Non Life Insurance Companies & Life Insurance Companies

GROUP MEMBERS: Faisal Bin Hasan Junaid Khalid PRESENTED TO; TO; MBA MAJORS: MAJORS: COURSE CODE: CODE: BM-15024 BMBME-738 BMESir Khalid Finance Fin - 604

Purpose of the Report



The purpose of our report is to find out how Insurance Companies ( General & Life ) work and what are their future prospects.

PRESENTATION ROAD MAP

  

  

       

Introduction. What is Insurance Difference b/w Life & Non Life Insurance What does Life Insurance Companies offer / do What does Non Life Insurance Companies offer / do Background Insurance Industry of Pakistan Products of Life & Non Life Insurance Major Insurance Companies of Pakistan & World Wide Current Scenario of Insurance Mutual Insurance Company Scope of Insurance SWOT Analysis of Non Life & Life Textual Discussion Findings Conclusions Recommendations

Introduction What is Insurance?



Insurance is a form of risk management It is a way of minimizing risks that may occur due to uncertain & unpredictable future circumstances The insured person transfers the cost of potential loss to another entity in exchange for monetary compensation This monetary compensation is called premium The entity to which the monetary loss is transferred is the Insurance Company or Agency If the uncertain event does occur than the Insurance Company is liable to pay the claim of the Insured person / Vehicle / Property etc Insurance allows individuals, businesses and other entities to protect themselves against significant potential losses and financial hardship at a reasonably affordable rate

Insurance

Introduction What is Insurance?



Insurance is a highly useful product / service for every segment of the society. In todays fast moving era there is more and more need for people to be insured for their better future Like Insurance companies , there are also Re-Insurance Companies which ReInsure the smooth working of Insurance companies Unlike Pakistan , there is a high trend of buying insurance policies in Western & North American countries The two main or basic forms of Insurance which are offered are:

Life Insurance Non Life Insurance or General Insurance

Difference b/w Life & Non Life Insurance



Life Insurance is a risk policy against death.

It involves two parties, the insured and the insurer.

The insured transfers a risk to the insurer. In return, the insured receives a policy and pays a pre-determined amount of premium for a set amount of time pre-

Life insurance refers to the compensation paid to the families in the event of the insured's death. What is compensated is the economic loss (earning capacity of the insured to the extent of the sum assured). This coverage is only for persons

Difference b/w Life & Non Life Insurance



General insurance is taken to cover for loss of any non life matter where loss of profit is possible or any monetary expense is possible like car, health, home, jewelry, fire insurance etc. General insurance or non-life insurance policies, including automobile and nonhomeowners policies, provide payments depending on the loss from a particular financial event General insurance typically comprises any insurance that is not determined to be life insurance General insurance covers household, motor, personal accident, travel, all risks, business insurance, Life Insurance is known as a "valued" policy. In other words, you insure your life for a certain value and if you die, the policy pays up the sum insured in total General Insurance Policies are policies of "indemnity", you cover something but if you claim on the policy, you may not get exactly the sum insured back due to circumstances such as under-insurance, over-insurance, policy excess, certain cover underoverrestrictions etc.

What does Life Insurance Companies offer /do



Life Insurance Companies offer various plans. Most important are: Child Life Insurance Accidental Death Insurance Disability Insurance Final Expense Insurance Long Term Care Insurance Critical Illness Insurance Life Insurance Riders Child Education Plans Retirement Plans Child Marriage Schemes Personal Care Plans Term Insurance Endowment Insurance

            

What does Non Life Insurance Companies offer/ do

            

General Insurance offer: Personal Accident Cover ( For Individuals as well as Groups ) Health Insurance ( For Individuals as well as Groups ) Liability Insurance which covers legal liabilities Credit Insurance Property Insurance Vehicle Insurance Machinery Insurance Shipping Insurance Marine cargo policy which cover goods in transit Package policies offering a combination of covers mentioned above Customized or tailor made covers Catastrophe Insurance ( tsunami, earth quakes , floods )

Background


Insurance probably made a beginning in the ancient land of Babylonia In the 18th century B.C., Babylonian king Hammurabi developed a code of law, known as the Code of Hammurabi, which codified many specific rules governing the practices of early risk-sharing activities riskThis was similar to the system of insurance known as bottomry which existed in Phoenicia in 1200 B.C. In this system, backers loaned money to merchants to finance voyages. Merchants offered their ships (the hull was known as the ships bottom) as collateral for such loans. When a trip succeeded, the merchant would pay the trips backer the original loan plus interest, the equivalent of a premium. If a ship went down on its voyage, the trips backer would cancel the merchants loan. The Greeks and Romans developed the earliest systems of life insurance. They formed societies which paid dues that went toward paying for the burial of members. Sometimes these societies also paid for the living expenses of deceased members families.

