Competition Commission launches comprehensive report on Insurance Industry, proposes reforms

ISLAMABAD, April 17: The Competition Commission of Pakistan (CCP) has released its comprehensive report on the State of Competition in Pakistan’s Insurance Industry, highlighting key challenges and offering strategic recommendations for reform.

Globally, the importance of insurance is evident, with the market estimated to reach a premium volume of $7.4 trillion in 2024. The global average insurance penetration was 6.7%, while Pakistan’s was only 0.87% in 2022. By comparison, insurance penetration in regional countries such as India and China was about 4% of GDP. Pakistan’s insurance density was US$14 (approximately Rs2000) in 2022, compared to India’s US$82. For a population of over 240 million, only 7.8 million life insurance policies i.e., 3 percent of population, were sold in 2022.

In his message, Dr. Kabir Ahmad Sidhu, Chairman of the CCP, emphasized: “The insurance sector is integral to Pakistan’s economic growth, yet it remains hindered by monopolistic tendencies and regulatory protectionist policies entrenched in law. The report recommends crucial reforms to dismantle barriers to competition and encourage a level playing field, ultimately benefiting consumers and the wider economy.”

The Ministry of Commerce remains the line ministry for insurance as a subject. In 2000, the promulgation of the Insurance Ordinance 2000, led the foundation for the development of the insurance industry. Accordingly, the regulatory oversight of the industry was transferred to the Securities and Exchange Commission of Pakistan (SECP).

The key issues highlighted in the Report include:

1. The nationalization of life insurance industry in 1972 led to monopolization in the life insurance sector. Despite liberalization of the industry in 1991, the market dynamics did not change substantially. With a 55 percent share in the life insurance market, State Life Insurance Corporation (SLIC) holds a monopoly position. SLIC uses the sovereign guarantee as a marketing tool, hence its policies are more attractive to the consumers due to the Federal government’s guarantee under Section 35 of the Life Insurance (Nationalization) Order 1972.
2. The government’s support to the State Owned Enterprises (SOEs) distorts competition. For instance, Pakistan Reinsurance Company Limited (PRCL) benefits from regulatory support under SRO 771 (1)/2007, granting it the ‘exclusive first right of refusal’ to acquire at least 35% of the reinsurance business.
3. In the general insurance category, Section 166 (3) of the Insurance Ordinance, 2000, grants National Insurance Company Ltd. (NICL) exclusive rights to underwrite and insure public sector firms, their assets, and properties. Thus, creating a monopoly where NICL occupies 100 percent share in the public property insurance.
4. Another competition concern is the restriction on procuring facultative reinsurance from outside Pakistan. Rule 18(1) of the Insurance Rules, 2017 mandates that no insurer may purchase facultative reinsurance for any insurance business underwritten in Pakistan outside the country without obtaining permission from SECP. This restriction creates a barrier for domestic insurers intending to procure facultative reinsurance from foreign players.
5. In bancassurance, the insurance providers use banking channels to sell their products. Sometimes, banks impose additional internal limits on the amount of business insurance companies can conduct through banks. This practice constitutes as refusal to deal and contradicts the spirit of competition.
6. Banks usually have large cliental, which the insurance provider targets. It has been found that the bank/insurer staff do not properly guide the customers about the details of the insurance products, and the terms and conditions applicable. At times the information is in fine print, which misleads and exploits the vulnerable customers.
7. The jurisdiction of the Federal Insurance Ombudsman (FIO) has been restricted to only the private sector insurance companies, while the jurisdiction over the government owned insurance companies (SLIC and Postal Life) lies with the Wafaqi Mohtasib. On the one hand this jurisdictional issue between FIO and Wafaqi Mohtasib leads to confusion among the policyholders about filing a complaint, and long time for disposal of the cases.
8. As per Insurance Ordinance of 2000, the insurance Industry comes under Ministry of Commerce, SECP regulates it and the Ministry of Law and Justice is responsible for appointment of Insurance Ombudsman. This fragmented system leads to failure to foster this sector.
9. While the provincial sales tax on insurance premium is paid by the policy holder, the provincial sales tax on reinsurance premium is paid by the insurer. At the reinsurance stage, the same insurance premium collected by the insurer is subject to sales tax for procuring reinsurance services. This creates a tax anomaly as sales tax is levied on already taxed premium. Further, sales tax is applicable on reinsurance even when exempted on life and health insurance and some general insurance. The taxation anomalies create a tax burden on the insurance industry at reinsurance stage, and increases the cost of doing business.
10. Section 94 of the Motor Vehicles Act, 1939 makes it obligatory for every motor coming on road in public place to have third party insurance. However, presently, only 3% of the motors are insured. The reasons being lack of awareness of the law, non-availability of a mechanism for verification of third-party insurance by the traffic police, lack of centralized database, and non-enforcement by relevant agencies.
11. In 1989, the Government of Pakistan imposed a Federal Insurance Fee of 1% on the premium of non-life insurance policies. The fee was to be used to raise awareness about insurance in the country. However, the fee has not been used for this purpose, and instead adds an extra cost for non-life insurers.

The recommendations by the CCP are:

1. 1. It is essential to discontinue the decades’ old preferential treatment to SOEs. The government needs to consider amending SRO 771 (1)/2007 to fully open the reinsurance market to the private sector. This SRO gives PRCL the first option to select its preferred reinsurance business.

1. 1. The preferential treatment granted to the SLIC should be abolished to ensure a level playing field for all market participants.

1. 1. Currently, the market for public property insurance is entirely closed to private sector participation, and an amendment to the Insurance Ordinance, 2000 is proposed. This change would allow private insurers to compete with the NICL, leading to better market outcomes.

1. 1. Amending Rule 18 of the Insurance Rules, 2017 would permit insurers to choose freely between domestic or foreign reinsurers, increasing competition and fostering market efficiency.

1. 1. To improve bancassurance, the State Bank of Pakistan needs to issue appropriate guidelines to banks to prevent restrictive practices of dealing with the insurance companies.

1. 1. Strict regulations be made by the State Bank of Pakistan (SBP) to ensure bancassurance carry genuine benefits for the customer, and misleading sales practices are not used to sell insurance, and the insurance terms & conditions are clearly laid before customer.

1. 1. In cases of disputes, mis-selling, or breach of agreement, it is further recommended that the jurisdictional conflict between the FIO and the Banking Ombudsman is resolved through better coordination and clear working boundaries.

1. 1. To enhance insurance penetration, the study recommends enforcement of Motor Third Party insurance.

1. 1. The study emphasizes the need to rationalize taxes and duties.

1. 1. The federal insurance fee may be withdrawn to reduce the insurers transaction cost.

The CCP remains committed to its mandate under the Competition Act, striving to ensure free competition, enhance economic efficiency, and protect consumers from anti-competitive behaviour. The report is available at CCP’s website at https://cc.gov.pk/assets/images/Downloads/assessment_studies/CCP%20Insurance%20Report-april-2025.pdf