Country faces significant insurance protection challenges: SECP

ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) has warned that Pakistan is facing significant insurance protection challenges to increase insurance coverage for its essential assets, population and infrastructure.

A new report of the SECP on ‘reinsurance-flood impact’ revealed that climate change remained a bigger threat to Pakistan with floods in 2022, affecting 33 million people and submerging a third of the country. This disaster killed 1,700 people displacing 7.9 million people, and resulting in infrastructure damage and economic losses of US$30 billion.

Due to these events, the global reinsurance cycle is in the period of hardening where reinsurance markets are contracting, premium rates are increasing, underwriting and claims terms and conditions are tightening. Coupled with increasing value of US dollar against Pakistani rupee, inflationary impacts and economic uncertainty, Pakistan faces significant insurance protection challenges in this regard.

The report said that objectives of risk retention within the country, local insurance industry capacity development and improved risk management in the backdrop of climate change events can be achieved via formation of Insurance Pools by adopting international best practices. An insurance pool is a type of structure or arrangement that allows insurance companies to pool their resources to share risks.

This can be helpful for insurance companies who want to offer coverage for a particular type of risk that they would not be able to cover on their own.

The government can make more efficient use of resources and enhancing capacity within the local insurance industry by converting the existing loan insurance scheme into a broad-based co-insurance pool structure. Subsequently, its scope can be enhanced to transform it into a disaster risk insurance pool providing national-level disaster risk insurance for crop, livestock, disasters, and micro-insurance. The pool formation may be considered for implementation of motor third-party liability insurance, and flood/ disaster support handouts made by the government whenever a disaster strikes, the report added.

Copyright Business Recorder, 2024