Background
In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: natural or non-monetary economies (using barter and trade with neither centralized nor standardized set of financial instruments) and more modern monetary economies (with markets, currency, financial instruments and so on) Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. Achaemenian monarchs of Ancient Persia were the first to insure their people and made it official by registering the insuring process in governmental notary offices. Insurance became far more sophisticated in post-Renaissance Europe, and specialized varieties developed.

Insurance Industry of Pakistan

      

 

       

In 1947 there were 77 insurance companies. All of these were foreign companies Only 7 were incorporated in the Pakistani area The share of Muslim companies was very low In 1948 the govt. established the department within domain of ministry of commerce Pakistan insurance company was established in 1952 In 1955 National Coinsurance scheme was initiated to promote insurance culture, assist small insurance companies NCS yielded favorable results In 1960s the number of insurance companies in Pak increased to26 and till 1971 it reached 47 Foreign companies were reduced to 25 till 1971 due to political issues and separation of East Pak Life insurance was nationalized in 1972 The business of 41 nationalized insurance companies was consolidated in 1973 State life insurance enjoyed the corporate monopoly till 1990 At present 55 insurance companies 5 are foreign out of 55 The public sector consist of NICL, SLIC, & PRCL NICL provide coverage to public sector PRCL is alone in the business of Reinsurance

Products of Life & Non Life Insurance Companies

   

    

Life Insurance products can be categorized into the following types: Term Insurance { Protection for selected term ) Whole Life Insurance ( Whole Life Cover ) Endowment Insurance ( Benefits paid on death during the term or his survival till end of the term ) Annuities ( series of equal payments for a fixed period or during someone's life time ) There can be the following types of whole life policies: 1. Ordinary Whole Life Insurance 2. Limited Payment Whole Life Insurance 3. Convertible Whole Life Insurance Products of Non- Life Insurance Companies NonNonNon-Life Insurance products can be categorized into the following types: Plans for Corporate/ Business Plans for Individuals Corporate/Business Policies Specialty Office Employee Property Policies for Individuals Home Travel Motor Accident Health

    

Major Insurance Companies of Pakistan & World Wide

These are the world's largest insurance companies: 1. Generali Group - Italy 2. China Life Insurance - China 3. Munich Re - Germany 4. MetLife - United States 5. Zurich Financial Services - Switzerland 6. AIG Group - United States 7. AXA Group - France 8. Travelers - United States 9. Ping An Insurance Group - China 10. Tokyo Marine Insurance - Japan 11. CNP Assurances - France

Major Insurance Companies of Pakistan & World Wide



Following are the major insurance companies of Pakistan: East West Life Assurance New Jubilee Insurance Eastern Federal Union ( EFU ) State Life Insurance Corporation of Pakistan American Life Insurance Co. ( Pak. ) Ltd Universal Insurance Co. Of Pakistan Ltd Adamjee Insurance Company Pak - Kuwait Takaful Company Metropolitan Life Insurance Co. Of Pakistan Ltd

        

Current Scenario of Insurance

    

 

     

