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Evaluation & Current Situation of Life Insurance in Pakistan

Supervised By: Presented By: Muhammad Shoaib Roll # 01 BS (Hones) Acc & Finance 6th Semester, Session 06-10

Department of Commerce


In law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance; an insured is the person or entity buying the insurance. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice

Life Insurance2
Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner agrees to pay a stipulated amount called a premium at regular intervals or in lump sums. There may be designs in some countries where bills and death expenses plus catering for after funeral expenses should be included in Policy Premium. In the United States, the predominant form simply specifies a lump sum to be paid on the insured's demise. As with most insurance policies, life insurance is a contract between the insurer and the policy owner whereby a benefit is paid to the designated beneficiaries if an insured event occurs which is covered by the policy.

The value for the policyholder is derived, not from an actual claim event, rather it is the value derived from the 'peace of mind' experienced by the policyholder, due to the negating of adverse financial consequences caused by the death of the Life Assured. To be a life policy the insured event must be based upon the lives of the people named in the policy.

A Short History of Life Insurance3


http://en.wikipedia.org/wiki/Insurance http://en.wikipedia.org/wiki/Life_Insurance#History http://www.insurancesalesman.com/history-of-life-insurance.htm

Today, almost everyone realizes that life insurance is something that is important and necessary. It is one more security we can offer our loved ones in the face of unfortunate events and it is something that most people would not consider doing without. It may interest you to know that our ancestors had much the same concerns that we did and that they also wished their families and loved ones to be taken care of. What you may not know is that the institution that we know as heath insurance, with all its intricacies and variations, is actually an ancient concept going back thousands of years. While insurance began as a way of reducing the hazards of travel around about 5000 BC, life insurance is actually a bit younger, and finds its birthplace in Rome. Burial clubs were formed to cover the funerary costs of members, and the leftover funds were often given to the departed's surviving family as help against impoverishment. The idea behind the fund was the same as it was in the modern day. As long as there have been communities, there have been funds created to prevent the survivors of tragedy with some sort of monetary help. While this might have begun as simply as passing a hat, the practice has been come refined to the point of being a self-supporting industry. During the European Middle Ages, guilds were the union shops of their day, ensuring a certain quality of craftsmanship and training up younger members. Guilds, especially in the larger cities, had quite formalized arrangements regarding the death of a member and the support of his family. This support could range from an annuity that would be paid or the payment of a single lump sum. At the very end of the 1600's, Edmond Halley, of Halley's Comet fame, composed the first mortality table, trying to predict an individual's life and expected lifespan. This was one of the first attempts to calculate premiums; up until this point, you paid the insurance company the same few no matter what age you were. In the United States, the first insurance company was formed in Charleston Carolina in 1732. This fledgling company only provided fire insurance, but it was followed less than fifty years later by the Presbyterian Synods in the New England states. This organization created the Corporation for the Relief of Poor and Distressed Widows and Children of Presbyterian Ministers. It wasn't long before Episcopalian priests organized a similar fund and dozens of small companies followed suit. While most of these companies folded, there were a handful that hung on and, in one incarnation or another, are still around today. Life insurance is something that no modern person should be without, and with a little bit of peering into history, we can see that our ancestors didn't like to be without it either

Life insurance in Pakistan

Classes of life Insurance 1

For the purposes of this Ordinance, the following shall be the classes of business into which life insurance business is divided: (a) Class 1 being ordinary life business; (b) Class 2 being capital redemption business; (c) Class 3 being pension fund business; and (d) Class 4 being accident and health business. For the purposes of sub-section (1) (a) ordinary life business means effecting and carrying out contracts of life insurance other than contracts included in Class 2, Class 3 or Class 4; (b) capital redemption business means effecting and carrying out capital redemption contracts; (c) pension fund business means effecting and carrying out contracts of life insurance that are maintained for the purposes of a pension or retirement scheme and are owned by trustees under the scheme; and (d) accident and health business means effecting and carrying out contracts of insurance providing fixed pecuniary benefits or benefits in the nature of indemnity or a combination of both, against risks of the policy holder or a person for whose benefit the contract was made (i) sustaining injury as a result of an accident; (ii) becoming incapacitated in consequence of an accident or disease; or (iii) suffering loss, including medical expenses, attributable to accident, sickness or infirmity An application for registration as a person authorized to carry on life insurance business shall in all cases include or be accompanied by: (a) a statement of the rates, advantages, terms and conditions of life insurance policies proposed to be offered by the applicant, including without limitation where the policy acquires a surrender value, the basis on which the surrender value is determined, and including without limitation in the case of investment-linked policies a description of: (i) the investments to which the policy is linked; (ii) the basis on which the benefits payable under the policy are determined; (iii) the frequency with which and basis by which the unit values are determined; and the values attributed to units at the time of purchase and sale; (iv) the basis by which values are attributed to units at the time of and for the purpose of purchase and sale; (v) the basis on which expenses attributed to the policy are determined; and

