Our insurance industry is in a dismal state both in terms of providing any proper protection and securing a sizable premium base. To date insurance penetration in the country is even less than 1 percent of GDP.
The main reason behind this is that industry has continually been in a rut of old and archaic practices, and those who are controlling its affairs have a vested interest. A cursory look at the history of the industry can tell that the rot had set in right at the inception.
In the early days of Pakistan insurance industry, the country was dominated by foreign insurance companies. There was some good order in the working and due to that companies were considered well reputed and enjoyed public’s confidence.
But, as the new class of industrialists emerged which was established mainly on concessions obtained from the government it went into insurance business with a purpose not to let go of premium paid by their allied businesses to other insurers. So they just created another pocket to keep the money they used to spend on premiums.
Slowly, seeing the emerging tide all foreign insurers started packing up and left one by one. So this is how most local insurers evolved whose main revenue came from their allied industries/businesses or from their community. And then mushroom growth of companies in such a small economy followed.
Still, there are more than 28 companies operating in the country; only four are doing over 60 percent of market business.
‘Rate’ (price charged as premium) is the new religion of the industry after the foreign companies left, and those who are managing the affairs of these companies worship only commission income.
All managements of small or big companies are hiding behind commissions as one veteran of the industry ranted in early 90s. Even banks are fleecing their customers for commissions they get from insurers.
So, the commission income is the be-all and end-all of insurance industry’s existence and all other valuable factors intrinsically attached to insurance business have been thrown into the dust bin – be that risk price, risk management, prudent underwriting, fair and equitable reinsurance cession (to save on reinsurance cost); prompt and fair settlement of claims, genuine underwriting profit, competent professionals with integrity etc.
However, now is the time when the industry finds itself at the crossroads, for the whole structure is going to be upended because of digitalization. The things are not going to be same any longer and the sooner our industry adopts to new ways of life the better it will be for its health.
This game-changing course will redefine the business-as-usual as ‘digital first’ urgency has already swept across the global insurance market. Data automation and artificial intelligence will create a new generation of consumers giving rise to newer models and revenue streams.
Higher profitability and reduced operational costs have always remained a pipe dream for the local industry but with this new trend setting in this can be easily achieved.
The way forward is to adopt Internet of Things; advanced analytics & machine learning; collaboration between traditional insurance and Insure Tech firms and Artificial Intelligence (AI).
Will the doyens of the insurance industry rise to the occasion...?
The challenge is only one, that is to welcome the gale of creative destruction and rid the industry of corrupt practices and its venal beneficiaries; to set up a framework in line with modern practices by digitalizing across the board.
The regulator has a greater role to play. He should set up rules that help industry to come out of rut it has been in for decades now, and create an atmosphere of trust between dealing parties which, unfortunately, is missing. After all, his primary duty is to safeguard the interest of the insuring public as pledged in the preamble of the Insurance Ordinance 2000.
It is high time that all stakeholders must act towards revolutionizing this industry for the well-being of the economy and protection of the insuring public.
Let’s see who is willing to lend an ear to the clarion call.
Zaheer A. Qadir
Lahore
Copyright Business Recorder, 2023
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