Concept of Takaful is introduced It took 5 years to draft Takaful rules 5 Takaful companies are operating in Pak, 2 family & 3 general Takaful In Takaful participants share the risk Pakistans insurance sector has experienced accelerated growth in recent years. However, it still lags behind many countries in the region, and the insurance penetration in Pakistan remains low Its GDP contribution is of 0.8% in Pak as compared to 4.8% in India, 8% in Malaysia, 7.6% in Singapore and 15.3% in South Africa Out of 0.8% 0.3 comes from life insurance while rest 0.5 from non life insurance In the non-life segment, premiums had been growing by 15-20% per year over 2005-2007. non152005Growth slowed to 6% in 2008 and just 2% in 2009. 2009. The insurance business has been under stress after the assassination of Former PM Ms. Benazir Bhutto. An estimated 6 billion were paid in claims by Insurance companies as a result of violence after her assassination. However Sector posted strong gains in 2008 Afterwards there have been ups & downs in this sector. Private sector companies out performed public sector companies. Competition has gone stiff and premium collection has gone down Insurance penetration in India is 3 % while in Pakistan it is 0.3 %. Still the future of this industry is not bad if law & order improves , Provision of relief to this sector by Govt .

Current Scenario of Insurance



Today, all private insurance companies of Pakistan need a trained workforce like State Life How this is irony that in Western countries people are searching better to the best companies, they are insuring their lives, auto, buildings and other valuable things just in click order. Second side in Pakistan there is State owned insurance company named State Life which has more than 100,000 strong agents in field but still Insurance Companies are not booming. Today in Pakistan State Life, a public sector company enjoys a dominant position in the sector with more than 70 per cent of the market share. And rest of 30 per cent goes to private companies like EFU, NJI, Adamee and there are lot of names there after. And more interesting point is that, in a country with a population exceeding 170 million, insurance penetration is less than 0.3 per cent representing the huge extent of the untapped market. Now it is really great challenge to those private companies like NJI, Alico, EFU etc that they develop a trained field force that can reach people and make them understand the importance of savings and investments through insurance, instead of looking for just grabbing premiums and pulling graph higher in number game.

Reasons why People Dont Buy Insurance in Pakistan



One of the biggest reasons is instability of political system and governments policies. Day by day changing happens in economic issues. People of this country are already living in panic situation due to terrorism and other domestic issues And the purchasing power of the common people is out of their own control. They even cant save some amount for their rainy days then how they buy insurance policies? Secondly the bed reputation of the insurance agents has also made rowdy impact on this protected industry. In Pakistan it is well said that when any unemployed youngster cant fetch a Government service then usually they communicate with the nonnon-governmental organizations (NGOs) or Insurance companies. And for the insurance companies who are even labeled with ISO-9002 or some sorts of ISOcertifications, they do not take any bother for capacity building of those fresh agents but they just see that how much he / she has influence and how much new agents can bring annual premium income (API). The managers of the companies are focusing just on their targets rather than services for the clients. Thirdly lack of Education & awareness is a major hurdle in Insurance sales b/c still Pakistan has a low literacy rate & people are unaware of their rights. Lack of Insurance Friendly Environment by the Govt . is also a big concern for Insurance Companies.

Mutual Insurance Company



A Mutual insurance company is an insurance company which has no shareholders but instead is owned entirely by its policyholders Under this idea, what would have been profits are instead rebated to the clients in the form of dividend distributions or reduced future premiums. A mutual organization or society is often simply referred to as a mutual. This could mutual. be seen as a competitive advantage to such companies the idea of owning a piece of the company could be more attractive to some potential clients than the idea of being a source of profits for investors. Ownership rights typically include voting rights, for instance in the election of the Board of Directors. In a mutual insurance company, any distributed surplus funds are paid entirely to policyholders, whereas in a proprietary or stock company (one with shareholders) a proportion of the surplus is paid to shareholders while the balance is held in reserve by the insurer The global trade association for the industry, the International Cooperative and Mutual Insurance Federation, claims 216 members in 74 countries, in turn representing over 400 insurers.

Scope of Insurance
 

The scope of our product ( Insurance ) is very vast ; specially in Western countries In West people run after Insurance Agent while in Pakistan people run from Insurance agent. In Pakistan surely but surely insurance business is progressing by way of introducing new products and services which cater for the needs of every segment of the society However, still more than 95 per cent population is out of the purview of the insurance industry and there is a lot to do to make the sector well managed expanding its scope and services. The villagers and the low-income people are unable to avail insurance service due lowto lack of special package programmes The main reason for the lack of enthusiasm among people towards insurance is the low level of awareness among the masses. The literacy rate is still low. Next is the perspective of people towards insurance. We still have very little knowledge of insurance. Majority of the population has no idea why we need insurance and for what. As insurance is a means of secure future, very few numbers of people have been positive towards this.

