registration purposes.

It said the SECP will examine ways and means to prevent the issue of bogus policies and take suitable action, which should include making provincial agencies aware of the identity of registered insurance companies. According to the draft the commerce ministry has initiated a proposal to introduce a standard compensation scheme relating to third party liability to be underwritten by registered insurer which will be soon taken up with the provincial governments.

It said in order to penetrate in rural areas and provide insurance cover to socially low-income people, group insurance would be made compulsory. The workers would be covered under compulsorily insured. The necessary process to achieve this is being initiated in consultation with the labour and manpower ministry.

According to the draft, a framework would also be developed under which the insurers would be required to write a certain proportion of their business in rural areas as well as amongst those socially deprived. It said a framework was being formulated for two state-owned direct insurers - State Life and NIC - would immediately introduce micro-insurance schemes, and they will co-ordinate with the task force to be constituted for this purpose by the commerce ministry.

It maintained that recognising that new companies would take some time to build up their distribution channels, the government decided, in principle, to allow existing conventional insurer to write Takaful business through window operations. It said the SECP had started revamping the Takaful Rules accordingly.

The policy said that to ensure a level playing field and encourage the retention of insurance risks within Pakistan. The government decided to rationalise the role of insurers in the public sector. It said one major anomaly was non-applicability of the regulatory framework to postal life insurance. It has been decided to bring postal life under the ambit of the Insurance Ordinance - 2000. The process for achieving this is being initiated by the commerce ministry in consultation with the communication ministry.

The new policy said that State Life''s (Slic''s) operations are currently constrained of provisions in the Life Insurance Nationalisation Order, 1972. It has been decided to convert Slic into a private limited company under the Companies Ordinance - 1984. At the same time, necessary changes will be made to enable Slic to distribute a higher proportion of surpluses to shareholders in line with private sector companies.

It said that insurance of public properties (other than strategic assets), which was the sole right of the National Insurance Company Limited (NICL), would now be opened up to the private sector, with a provision that the first Rs 500 million of each risk should be retained in Pakistan. The NICL would enter the private sector market, acting as a lead risk capacity-provider and participating in the insurance of private sector risks through coinsurance and reinsurance acceptances, it''s meant to cover maximum risks within Pakistan and reduce the outflow of reinsurance premiums.

It said that capital base of PRCL would be increased by realising capital gains and capitalising the reserves thereby created. PRCL''s right of first refusal of 35 percent of reinsurance treaties of private sector insurers would be reinstated in order to limit the outflow of reinsurance premiums from the country. The governance structure of public sector companies will be changed to run them on commercial lines. To achieve this end the boards of directors will be made totally autonomous and empowered to take decisions relating to operational, financial and administrative matters without government consultation. This will include ability to hire and remunerate expertise, including professionals, on market-based salaries.

The Pakistan Insurance Institute (PII), Karachi, will be converted into the Pakistan College of Insurance and Takaful (PCIT) to train manpower for insurance sector. It will provide training programmes for diploma and degree courses. It would also seek affiliation with institutions such as the IBA of University of Karachi.
Courtesy By:  Business Recorder