Things have started progressing steadily for the insurance sector and the regulator is playing its role really well in this regard. Latest in the series of such events is the increase in minimum paid-up capital requirements of insurance companies - indeed a crucial initiative towards the development of a strong industry.
Currently, the minimum paid-up capital requirement stands at Rs500 million and Rs300 million for life insurers and non-life insurers, respectively. Unfortunately, the capital requirement for non-life insurers pales when weighed against comparable countries in the region, according to a study by Insurance Industry Reforms Committee (IIRC). Little wonder then, the penetration of country’s insurance sector remains very low as small insurers generally lack the capacity and the financial strength to expand their outreach and hence the market share.
Therefore, in a bid to strengthen the sector’s financial base, prevent industry’s failures and grow insurance penetration, the SECP has proposed increasing the capital base of insurers in a phased manner by 2017. Given a cumulative increase of Rs200 million in the next two years, the paid-up capital requirements will touch a mark of Rs700 million for life insurers and Rs500 million for non-life insurers by the end of 2017.
Perhaps, critics may argue that the regulator is being aggressive as a short-span of two years may give small insurers a tough time. Consequently, the undersized players may well be forced to opt for mergers and acquisitions. But in the end, the outcome will be in the industry’s favour as it’s better to have a few financially strong players, than to have many but financially weak players in the industry.
Comments
Comments are closed.