The Competition Commission of Pakistan (CCP) has released its comprehensive report on the State of Competition in Pakistan’s Insurance Industry, highlighting key challenges and offering strategic recommendations for reform.
Globally, the importance of insurance is evident, with the market estimated to reach a premium volume of $7.4 trillion in 2024.
The global average insurance penetration was 6.7 percent, while Pakistan’s was only 0.87 percent in 2022. By comparison, insurance penetration in regional countries such as India and China was about 4 percent of GDP. Pakistan’s insurance density was US$14 (approximately Rs2000) in 2022, compared to India’s US$82. For a population of over 240 million, only 7.8 million life insurance policies i.e., 3 percent of population, were sold in 2022.
In his message, Dr. Kabir Ahmad Sidhu, Chairman of the CCP, emphasized: “The insurance sector is integral to Pakistan’s economic growth, yet it remains hindered by monopolistic tendencies and regulatory protectionist policies entrenched in law. The report recommends crucial reforms to dismantle barriers to competition and encourage a level playing field, ultimately benefiting consumers and the wider economy.”
The Ministry of Commerce remains the line ministry for insurance as a subject. In 2000, the promulgation of the Insurance Ordinance 2000, led the foundation for the development of the insurance industry.
Accordingly, the regulatory oversight of the industry was transferred to the Securities and Exchange Commission of Pakistan (SECP).
The key issues highlighted in the Report include, the nationalization of life insurance industry in 1972 led to monopolization in the life insurance sector. Despite liberalization of the industry in 1991, the market dynamics did not change substantially.
With a 55 percent share in the life insurance market, State Life Insurance Corporation (SLIC) holds a monopoly position. The SLIC uses the sovereign guarantee as a marketing tool, hence its policies are more attractive to the consumers due to the Federal government’s guarantee under Section 35 of the Life Insurance (Nationalization) Order 1972. The government’s support to the State Owned Enterprises (SOEs) distorts competition.
For instance, Pakistan Reinsurance Company Limited (PRCL) benefits from regulatory support under SRO 771 (1)/2007, granting it the ‘exclusive first right of refusal’ to acquire at least 35 percent of the reinsurance business.
In the general insurance category, Section 166 (3) of the Insurance Ordinance, 2000, grants National Insurance Company Ltd. (NICL) exclusive rights to underwrite and insure public sector firms, their assets, and properties.
Thus, creating a monopoly where NICL occupies 100 percent share in the public property insurance.
Another competition concern is the restriction on procuring facultative reinsurance from outside Pakistan.
Rule 18(1) of the Insurance Rules, 2017 mandates that no insurer may purchase facultative reinsurance for any insurance business underwritten in Pakistan outside the country without obtaining permission from SECP.