A top Pakistani insurance company is exploring possibilities of offering insurance coverage to the foreigners visiting the country as tourists, members of business delegations and consultants of the government and private projects but is handicapped because of failing to get a favourable response from the international re- insurers.

“We plan to offer coverage up to $100,000 to $300,000 (Rs6 million to Rs18 million) to foreigners who come to stay here for a few days to a year on their assignments,” a senior executive of the company disclosed. He, however, pointed out that the company’s effort to find a business partnership with reputed international re-insurer companies in Switzerland, Germany and a few other countries has proved futile.

The insurance coverage is designed to cover compensation for death and disability in event of any terrorist attack within Pakistan.

Based on the figures provided by the Federal Investigation Agency (FIA), the insurance company estimated arrival of a total of 700,000 foreigners in Pakistan during 2006 through airports and sea ports.

There had been a few incidents of terrorist attacks in the year 2006 that claimed lives of foreign consultants and engineers but damage to property was small and insignificant.

The company is now drawing up premium rates for the various insurance policies and is studying the mode being adopted by various international airlines and international travel agencies that offer packages to international travellers that include compensation to heirs in event of death and treatment in case of injury.

The proposal to offer insurance coverage to foreigners is being made in anticipation of a considerable pick up in the number of foreigners visiting Pakistan because of the opening up and expansion of Pakistan’s economy.

“The foreign direct investment (FDI) is increasing, the portfolio investment is swelling and privatisation is attracting investors from all around the world and hence the need to design an insurance scheme for the foreigners,” the official said.

Since, the insurance company may not be able to handle big compensation claims in event of a major terrorist incident, there are plans to share losses with the government as is being done in USA and many other countries of the world.

Business circles in Karachi consider insurance company’s move to offer such a package to foreigners as sound that is bound to give positive signals to the domestic and foreign investors. But insurance circles doubt the viability of such a proposal as to quote a senior executive “acts of terrorism continue to pose an unprecedented challenge for the insurance industry.”

He said it remained difficult, if not impossible, for the under-writers to accurately determine premiums based on sound actuarial calculations. “The insurers are unable to accurately predict the frequency or severity of loss to effectively spread risk,” he said. Only four Pakistani insurance companies — the government and private —are said to be offering insurance package up to Rs100 million against terrorism on a very selective and secretive basis. These companies offer insurance package to cover terrorism losses on their own as none of them has been able to get any support from the international re-insurers.

The fact, that none of these four companies suffered any big loss in the terrorism insurance business, speaks of ample opportunities available in this sector. The insurance companies offer some compensation of the terrorism related losses under fire, marine and motor business but on a very modest scale.

International re-insurers pulled off their cover from the terrorism insurance business after 9/11, which is said to have caused a total property loss of about $32 billion. Since then, the terrorism insurance has become a virtual no go area for the insurance business in all parts of the world.

From January 2002, the international reinsurance companies have withdrawn their coverage under political risk, terrorism, strike, riots and civil commotion.

In Pakistan, the insurance companies explored the idea of instituting a Special Pool Fund soon after the international re-insurers withdrew from the terrorism related insurance business. A Task Force was set up by the Security Exchange Commission of Pakistan (SECP) that failed to come out with a consensus definition of terrorism.

The Asian Development Bank (ADB) too offered three packages after the year 2002. These were Political Risk Guarantee for capital markets, which are provided to foreign portfolios investors for political risks in Pakistan. Then there is a political risk guarantee for terrorism risk insurance, which was discussed and debated for more than three years by the insurance industry, the Pakistan government and the ADB without any result so far.

The third proposal is the long-term local currency financing. But none of these three proposals could be adopted because of lack of consensus between the government and the ADB and the business.

In USA, President Bush signed the Terrorism Risk Insurance Act (TRIA) in November 2002, which is to expire next December. It is expected to be a temporary measure as the American insurance industry is said to develop its own solutions. But according to local insurance business, the law is expected to be a permanent legislation as terrorism related damages will warrant government intervention.