Products Providing by Efu General Insurance Ltd

Abstract

This report is to highlight the role of General Insurance to the development of Pakistan's Economy, the complete working environment of the financial bodies and the insurance industry, the macro and micro economic factors affecting the big insurance operators and their functions.

First explains the basics of the Insurance then the actual topic of “Study on Lack of Awareness about Insurance with Reference to EFU General Insurance Limited” to give the reader a background about the Insurance Industry and its need.

Common Size Business Report discloses the internal structure of the firm. It indicates the relationship between sales and income. It shows the insurance business that produce income and the mix of the sources of Insurance business. Since Insurance sector also plays a vital role in the economy growth of a the country because it directly deals with the money and capital market. Some obstacles and fluctuation in this sector directly affect the economy of a country. Investors take the ratings and financial analysis of a insurance sector very seriously, because objective of insurance analysis is to forecast or determine the actual financial status and performance of insurance sector.

The EFU General Insurance Limited, and have analyzed the business statement of the company and drew a brief sketch of the financial performance of the company. For this purpose we have highlighted the problems as well as some vital solutions are recommended which need to be implemented.

After studying this report you will be clear about the insurance obstacles, prospects and financial performance of the company.

1. INTRODUCTION

1.1 Introduction

From the very starting time the world formed, we are striving to discover something new and get to the better standard of living, result of which is the development of many technologies and luxuries. Everything comes with its very own pros and corns, therefore with luxuries came along risk and fear.

As necessity is the mother of invention, few great minds introduced a risk transfer mechanism known as Insurance and today no one in the modern world can afford to be without insurance. Insurance basically spreads the risk. This means that insurance provided a pool to which the many contribute, and out of which the few who suffer losses are compensated. The successful operation if insurance is dependent upon a sufficient number of risks of similar class being insured so as to produce an average of loss experience. It is thus possible to calculate what are the chances of an event or events happening? And what amount will be required to provide the common fund, or pool, to meet the losses arising from such events.

1.2 Beginning Of Insurances Industry

The market began in Edward Lloyd's coffeehouse around 1688 in Tower Street, London. His establishment was a popular place for sailors, merchants, and shipowners and Lloyd catered to them with reliable shipping news. The shipping industry community frequented the place to discuss insurance deals among themselves. Just after Christmas 1691, the coffee shop relocated to Lombard Street (a blue plaque commemorates this location).

This arrangement carried on long after Lloyd's death in 1713 until 1774 when the participating members of the insurance arrangement formed a committee and moved to the Royal Exchange as The Society of Lloyd's.

The Slave Trade ;Between 1688 and 1807, one of the primary sources of Lloyds business was the insurance of ships engaged in slave trading, as Britain rapidly established itself as the chief slave trading power in the Atlantic. British shipping carried more than 3.25 million people into slavery, meaning that by the end of the eighteenth century, slave trading had become one of the primary constituents of all British trade. The dangers involved necessarily meant that insurance of slave-trade shipping was a major concern - between 1689 and 1807, 1,053 British vessels were lost while undertaking slave-trading activities.

First Lloyd's Act ; The Exchange burned down in 1838 and, although rebuilt, many of Lloyd's early records were lost. In 1871, the first Lloyd's Act was passed in Parliament which gave the business a sound legal footing. The Lloyd's Act of 1911 set out the Society's objectives, which include the promotion of its members' interests and the collection and dissemination of information.

The membership of the Society, which had been largely made up of market participants, was realized to be too small in relation to the market'tals capitalisation and the risks that it was underwriting. Lloyd's response was to commission a secret internal inquiry, known as the Cromer Report, which reported in 1968. This report advocated the widening of membership to non-market participants, including non-British subjects

and women, and to reduce the onerous capitalization requirements (which created a more minor investor known as a mini-Name). The Report also drew attention to the danger of conflicts of interest.

Second Lloyd's Act ;In 1980, Sir Henry Fisher was commissioned by the Council of Lloyd's to produce the foundation for a new Lloyd's Act. The recommendations of his Report addressed the 'democratic deficit' and the lack of regulatory muscle.

The Lloyd's Act of 1982 further redefined the structure of the business, and was designed to give the 'external Names', introduced in response to the Cromer Report, a say in the running of the business through a new governing Council.

Immediately after the passing of the 1982 Act, evidence came to light, and internal disciplinary proceedings were commenced against, a number of individual underwriters who had siphoned sums from their businesses to their own accounts. These individuals included a Deputy Chairman of Lloyd's, Ian Posgate, and a Chairman, Sir Peter Green.

In 1986 the UK government commissioned Sir Patrick Neill to report on the standard of investor protection available at Lloyd's. His report was produced in 1987 and made a large number of recommendations but was never implemented in full.

