Insurance in Pakistan: A Continuous Struggle Since 1947

Insurance History in Subcontinent:

Insurance in Pakistan originated on the subcontinent during the twentieth century, when the British ruled and governed. At that time, Oriental Fire and General Insurance Company came first to commence its business in the Subcontinent in 1923. Postal life insurance was also established by British government in 1884 which primarily used for protecting the lives of postman but now it is called postal life insurance Pakistan offering life insurance at individual and group level.

Insurance in Pakistan:

After the division of the subcontinent between Pakistan and India, both governments took control of the insurance industry in their own territories. Insurance in Pakistan was introduced by Pakistan Insurance Corporation in 1952 via 1961 act which made to regulate this industry. In reign of of Zulfiqar Ali Bhutto in the 1970s, many industries including insurance in Pakistan were nationalized. At that time, State life insurance corporation Pakistan was sole organization which had monopoly in life insurance, and health insurance in Pakistan.

State life corporation of Pakistan was Pakistan best insurance company. Later on, insurance companies in Pakistan were privatized in the 1990s, which encouraged many private sectors to invest in this industry. In this same period of the 1990s, the concept of Islamic ideology was introduced, which established the federal shariat court, but the Islamic economy system was not implemented due to many lacunae in the system that hindered its adoption in Pakistan.

However, Islamic banking was introduced in parallel of the conventional banking system. Dubai Islamic Bank and United Bank Limited were incorporated in Karachi in 1979. In 1980s, the Zakat Fund was introduced for Islamic banks. In 1985, the first full-fledged Islamic bank in Pakistan, the Bank of Islam Pakistan, was incorporated. In 1991, the Islamic Banking Department of the National Bank of Pakistan and Faysal Islamic Bank were opened to deal with Islamic banking financial transactions, and the same also opened a separate entity named NBP Aitemaad. In 1992, Al Barka Bank was established.

In 1995, Meezan Bank as first commercial bank entered in the market. The first Islamic mutual fund, the Pakistan Islamic Income Fund, was launched by MCB-Asset Management Company in 1995. In 2000, an insurance ordinance passed to regulates insurance industry, resulting in Takaful Pakistan Limited being established in 2001. Then, takaful insurance was regulated by the Act of 2007 due to Islamic banking. The first Islamic microfinance bank, Akhuwat, was established in 2002.

The first Islamic credit card, the Meezan Visa Debit Card, was offered in 2005. Islamic Banking Department was set up at the State Bank of Pakistan in 2006. In 2015, micro-insurance rules were made to offer insurance to low-income communities. In 2019, rules regarding corporate governance and risk management were introduced to improve the insurance industry.

There are 41 insurance organizations, both local and foreign, that offer many insurance products like life insurance, health insurance, car/auto insurance, property insurance, third party liability insurance, home insurance, group insurance, travel insurance, private medical insurance, and casualty insurance. Most popular insurance companies are adamjee, igi, efu, jubilee family insurance. Insurance companies offers insurance quotes or insurance policy to cover indemnity in return of annual annuity. Takaful insurance company in Pakistan is also offering same insurance policy but by following the Islamic concept whereby insurance will be free from Gharar, Maysir and Riba.

Takaful/insurance penetration in Pakistan:

Insurance in Pakistan or Takaful insurance policy is provided by following takaful companies in Pakistan: Pak-Qatar Family & General Takaful, salaam takaful, 5th pillar takaful, Dawood takaful, Pak Kuwait Takaful, jubilee takaful, efu takaful, and adamjee takaful. The market share of islamic takaful in Pakistan was 15% in 2020, which has increased to 18% in the past five years. This market share can be augmented more if the government encourages it by promoting awareness, tax incentives, financial literacy, and ease in regulations, especially in license provision.

Takaful, especially micro-takaful, has huge potential to grow in Pakistan, where the majority live below the poverty line, which is ignored by the commercial-level insurance sector. This poor community can be targeted by microtakful or Insurance in Pakistan. Government of Pakistan has introduced 5G technology for increasing the mobile and internet penetration. Technology will cut communication costs and make the operations of Islamic takaful in Pakistan more efficient.

Overall, this takaful market has huge potential to grow and can compete with the commercial insurance sector of the Islamic economic system implemented in Pakistan. In a recent decree by the court of Pakistan, it was ordered that all conventional banking systems be converted to Islamic banking systems by 2026. If this order is implemented by 2026, then the takaful market or Insurance in Pakistan will also boost.