Insurance Ordinance 2000

(vi) the basis on which charges for mortality attributed to the policy are determined; (b) a business plan setting out the expected premium income, expenses and results of the applicant for a period of not less than ten years from the date at which authorization is proposed to be obtained; (c) a copy of any written, electronic or other material proposed to be issued by the applicant for mass communication or for communication with a policy holder or prospective policy holder, in respect of life insurance policies proposed to be offered by the applicant; (d) a statement by the appointed actuary that the terms and conditions of the life insurance contracts proposed to be entered into are sound and workable; and (e) a statement by the appointed actuary that the business plan has been prepared according to principles which appear to him to be reasonable and sound

Life insurance companies in Pakistan1

Local Life Insurer (private)
EFU Life Assurance Ltd. www.efulife.com The Metropolitan Life Assurance Co. of Pakistan Ltd. www.metropolitanlifeassurance.com Now its name is East West Life Assurance Co. Ltd. www.eastwestlifeco.com

Stated Owned Life Insurer

State Life Insurance Corporation of Pakistan www.statelife.com.pk

Foreign Life Insurer (Private)

New Jubilee Life Insurance Company Ltd. www.njilife.com American Life Insurance Company (Pakistan) Ltd. www.alico.com

State Life Insurance Corporation of Pakistan 2

State Life Insurance Corporation means the corporation established under Article 11 of the Life Insurance (Nationalization) Order, 1972 (P.O. 10 of 1972); The Life Insurance Business in Pakistan was nationalized during March 1972. Initially Life Insurance business of 32 Insurance Companies was merged and placed under three Beema Units named A, B and C Beema Units. However, later these Beema Units were merged and effective November 1, 1972 the Management of the Life Insurance Business was consolidated and entrusted to the State Life Insurance Corporation of Pakistan.
1 2

www.secp.gov.pk http://www.statelife.com.pk/html/corporate_profile.htm

State Life Insurance Corporation of Pakistan is headed by a Chairman and assisted by the Executive Directors appointed by Federal Government. Up to July 2000 the Corporation was run by Board of Directors constituted under Life Insurance (Nationalization) Order 1972. In July 2000, under Insurance Ordinance 2000, the Federal Government reconstituted the Board of Directors of State Life which runs the affair of this Corporation. The basic structure of the Corporation consists of Four Regional Offices, Twenty-Six Zonal Offices, a few Sub-Zonal Offices, 111 Sector Offices, and a network of 461 Area Offices across the country for Individual Life Insurance; Four Zonal Offices and 6 Sector Offices with 20 Sector Heads for Group & Pension are involved in the Marketing of Life Insurance Plans policies and products offered by State Life and a Principal Office. The Zonal Offices deal exclusively with Sales and Marketing. Underwriting of Life Insurance Policies and the Policyholders Services. Regional Offices, each headed by a Regional Chief, supervise business activities of the Zones functioning under them. The Principal Office, based at Karachi, is responsible for corporate activities such as investment, real estate, actuarial, overseas operations, etc.