1988 - 1996;In the late 1980s and early 1990s, Lloyd's went through the most traumatic period in its history. Unexpectedly large legal awards in US courts for punitive damages led to large claims by insureds, especially on APH (asbestos, pollution and health hazard) policies, some dating as far back as the 1940s. Many of these policies were designed to cover all liabilities not excluded on broad form liability policies.

Also in the 1980s Lloyd's was accused of fraud by several American states and the names/investors.

Some of the more high profile accusations included:

• Lloyd's withheld their knowledge of asbestoses and pollution claims until they could recruit more investors to take on these liabilities that were unknown to investors prior to investing in Lloyd's.
• Enforcement officials in 11 US states charged Lloyd's and some of its associates with various wrongs such as fraud and selling unregistered securities.
• Ian Postage, one of Lloyd's leading underwriters was charged with skimming money from investors and secretly trying to buy a Swiss bank. He was later acquitted.

Beginning Of Pakistan Insurances Industry ;77 foreign insurance companies were dominating the Pakistan market post partition when the strength of local insurers was only Seven. In 1952 Government established Pakistan Insurance Corporation to promote the local insurance industry and number of local insurance companies increased to 60 while number of foreign companies reduced to Seven. In 1976 National Insurance Corporation (NIC) was formed, with the purpose of undertaking General Insurance business relating to any public property.

Present Situation; 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.

EFU General Insurance Limited ; In the early 30s of the 20th century, under the inspiration of the Quaid-e-Azam Mohammad Ali Jinnah, there began to appear signs of economic renaissance of the Muslims of India. Shipping, Airline, Banking and Insurance companies made their debut.

In 1932, Mr. Ghulam Mohammad, a far sighted man, established Eastern Federal Union Insurance Company (EFU) with financial assistance from the Aga Khan III and the Nawab of Bhopal. Mr. Abdur Rehman Siddiqui became the founder chairman. The company was originally registered at Kolkata and operated in India (undivided) and Burma. In 1947, on the birth of Pakistan, EFU found a new home in a new country. In Pakistan, EFU rapidly established itself as a progressive and innovative insurer. It gave the emerging insurance industry the leadership, the manpower and the drive needed to grow in a situation where at one time, three-fourths of insurance was held by foreign companies.

By 1961, EFU had become the flag bearer of Pakistan's insurance industry on the world stage, and the largest life company in Afro-Asian countries (excluding Japan) under the leadership of Mr. Roshen Ali Bhimjee. It remained so until 1972 when Life Assurance business in Pakistan was nationalized. Thereafter EFU operated solely as a General Insurance Company, and was subsequently renamed EFU General Insurance Limited. Now EFU General is the second largest non-life insurance company in the country and the mother company of other insurance organizations of EFU Group.

In June 1990 the Government of Pakistan decided to allow Life Assurance business in private sector also. On 18 November 1992, EFU Life was granted a license to carry on life assurance business. It started operations immediately with Group Life products and in March 1994 launched its Individual Life products. EFU entered the field of life assurance with the focus on the changing needs of the population. The company is committed to provide its policyholders with solutions to the problems of today's complex and rapidly changing financial environment by introducing innovative, and modern products.

In March 2000, Allianz Aktiengesellschaft (Allianz AG), a global leader in the insurance industry with an active presence in 70 markets across 5 continents and EFU Group signed a joint venture to form a new company for providing health insurance cover to the people of Pakistan. Allianz EFU Health Insurance Limited, approved by the Government of Pakistan, is the first specialized health insurance provider in the country and aims to play a pivotal role in developing the health insurance market in Pakistan.

Traditionally the EFU name has become synonymous with progressiveness and prompt claim settlement and now the EFU being the largest insurance group provides a full range of general, life and health insurance services.

1.3 Insurance Products providing by EFU General Insurance Ltd; As the current insurance industry in Pakistan is providing various types of insurance products which are as under :-

1. Fire Insurance
2. Marine Insurance
3. Life Insurance
4. Personal Accident Insurance
5. Motor Insurance
6. Security Insurance
7. Miscellaneous Insurance

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.

Allianz-EFU Health insurance company was set up as the first Specialized Health Insurance Company in Pakistan. Ltd.

Insurance Sector at Karachi Stock Exchanged:

Particular	Number	% of Total
KSE Listed Companies	654	100
Listed Insurance Companies	29	4.4
Paid up Capital	Rs. Billion	% of Total
Total Listed on KSE	637	100
Listed Insurance Companies	9	1.41

1.2 Purpose of Study

The purpose of study is to find out the factors which influenced to increase Reinsurance Cost and unavailability of Reinsurance coverages. And also try to describe insurance industry of Pakistan and how mange its risk.

