ECONOMY OF PAKISTAN
Pakistan is facing certain serious problems now a days including War on Terror, Electricity Crises, Political Instability & High Inflation. Some growth observed in last few years seems to be disappearing. There are many reasons for this poor economic growth but lack of vision and direction by the political leadership can also be mentioned as one of the main reasons. The growth in GDP was about 5% on average in the last few years which is expected to decline in this year. It has reached to a monetary figure of more than Rs. 3,600 Billion. However, the situation is not too disappointing if brighter side of the picture is seen. This is a country of more than 170 million of people who have great untapped potential. The majority of this population belongs to young age group. The need is only to show the direction and exploit the opportunities.
INSURANCE IN PAKISTAN
Main contributors of the economy of Pakistan are Agriculture, Manufacturing/Industrial Sector and Services Sector. After the creation of Pakistan, Agriculture was the main contributor of economy (more than 50%). Now a day, services sector (such as telecommunications, transportation, advertising, and finance & insurance) has taken this place of agriculture. Finance & Insurance constitute about 17% of the GDP as quoted by State Bank of Pakistan in year 2008. The share of Insurance is negligible (only up to 0.9% of the GDP). This emphasizes that this sector is still the neglected sector of the economy. If we compare this share of insurance in GDP with some of the developed countries, this may be more than 5%. Insurance penetration in Pakistan, which is measured as ratio (in per cent) of premium to GDP, is at the lowest level as compared to other countries across the world. The data shows that insurance penetration in Pakistan (life and non-life) is 0.7 per cent of the GDP on the basis of 2005 gross premium numbers. The important non-life insurance sector showed a penetration of 0.44 per cent which is much lower than even regional countries. Non-life insurance penetration of different countries/regions is presented in the table 1 as below.
TABLE 1
Sr. No
Country
Insurance Penetration
1
PAKISTAN
0.44%
2
SRILANKA
0.77%
3
INDIA
0.65%
4
US
5.14%
5
UK
3.68%
6
EUROPE
3.20%
7
AFRICA
1.48%
8
WORLD AVG
3.43%
9
ASIA AVG
1.79%
Pakistan is also at the lowest side in terms of insurance density. Insurance density is measured as ratio (in per cent) of premium to total population.
Insurance density of non-life insurance in Pakistan is 2.2 percent as compared to world average of 220 per cent. The insurance density of various countries /regions is mentioned in the table 2 as below.
TABLE 2
Sr. No
Country
Insurance Density
1
PAKISTAN
2.2 %
2
INDIA
4 %
3
US
2062 %
4
UK
1318 %
5
EUROPE
580 %
6
AFRICA
13 %
7
WORLD AVERAGE
220 %
8
ASIA AVERAGE
47 %
INSURANCE AROUND THE GLOBE
In 2008, world GDP has expanded by 2.3% in real terms. However, there was slight decline in the global insurance premium. This was observed after year 1980 for the 1st time that so much decline in premium was noticed, about 3.5% decrease in life premium and 0.8% decline in non life premium. However, it is also significant to mention that growth in the insurance premium was more than 6 to 8% in some emerging markets for non life and more than 10% for life insurance as shown in the Figure 1 & Figure 2.
FIGURE 1 & 2
GROWTH OF INSURANCE IN PAKISTAN
As discussed earlier, low penetration and density on one hand paints a dismal picture of the insurance industry in Pakistan and its role in economy but on the other hand show the great potential because of the under growth achieved so far. Following are some of the examples that show us the brighter picture of the situation.
· Awareness of insurance in general has enhanced in the masses due to increased literacy rate and advertising campaigns of different companies in various media.
· The auto insurance sector growth has already improved the non-life insurance penetration in Pakistan in previous few years because for the first time cars are being financed by Banks and leasing companies who enforce insurance on all the leaseholders.
· The introduction of crop insurance & live stock insurance as instructed by the government and initiated by few companies.
· Recently government has also announced the introduction of insurance policies in the trade policy that will add some advantage for the attraction of investors in Pakistan.
· Medical insurance is one of the growing sectors as many of the employers prefer to provide their employees a well managed scheme at the optimum cost.
· Life insurance which was not understood by the masses at sometime is also a very attractive product in the market at the individual level.
· Some insurance regulatory & management bodies are very active these days to create and spread awareness regarding insurance.
· Insurance has been started in some of the top educational institutes as a subject to provide the human resources in this field.
Due to these factors, government is expecting that the gross premium of non-life insurance sector will increase four times to Rs105 billion by the end of 2011. The share of insurance in GDP can also be increased from 0.9 to 2 % in the years to come if some attractive policies are offered to this sector. This shows the scope of Insurance Growth in Pakistan. The insurance industry has grown on the average of about 20% in the last 5 years which is good indicator to measure the growth.
In spite of all the favorable factors for insurance as described above, following are some of the neglected areas in this important sector of economy.
· Many of the insurance products present internationally are not available in Pakistan. This may be due to lack of expertise in these particular fields.
· Foreign investment in this sector is not present. If some internationally renowned companies are allowed and convinced to operate in Pakistan, this will not only bring the investment but also expertise and professionalism in this field.
Reference
· Economic Survey of Pakistan 2008-09
· http://www.swissre.com/
· http://www.wikipedia.org/
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