Mi­cro-in­sur­ance: Road to suc­cess

Enterprise - - Snapshot -

Af­ter the global eco­nomic down­turn in 2008, Pak­istan’s eco­nomic per­for­mance im­proved steadily with the ex­pected GDP growth rate of 3.3 per­cent for the 2009 - 2010 fis­cal year. Some im­por­tant gains were also made in sta­bi­liz­ing the macro econ­omy of the coun­try re­sult­ing in re­duced in­fla­tion, con­tained govern­ment bor­row­ings, con­trac­tion in ex­ter­nal im­bal­ances and in­crease in re­mit­tances from abroad. The ris­ing trend in the econ­omy was ev­i­dent in the be­gin­ning of the fis­cal 2010 – 2011, show­ing fur­ther im­prove­ment by achiev­ing 4 per­cent GDP growth rate.

While the coun­try was go­ing through this eco­nomic re­vival, it faced the nat­u­ral dis­as­ter of floods in July-au­gust of 2010. The in­sur­ance in­dus­try strug­gled and showed promis­ing growth in terms of gross writ­ten premium in this pe­riod. How­ever, the floods re­vealed that in the ab­sence of proper in­sur­ance cov­er­age, eco­nomic losses suf­fered by the masses, es­pe­cially the low-in­come groups in ru­ral ar­eas had an ad­verse ef­fect on their fi­nan­cial sta­bil­ity.

Ac­cord­ing to Asif Arif, Chair­man Se­cu­ri­ties and Ex­change Com­mis­sion of Pak­istan (SECP), there is need for an ef­fec­tive mech­a­nism for im­prov­ing in­sur­ance pen­e­tra­tion, which is cur­rently at a mere 0.7 per­cent of GDP. To ad­dress this, World Bank (WB) con­sul­tant Emon Kel­ley has sug­gested to Pak­istan to start launch­ing fixed mi­cro-in­sur­ance poli­cies rather than cov­er­ing the loss on the ba­sis of prod­ucts so as to in­crease mi­cro-in­sur­ance pro­mo­tion in the coun­try. As Arif ex­plains, “The idea is to re­duce has­sle and speed up the com­pen­sa­tion pro­ce­dures.” If the cost of the shop is Rs. 50,000, then the inquirer from the in­sur­ance com­pany will not go into mi­cro de­tails to as­sess the loss faced by the in­sured per­son, he says.

Kelly pointed out that as part of an ef­fec­tive pen­e­tra­tion strat­egy, mi­cro in­sur­ance prod­ucts are sup­posed to be very busi­ness-friendly and re­quire the least amount of doc­u­men­ta­tion. This is im­por­tant be­cause of the low trust level of the masses in in­sur­ance com­pa­nies. In par­tic­u­lar, since the ru­ral so­ci­ety is not so well aware about in­sur­ance, the sales mech­a­nism of the in­sur­ance pol­icy has to be dif­fer­ent in ru­ral ar­eas as the con­ven­tional method of in­sur­ance sales agents can­not work for mi­cro-in­sur­ance.

The pos­i­tive per­for­mance of the in­sur­ance in­dus­try over the past few years points to more im­prove­ments in com­ing years, but it is nec­es­sary to pro­duce in­no­va­tive in­sur­ance prod­ucts to pre­vent sec­tors such as the flood­hit low-in­come ru­ral so­ci­ety from ex­treme poverty. The SECP has taken the Pak­istan In­sur­ance In­sti­tute, State Bank of Pak­istan, in­sur­ance com­pa­nies and mi­cro­fi­nance banks on board to for­mu­late reg­u­la­tions to in­tro­duce mi­croin­sur­ance in the coun­try on com­mer­cial lines.

An­other es­sen­tial el­e­ment of the mi­cro-in­sur­ance pro­posal is the need for re­lated laws which are not only meant for eco­nomic de­vel­op­ment but are also meant to pro­tect the masses from un­ex­pected eco­nomic loss through nat­u­ral dis­as­ters or a fi­nan­cial mishap caused to the com­mu­nity.

SECP re­gards the fi­nal­iza­tion of mi­cro-in­sur­ance pro­pos­als with World Bank con­sul­ta­tion in 2012, as a suc­cess for in­sur­ance pen­e­tra­tion in the coun­try

“The In­dian currency will be the first ca­su­alty of a de­te­ri­o­ra­tion in the eu­ro­zone cri­sis.” Rupa Rege Nit­sure, Chief Econ­o­mist, Bank of Bar­oda, Mum­bai

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