Major Achievements
The major function of the State Life Insurance Corporation of Pakistan is to carry out Life Insurance Business; however, it is also involved in the other related business activities such as investment of policyholders fund in Government securities, Stock market, Real Estate etc. The major achievements of State Life are as under: i. ii. iii. On the commencement of the operations, the Corporation took a very important step by effecting reduction up to 33% in the premiums on the past and potential Life Policies for the benefit of the Policyholders. State Life is profitable organization and it paid Rs.1.729 billion as dividend to the Government of Pakistan since its inception in 1972. State Life has played very vital role in the economy by providing employment to the people of the country as permanent employees and as part of its marketing force and by investing the huge funds in different sectors of the economy. The Investment Portfolio of State Life as at 31.12.2005 stands at Rs.124.983 billions. Investment portfolio also includes investment in Real Estate which stands at a book value of Rs.2.309 billion as at 31.12.2005 whereas it fair value is around Rs.17.625 billion in the same period. The Paid up Capital increased from Rs.10 million in 1972 to Rs.900 million. The Premium income increased from Rs.0.317 billion in 1972 to 13.820 billion in 2005. Similarly Investment income including rental income increased from Rs.0.81 billion in 1972 to 13.106 billion in 2005. vii. Total statutory fund of State Life stands at Rs.122.775 billion in 2005 as against Rs.1.494 billion in 1972. State Life is smoothly striving towards its objective of making life insurance available to large section of the society by extending it to common man. As at December, 2005 the total number of policies inforce under individual life were

iv. v. vi. vii. viii.

2.044 million and number of lives covered under group life insurance were 3.731 million.

Individual Life Plans Group Life and Pension Plan

EFU Life Assurance Ltd 1

In 1992, the Government of Pakistan reopened the life insurance business to the private sector organizations and EFU Life Assurance Ltd was incorporated in November 1992 as the first private sector life insurance company. In early 1993, EFU Life commenced writing group life insurance business and by March 1994, the company began writing its individual life business. EFU Life is managed by a team of professionals with extensive life insurance experience in the United Kingdom. This has helped the Company establish a professional culture unique amongst life insurance business in Pakistan. The Company has a growing branch network of over 100 branches through out the country with employee strength of over 2,200 personnel in its sales force and around 150 personnel at its main offices in Karachi and Lahore. The company employs 4 full time actuaries and also has an active involvement of one of the leading actuarial firms in the country.


EFU Life is the first life insurance company in Pakistan to be awarded the ISO 9001:2000 certification, and also the only life insurance company to have an "Insurer Financial Strength" rating which is currently AA-, Outlook:Stable, by JCR-VIS, an affiliate of Japan Credit Rating agency. Today, EFU Life continues to be the largest private sector life insurance company in Pakistan. In 2007, EFU Lifes premium income was Rs. 4.8 billion. The Company enjoys a market share of over 64% of the private sector life premium income (excluding single premium). EFU Life has a comprehensive range of products which has been developed after extensive research of financial services in western countries such as the United Kingdom. These products are designed to meet the varying needs of EFU Lifes clients and offer the best in financial services.

EFU Life is the pioneer in introducing the following products and features in Pakistan Unit-linked products Critical illness products Education planning product Inflation protection benefit Pension Plans Islamic Fund Products EFU Lifes product range is the most competitive in the market in terms of value for money. The Company continuously reviews its product range to ensure that it remains at the leading edge

East West Life Assurance Company Limited 1

East West Life Assurance Company Limited was established in the year 1992 at Quetta under the name of The Metropolitan Life Assurance Company of Pakistan Limited. The company commenced underwriting life insurance business in March of 1993 and made successful progress in the field of life and health insurance businesses both on the front of individual and corporate clients alike. At the time of our companys establishment, the sponsors were already engaged in general insurance business under the name of East West Insurance Company Limited.


Recently, the name of our company was changed to East West Life Assurance Company Limited in order to give a unified look of a group with a substantial financial base and to serve the best interest of policyholders while adding to steady growth of business on sound fiscal ground.

