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Privatisation of insurance is a positive step.

Privatisation of Insurance is a Positive Step

Economic Review: What has been the pattern of growth of your company during the last 5 years? Mashkoor Ahmed Chisti: The pattern of growth of Prime Insurance Co. Ltd. cannot be given of the last 5 years as it was established on October 8, 1989. It wrote direct premium of Rs. 20 million in 1990, which is a record premium for a new company in the first year of operation. Its future growth pattern would be very dynamic.

ER. Despite over 40 years of matured professional experience, our Insurance industry, by and large, has been operating in traditional sectors only; whereas, product innovation in other countries is keeping pace with the changing needs (such as cover to loss of profit, computer insurance, medical mal-practice insurance cover etc). Does that reflect a lack of imagination, professional incompetence, or it ascribes to the market conditions in Pakistan being not so mature? MAC. Pakistani insurancemen by and large are very knowledgeable and talented. They are respected nationally as well as internationally. Pakistani insurers offer all types of insurance covers available in the world. Besides conventional covers, sophisticated classes of insurance such as contingent liability, kidnapping and ransom, product liability, professional negligence liability, electronic equipment policy, livestock and limited cover of crop insurance are also sold in the market. Adamji Insurance Company is an example in this respect. Therefore, there is no lack of imagination.

ER. Is it true that our insurance industry over the years has failed to develop a crop of new, dynamic and professional personnel, and thus leaving new business prospects uncapitalised. Your comment please? MAC. It is true that our insurance industry over the years has failed to develop a crop of new, dynamic and professional personnel. No efforts have been made in this behalf by Insurance Association of Pakistan (IAP) or by Pakistan Insurance Institute (PII), which was established in 1951. PII was created with a view to impart insurance training and education but unfortunately neither the private sector (IAP) nor the public sector (PIC, NIC & SLIC) made concerted efforts in this respect. Isolated efforts are being made by PIC, NIC, Adamji Insurance and EFU. PIC conduct 3-month course twice a year for the personnel of private sector insurers at Lahore and Karachi; State Life Insurance Corporation holds its own comprehensive courses for the training and education of its inside as well as field staff; NIC does it also for its own staff and Adamji and EFU insurance companies for their own staff. No cohesive effort has been attempted by IAP, NIC, PIC and SLIC to activate PII which is the correct platform for this activity. Since last year PII has been reactivated on the recommendation of National Insurance Reforms Commission (NIRC) and it is hoped that very soon PII would fill up this vacuum.

As far as capitalization of new business prospects is concerned, it has been utilized substantially by the insurance industry. In 1953 total insurance premia of life & nonlife was Rs. 164 million. In 1989 IAP wrote Rs. 2,613.18 million, PIC Rs. 1057 million, NIC Rs. 960 million and SLIC, Rs. 3040 million. These figures speak of themselves as far as progress of insurance industry is concerned. The estimated premia of IAP members in 1990 is Rs. 3,382.65 million.

ER. Our Premium levels are considered to be too high compared to other insurance markets. Do you agree? Are you in favour of abolishing Insurance Tariff? MAC. No doubt Premium levels of fire and marine cargo are high as compared to international rates of premia and there is a reason for it. In Japan and Western countries insurers have an advantage of high standard of building construction, electrification, fire fighting equipment and last but not the least the most modern and sophisticated fire brigade. Unfortunately in Pakistan the above advantage is worsening day by day. The plight of fire brigades all over Pakistan is pitiable. It has never been modernized. All equipment is obsolete. Hence tariffs have become a |Must' for the protection of insurers. This demand of abolition of tariff emanates particularly from foreign insurers. Therefore, I am not in favour of abolishing of insurance tariff.

ER. A large number of insurance companies by refusing car insurance recently, or accepting it at exorbitant premiums on the pretext of |High risk incidence' are failing in their duty to provide insurance safety to ordinary citizen. This is not in keeping with the very nature of this business, i.e. to provide cover where risk is involved. What is your point of view? MAC. First of all I would like to clear this point that insurers are not refusing motor insurance covers. All good and well-reputed companies are providing motor insurance. The premium rates are, no doubt, increased but it was done by IAP very reluctantly. To substantiate my point of view let me quote you the figures of thefts of vehicles.

In 1981 motor car thefts were 543 and in 1989 these were 2160. If you take an average value of a car at Rs. 200,000 the total losses paid by insurers in 1989 amounted to Rs. 432 million. Motor cycle thefts in 1981 were 550, whereas in 1989 3302 motorcycles were lifted. According to the average value of a motorcycle at Rs. 10,000/- total amount of compensation comes to Rs. 33.02 million. Therefore, total claims of theft paid in 1989 were Rs. 465 million. If other claims of denting and painting etc. are added to the abovefigures of Rs. 465 million, then it would be over Rs. 600 million. The estimated total motor premia written by private insurers in 1989 was about Rs. 632 million. Now imagine the plight of insurers losswise! It would be over 100 per cent if cost of acquisition and administration etc. are added. Therefore the increase in rates is justified. The year 1990 was not good for insurers as far as motor losses are concerned. It had deteriorated further in 1990 as compared to 1989.

ER. NIC has taken the lead to provide coverage under |Qisas & Deeyat' Ordinance. Is your company planning to follow suit in this area? MAC. NIC is charging additional premium for providing the cover of Qisas and Deeyat whereas IAP has decided not to charge any extra premium for this liability. The existing motor vehicle policies are also covering Qisas and Deeyat liability.