Scope

Waiver of Premium


 

 

A wise agent suggests to his valued and incoming insured person that he / she must take this rider plan. And this is really very good additional plan in your basic life insurance The waiver of premium is giving you total guarantee that your policy will not be terminated even you are not able to pay your premium when you really cant afford When your financial resources squeezed due to any valid reason Waiver of premium is called a basic rider plan which is mostly depending on the decision of insured person that whether he / she is selecting or not But it is commonly viewed that almost all insurance and especially life insurance policies are equipped with it. But it is advised to y that before buying insurance it may be confirmed from your agent about this facility This rider is basic component of only life insurance Simply we can say that during the period of your illness or some sorts of accidents if submission date of premium is due and you cant afford that then insurance company will pay your premium to smoothly run your life insurance policy

SWOT Analysis of Non Life & Life Insurance Companies



Strengths Huge Human Resources ( Population ) Of Pakistan New Concept Advancements providing user friendly policies 97 % people not under the cover of any Insurance Ability to minimize risk Waiver of Premium offered by many companies Weaknesses Uneducated Population Decrease in Household income Un islamic perception barriers for companies Low Product Knowledge Delays in Claim Process High moral hazards Weak Distribution Channels

    

      

SWOT Analysis of Non Life & Life Insurance Companies

     

Oppurtunities Takaful should target rural areas Promote Retail Insurance Improve distribution channels Introduce more products Insure on individual level Threats Competition with International Companies Worse law & order situation Weak foreign investment in sector Natural Catastrophe Terrorism Corruption / Money Laundering

     

Textual Discussion
 

    

   

Situation Analysis of General Insurance The Pakistani insurance market has undergone major structural changes in last few years through mergers of companies to meet the increased statutory requirement of minimum paid up capital as per Insurance Ordinance 2000. Some companies who were unable to raise this capital have been asked to close down their operations. The Security and Exchange Commission of Pakistan (SECP), Insurance Division, is trying to improve the image of Pakistan Insurance Industry by issuing directives on financial security and transparency, code of good governance and sound market practice Key Market Players The general insurance market comprises two segments Private Sector and Public Sector. Private Sector is composed of 42 Local companies (29 are active) and 1 foreign company. National Insurance Company Limited (NICL) is the only direct insurer for public sector AllianzAllianz-EFU Health insurance company was set up as the first Specialized Health Insurance Company in Pakistan. The Market Share of top four companies (including NICL) is 74%, while remaining companies share the balance of 26%. This shows that non-life insurance Sector is highly nonfragmented Allianz EFU It is the first specialized insurance company of Pakistan. E-Commerce - A new technology for selling insurance. The future of Non Life Market The future looks very positive for the non-life insurance market in Pakistan. Although there nonare many challenges ahead. It is likely that general insurance market would lead to significant premium growth in the years ahead.

Textual Discussion
 

The future of Life Insurance Market The future of life insurance is also bright with diversified plans being offered to cater for the needs of different segments of the society. society. Competitive Forces Threat of new entrant Bargaining power of suppliers Competitive rivalry within Industry Bargaining power of customers Threat of substitutes Takaful Insurance Government has taken keen interest in promoting Islamic modes of banking, investment and Insurance. Recently the SECP created a Task Force to draft Takaful Rules current regulations do not cater to Takaful products. Individual life Takaful products will primarily follow the unit linked structure

     

Textual Discussion
   

SECP to have a Central Shariah Board Requirement to have a certain percentage of business from rural areas 5 banks offering credit life on group basis - premiums explicitly charged from customer 2 banks have commenced telemarketing of insurance products personal accident and critical illness products. 2 banks have entered into banc assurance agreements products offered: personal accident, unitunit-linked life assurance Major banking groups intend launching life insurance companies in future Major Competitors in Life Insurance: State Life Insurance Efu Life Alico Adamjee New Jubilee Insurance East West Life Assurance Major Competitors in Non- Life Insurance: NonEfu General Adamjee Universal Insurance Co.