The authorized capital of our company is Rs. 500 million, out of which Rs. 352 million is currently paid-up and will be increased to Rs. 500 million. The large paid-up capital base allows us to better position ourselves to provide top-notch benefit and services to our individual and corporate customers. In the year 2008, the company has launched a brand new life insurance product line for the prospective individual clients, which offers increased security, flexibility and liquidity to the policyholders with higher investment returns. The company is also in the process of developing additional new individual and corporate products commensurate with current investment, protection and other needs of the insured. Moreover, with increase in health insurance market potential, the company has established a separate health division to cater the needs of its growing clientage. East West Life is a member of a large financial group, which includes our sister concern specializing in general insurance business with over 80 branches throughout the country, M/s East West Insurance Company Limited. With joint paid-up capital of more than Rs. 554 million and worth exceeding Rs. 1.7 billion, the group, as a whole, has substantial resources to meet its financial requirements and obligations effectively. The group has a combined insurance business experience of more than 40 years. Thus, we are fully aware of the service needs physiology of individual and corporate clients. We are making endeavors to make our group a one-stop solution for all insurance needs of an individual or corporate entity with a special focus on being the best service provider. Moreover, East West Life has over 40 branches nationwide. With such a wide network of offices throughout the country, East West Life is equipped to properly deal with all types of clients and ready to provide excellent service that is expected from any insurance company. It should be noted that we are a member of the Insurance Association of Pakistan (IAP) and duly listed at the Karachi Stock Exchange. East West Life is an active player in the field of life and health insurance. The company has group and individual life/health re-insurance arrangements with the world's leading reinsurers. It is important to note that majority of the risk assumed by the company is reinsured with these financially sound reinsurers of international repute. Furthermore, all of our reinsurers are in the Standard and Poor's AA rating category, which indicates "very strong" capability to meet their financial commitments and comfortably fall within the secure range.


Individual Life Plan Mehfooz Sarmaya Plan Sarmaya Gold Scholars Plan Guaranteed Income Plan Personal Accident (PA) Plan

Corporate Plan Group Life Insurance Group Health Insurance

New Jubilee Life Insurance Company Limited 1

New Jubilee Life Insurance Company Limited (NJI Life) is a subsidiary of the Aga Khan Fund for Economic Development (AKFED), Switzerland. It was incorporated in Pakistan on 29 June 1995 as a Public Limited Company under the Companies Ordinance 1984. Its share is quoted on the Karachi Stock Exchange. The Company started its business on 20 June 1996. Paid up Capital of the Company is Rs. 627 million NJI Life is engaged both in individual life insurance and corporate insurance business. Individual life insurance business is procured through two channels, i.e. through Companys own enthusiastic Branch Operations and through alternative distribution channels such as Bancassurance. NJI Life is proud to be the pioneer of Bancassurance in Pakistan. NJI Life is also the pioneer of many credit life insurance schemes prevalent in Pakistan.
Within a decade, NJI Life has been able to make over 35,000 individual customers and over 650 corporate customers covering over 500,000 lives in total. NJI Lifes presence in Pakistan is virtually in every major city with multiple branches at many locations. The network of branches and sub-offices is located at Bahawalpur, Badin, Faisalabad, Ghotki, Gujranwala, Gujrat, Hyderabad, Islamabad, Jaccobabad, Jhelum, Karachi, Khairpur, Kotli, Lahore, Larkana, Mirpur Azad Kashmir, Mirpurkhas, Multan, Muzaffarabad (AJK), Murdan, Naushahro Feroze, Peshawar, Quetta, Rahim Yar Khan, Rawalpindi, Sialkot, Sukkur, Sargodha, Tando Adam. The Company is continuously expanding its operations to new locations.


Individual Plan

Corporate Plan


Secure Life Secure Personal Accident Secure Sarmaya Secure Investment Secure Critical Illness Secure Education & Marriage Secure Term Secure Loan

Group Life Group Health

American Insurance Group Pakistan 2

American Life Insurance Company (ALICO) is one of the largest international financial service companies globally. Incorporated in Delaware USA in 1921, ALICO's branches and subsidiaries provide a wide range of wealth management, retirement planning, life and health insurance solutions delivering peace of mind to millions of individuals and corporate customers around the world. ALICO conducts business in more than 55 countries and regions, including Japan, Western, Central and Eastern Europe, the Middle East, South Asia, Latin America and the Caribbean.

Accident and Health Personal Accident Travel Insurance

Conclusion 3
In the case of life insurance there is a vast scope. State Life Insurance Corporation of Pakistan should be immediately privatized. Their Mission Statement should be reviewed and revisited and on war-footing Insurance Policy of a vibrant nature should be
2 3

http://www.aigpakistan.com/index.html www.kamjadsaeed.edu.pk

developed so that Insurance Sector starts serving the economy of the country. As of today, excluding Group Insurance, there are hardly 2.5 million people in a total population on 166 million who enjoy the life insurance cover. This percentage requires to be given a quantum jump so that its expansion is seen for the benefit of the community. In this respect, we plan to develop a draft Insurance Policy for submission to the democratic Government of Pakistan so that they give a serious attention to this critical area and also develop insurance Conventional) and Takaful (Islamic Insurance).