ER. Prospects of Life Insurance are open now. What is your view of privatization of Life Insurance. Would you make any suggestion on mechanism of privatization. Can the private sector meet its capital requirement? MAC. The decision of the federal government to induct private sector in life insurance business has been a positive step. It would act as a catalyst in reactivating insurance companies which were associated with life business in the past, beside attracting fresh entrepreneurship. The private sector has lot of resilience. Despite deep cuts, bad bruises and heavy slashing the private sector has always emerged stronger and stronger. In December 1971 East Pakistan was lost with it premia of Rs. 50 million; in March 1972 life insurance was nationalised with life funds of Rs. 1.3 billion; on July 1973 National Coinsurance Scheme was taken over by National Insurance Fund depriving private sector of Rs. 120 million premium. Therefore, my belief is that the private sector insurance would be able to shoulder the responsibility of life business without any difficulty, may it be capital requirement, or it may be any other demand asked for from the private sector. It would meet all challenges boldly and comfortably.

ER. Has there been some impact, positive or negative (on business or premiums) of the Gulf Crisis on our Insurance industry? MAC. The impact of Gulf crises so far is very negligible on our insurance industry. The rates of marine and aviation hull have shot up considerably and most of the airlines and shipping companies are in a quandry. They do not know what to do? If they get the rates increased, their business becomes uneconomical. If this Gulf war prolongs for a couple of months, I am afraid many companies would up or go broke. Let us hope for the best! The rates of marine cargo have also been risen but it is normally an offshoot of all wars. Its negative effect will be felt by the insurance industry of Pakistan when this war is over. Recession would set in and the entire world would be enveloped in it. Its after-effects would be devastating for the entire world insurance industry. Pakistani insurance industry would not be an exception.

ER. If given the chance to underwrite public sector projects such as the Steel Mills, Refineries, Aviation etc., or even big private sector projects, do you think the private sector insurer is now capable of retaining major portion of underwriting locally and thus reduce the foreign exchange outflow? MAC. As far as underwriting by private sector insurers of large public sector projects such as Pakistan Steel, refineries and aviation hull etc. which are now written by National Insurance Corporation (NIC), is concerned, I can say with confidence that Insurance-men who are heading big and medium-sized companies are not only knowledgeable and technically skilled but are also respected internationally. They or their companies would be able to underwrite all big public sector projects comfortably. Their Companies' capacity reinsurancewise is quite large. They are offering all types of sophisticated insurance covers in the market such as contingent liability, kidnapping and ransom, loss of profit, product liability, and professional negligence liability, medical benefit, livestock and crop insurance etc.

ER. Are you satisfied with the role of the Insurance Association of Pakistan (IAP) in promoting and protecting the cause of Insurance Industry? MAC. I am not fully satisfied with the role of the Insurance Association of Pakistan (IAP) in promoting and protecting the cause of Insurance Industry but frankly speaking IAP contributes substantially towards the enhancement of technical knowledge of its members through its sectional committees such as fire, marine and accident. Whenever there is a problem in any area, these committees are approached. They deliberate and solve all issues pertaining to respective fields for the benefit of members. On some special issues, which are beyond the scope of sectional committees, the Central Committee which is the supreme body of IAP, also deliberates and gives decisions. At present the jurisdiction of IAP appears apparently small and limited because it deals only with tariff matters i.e. fire, marine, motor and workmen's compensation. Other non-tariff classes of insurance are not tackled by it. Therefore, it appears as if IAP does not enhance the technical knowledge of its members. I, therefore, suggest that now is high time to induct one more sectional committee by IAP to deal with non-tariff classes of insurance.

The most tragic part is that IAP hardly provides any training and education programme for insurancemen. The reason is that its members never made any concerted efforts for the promotion of technical education. The Pakistan Insurance Institute (PII) is there since 1951 but the private sector insurers seldom took any interest in its growth and development. That is the reason of paucity of trained and qualified insurance personnel. Last year fortunately the IAP has woken up and decided to contribute Rs. 200,000 per year to PII to reactivate PII. This contribution is 50 per cent of the amount of recurring expenses of PII. It is very heartening and I am sure now PII would play its meaningful role for which it was created. Towards building of image of the insurance industry IAP has been lacking so far. It needs a strong public relations man to represent it and to do lobbying at Islamabad. There should be a strong link between IAP and federal government as we see in western countries.

Besides, the prospects of adopting insurance career have to be explored by IAP. Educated and talented youths should be attracted to this profession for which some permanent talent hunting committee be formed. IAP should have a first class library and lecture hall. Masses both in urban and rural areas may be taught the advantages of insurance either through news and electronic media or by introducing the subject of insurance at school and college level. Thus the message of insurance may be brought to the door step of all people.

M Mashkoor Ahmed Chishti, Chief Executive Prime Insurance Co. Ltd. and the Chairman, Pakistan Insurance Institute, was born at Ajmer. He obtained BA degree from Aqra University majoring in English Literature, Economics and Philosophy. He joined insuraance Profession in 1947 as junior officer with EFU. Since then has been associated with various other insurance companies indifferent responsible positions. Participated in Main General Management Course of Administrative Staff College, Lahore in 1966, and attended the Advanced Management Course conducted by the West Pakistan Institute of Management in association with the Harvard School of Business Administration at Murree in 1967. He served as a memebr and Chairman of the Central Committee of the Insurance Association of Pakistan and various other organisations related with Insurance. He authored two books namely |Insurance Policy' and |Beema Kya Hai'. For setting up insurance companies in Saudi Arabia and Yemen, Mr. Chishti prepared comprehensive insurance survey in 1976. Mr. Chisti in an interview to ER touched upon several aspects of Pakistan Insurance Sector, following are the excerpts:
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Author:Chishti, Mashkoor Ahmed
Publication:Economic Review
Article Type:interview
Date:Feb 1, 1991
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