      

   

Findings


Our findings while doing this project are given below: below: Life Insurance is an Expense as well as an Asset Flexibility in Coverage Government Regulation provides Safety Risk Coverage A Planning for life stage needs Protection against rising health expenses Builds the habit of Savings Assured income through annuities Protection plus savings over a long term Facility of loans without affecting the policy benefits Tax Benefits Mortgage Redemption Medical and Health insurance take care of your medical bills if you need to undergo any medical treatment Accident Insurance takes care of expenses incurred in relation to an accident. Motor vehicle/ Auto insurance takes care of the cost of repairs to your motor vehicle in case of an accident

            

 

Insurance is a shelter

Findings


Travel Insurance - takes care of expenses incurred due to any unforeseen event during travel. - Home Insurance it covers expenses incurred in the event of robbery or damage to property in case of fire, earthquake etc. Mortgage insurance takes care of loan or mortgage payments in the event of a contingency. Unemployment Insurance- this type of insurance keeps one financially secure in the event of Insuranceloss of employment. Buying Life Insurance when you have no Need Buying Complex Life Insurance Products like Endowment, Child Plans etc which give sub optimal returns Buying Expensive Policies One common health insurance issue is what happens to your coverage when you change jobs or lose your job

Findings


Competitor Analysis Major Life Insurance Companies: State Life Insurance Corporation of Pakistan Efu Life Adamjee New Jubilee Insurance Alico ( Pak ) East West Life Assurance Major General Insurance Companies: Efu General Alico Adamjee Universal Insurance Co.

      

    

Conclusion


After conducting this project we conclude here as under : Both Non life & life insurance are beneficial for people of different segments In western countries there is a huge demand for both forms of insurance & People search for Insurance Actuaries not People running away from Insurance Agents In Pakistan people are generally skeptical about payment of claims by insurance companies. Some frauds have been found at the time of claims by policy holders Underwriters play a vital role at the time of settlement of claim In Pakistan General Insurance market is better than Life market Takaful would gain market strength in future hopefully. In Pakistan the Insurance Companies have launched different life & non llfe plans designed to cater for the needs of different segments of the society. Sometimes premium payment is too expensive for the prospective policy buyer

 

  

 

Conclusion
   

 

Not enough incentives provided to Insurance Companies in Pakistan Marketing of insurance products needs to be improved Insurance penetration in Pakistan is 3 % which is really too low Out of these also mostly dont know which policy they have bought & what are the benefits Generally People Consider it an Un Islamic way Most of the Govt. Employees are insured through State Life Insurance Company but they dont know too much about it Purchasing power of people has squeezed so much in Pakistan that many cannot buy policies even if they want . Un employment Insurance still not introduced in Pakistan which can boost sales of companies if it is low premium policy. Waiver of Premium is offered at an additional price other than normal premium. This trend must be finished. In short in Pakistan , Insurance is a business which can bring average returns but it has good future prospects in case of better marketing strategies by companies & incentives provided by Government.

Recommendations


 

 

Premium amount should be taken in to account by Insurance Companies with respect to rising inflation in Pakistan b/c purchasing power of people is not sufficient in Pakistan. With regards to claim payment in case of accident or death , there should be fair dealing by every party involved This would encourage people to buy life plans & life market would increase General Market is reasonably stable in Pakistan specially b/c of rising vehicle theft but vehicle theft should be stopped by concerned authorities & other incentives should be provided by non life companies to sell their plans MNCs need to enter the insurance market but premium amount of plans should be reasonable In this regard our Government must facilitate foreign well trusted major insurance companies to commence business in Pakistan In this regard law & order situation should be improved first of all An investment climate should be promoted in Pakistan

Recommendations


 

The well educated class of Pakistan trust on major MNCs , so if they commence business here than this segment of society would be a major buyer of insurance plans Marketing of insurance plans must be improved also New & improved marketing strategies must be applied by insurance companies to sell their plans The Government should provide incentives to Insurance Industry specially with regards to sales & income tax Insurance is essentially a social welfare plan so the Government must see this aspect of Insurance industry while applying taxes on it Education is the key to progress. People are generally not aware of insurance benefits . Only educated masses can be taught benefits of insurance In this regard Pakistan must increase its literacy level also .

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