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Major Challenges to Insurance Industry

Lack of awareness around the importance of insurance poses a significant challenge to the industry and the business environment make it difficult for the sector to progress. The article deals with major challenges to Pakistan's insurance agency and how they can be kicked to curb.

Industry

GVS Magazine Desk |

Pakistan is an emerging country which has low literacy rates. People are generally unaware of the benefits that insurance offers them and low income mean that they avoid paying for anything unless it is compulsory or mandated for them to do so. Lack of awareness around the importance of insurance poses a significant challenge to the industry and the business environment make it difficult for the sector to progress. In most countries, the development of the insurance sector has been helped by governments via regulatory and legal compulsions on the populace.

Unskilled Human Resource

Human capital is one of the most important aspects of any organization. Available skill sets of personnel are a big issue the industry faces; it has to spend money and a great deal of time on training human resources which when combined with high turnover makes it a costly process.

Read more: What CPEC & Takaful mean for Insurance Companies

Poor Economics

Pakistan’s macroeconomic indicators have been weak and growth has not been able to keep up with the region. This pressurizes the insurance sector, which relies on a growing economy and businesses to take out increasing amounts of insurance and in different growing areas. In economically rich societies, insurance is much more common as it is recognized as an important financial tool to mitigate monetary damage. The companies also benefit when the banking sector goes on a spree in leasing cars or bank loans on mortgages as they mandate that borrowers must take out insurance.

Income Bracket

Pakistan is a low-income country and a huge chunk of the population cannot afford to spend their hard-earned money on insurance. This has historically kept insurance growth and penetration figures insipid and mediocre.

Haram-Halal Conflict

People debate the religious ‘legitimacy’ of the insurance business given its dependence on investment incomes based on interest rates among other things. Such conflicts have acted as hurdles in the path towards growth, but the introduction of Takaful insurance has helped to give another outlet for the industry.

Read more: Awareness campaigns required to develop insurance sector

Lack of Support

A consistent lack of support from the government as well as other institutions has been a constant obstacle for growth. The current position of the insurance commissioner at the SECP – a regulator of the insurance industry – is lying vacant. Furthermore, the government has done nothing to mandate and implement insurance in many essential areas such as motor vehicle insurance, fire or professional indemnity insurance to cover individuals and society against risks. However, the current government has shown interest in encouraging private sector companies by opening up government contracts for example recently on its health insurance scheme to bidding by all companies.

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