GVS Magazine Desk |
Two major areas are currently providing opportunity for the nonlife Insurance sector: CPEC and Takaful. In 2016, a statement by the State Bank of Pakistan got everyone excited in and outside the insurance industry. “In Pakistan, CPEC will provide new opportunities for the local insurance industry especially the non-life sector.
Pakistan is expected to witness continued growth in almost all sectors of the insurance industry with significant growth expected in the Takaful segment,” said the State Bank of Pakistan’s Financial Stability Review. Pakistan’s non-life insurance industry is projected to grow rapidly under the multi-billion China-Pakistan Economic Corridor (CPEC) project.
The global Takaful market is projected to exceed US$55 billion from its current US$20 billion by 2023.
The Chinese are expected to insure many of their infrastructure project and this is expected to generate a lot of volume for the insurance sector in areas where there was little activity before. CPEC will also help increase number in employment, and other business generation opportunities – which are expected to act as multipliers in the economy and indirectly help the overall insurance sector.
— The_Nation (@The_Nation) March 31, 2018
But to tap into the opportunities, the insurance market needs to invest in human resource development and innovation. It needs to introduce new products and improve service standards so that domestic insurers can also attract foreign companies investing in Pakistan.
Read more: CPEC: A Paucity of Planning by Pakistan
In addition, with the entrance of new Window Takaful Operators (WTOs) and operationalization of other recently established WTOs in the Takaful segment, it is expected that there will be an increase in premium (contribution) and asset growth. In addition, profitability, particularly for the Takaful sector, may increase in 2018 due to the influx of the recently established WTOs.
What is this one window concept? How is it helping the industry to boom?
The word “Takaful” originates from Arabic word “Kafalah” which means “To Guarantee”. Through inflection it changed to “Takaful” which means to “jointly guarantee each other”. Takaful is an Islamic Insurance system, an alternative of conventional insurance wherein all participants contribute the funds in a pool and share the risks according to rules of mutual understanding, cooperation and contribution.
In 2016, a statement by the State Bank of Pakistan got everyone excited in and outside the insurance industry.
In this system, as per common rules of mutual understanding, cooperation & trust; all participants are safeguarded against financial risks. The global Takaful market is projected to exceed US$55 billion from its current US$20 billion by 2023. Pakistan introduced new takaful rules in 2012 which allowed the use of takaful windows.
In September 2018, Pakistan’s capital market regulator granted approval to the country’s sole reinsurer to offer sharia-compliant reinsurance, part of efforts to boost the fledgling Islamic insurance (takaful) sector. According to circular number 22 of 2018 issued by SECP in December, the growth rate scenarios for life insurance and family Takaful illustrations have been decided by the SECP to be 10%, 12%-14%, however, inflation-adjusted rate of return will remain at 3%, 4%-5%.