1.3 Research Objectives

This report is to highlight the role of General Insurance to the development of Pakistan's Economy, the complete working environment of the financial bodies and the insurance industry, the macro and micro economic factors affecting the big insurance operators and their functions.

Any person new to the Insurance business can also comprehend this report as it first explains the basics of the Insurance then the actual topic of “Economics Significance of General Insurance” to give the reader a background about the Insurance Industry and its need.

1.4 Research Methodology

Information Sources ; The information has been sourced from various sources like Books, Newspapers,Trade Journals, and White papers, Industry portals,Government Agencies, Trade associations. Monitoring Industry News and developments and trough questioner.

Analysis Method ; The following analysis methods have been used: Ratio Analysis, Historical Trend Analysis, Judgmental Forecasting and Cause and Effect Analysis.

Data ; There are two types of data is used in these variables which are as under :-

Primary Data Sources ; Conduct Survey of the various insurance companies in Pakistan and obtain the different views from the insurance underwriters through questioner.

Secondary Data Sources ; The Secondary Data are obtained from various News Letters issued by various insurance companies (i.e. EFU General Insurance Company, Adamjee Insurance Company, NJI Insurance Company etc.)

Articles on Insurance development in Pakistan 2009 through obtain from Inter Net.

Financial Data is obtained from the Balance Sheet of various insurance company.

2. LITERATURE REVIEW

2.1 Literature Review

A promise of compensation for specific potential future losses in exchange for a periodic payment annually most cases. Insurance is formulated to protect the financial loss of an individual or group, company or other entity in the case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the terms of an insurance policy creates a contract between the insured and the insurer . In exchange for payments from the insured (called premiums), the insurer agrees to pay the policy holder a sum of money upon the occurrence of a specific event. In most cases, the policy holder pays part of the loss (called the deductible), and the insurer pays the rest.

Since, the Insurance industry has not yet become the largest sector of Pakistan due to not developed as of date, the only contributing of 12% in GDP, which is very low as compare to the other countries. This growth performance of Insurance industry of over last 5 years in Pakistan.A 

As per the Insurance Act of 1938 has had lost all its effectiveness, the government of Pakistan decided to repeal the Act and formulated the Insurance Ordinance, 2000 on August 19th, 2000 to strengthen the insurance industry by regulating it effectively. Because of this new Act, the Department of Insurance, headed by the Controller of Insurance under the Ministry of Commerce was abolished and the charge of the entire insurance industry for monitoring and regulating was given to Securities and Exchange Commission of Pakistan (SECP) under the Ministry of Finance. This new regulation has brought the fool proof regulatory procedures to provide full protection to policy holders.

Mr. A.R. Copemen, has discussed in this report is to highlight the role of General Insurance to the development of Pakistan's Economy, the complete working environment of the financial bodies and the insurance industry, the macro and micro economic factors affecting the big insurance operators and their functions. We are convinced that, for our profession to implement these suggestions, it will require a concerted change management strategy and set of actions to embed changes into the way in which actuaries work. We believe that this will include: increasing the level of debate and research in the profession on claims reserving; a broader communication programme with the general insurance industry, covering, amongst other things, uncertainty and data quality; a sub-group of the GI Board with a specific focus on reserving, responsible for implementing GRIT's recommendations and dealing with new issues as they arise; and our profession resolving the conflicting pressures which will arise out of the extra work required for reserving by the GRIT recommendations.

There is one specific item where we have not made a recommendation. It has been suggested to us that many of the standard reserving methods in common use, such as the chain ladder, are not sophisticated, and that more sophisticated mathematical and statistical methods should be a priority.

We do not agree with this. Whereas, in the longer term, this might be an important issue for our profession, we believe that the current focus for actuaries should be in the areas set out in this paper, such as understanding the business better.

GRIT believes that the issues which we have identified are important for the future of our profession and the contribution which we can make to the general insurance industry.

R. Qaiser, said in this the Insurance Act 1938 is the basic law that governs the transaction of insurance business in India. This act has been amended from time to time to bring about required changes in the insurance sector as also to push the government agenda.

The l amendment was made in 2000 which created IRDA and vested power with it to regulations from time to time to regulate the market and to protect the policy ho interest.

This amendment opened up the insurance market in India to private players. meant a more proactive role for the regulator to ensure the overall health of the sect also to maintain a strict vigil on the conduct of companies. This amendment will have reaching consequences. To further liberalize the market and to bring in some changes, the act is going to be further amended. The draft bill is pending with parliament.

This latest amendment of 2000 brought in its wake for the first time the concept “appointed Actuary” in general insurance companies operating in India. Every gene insurance companies, must now is necessarily required to have an “appointed actuar His role has been defined in the regulations issued by IRDA. While the appointed actua will receive his remuneration from the company, he will also be reporting to IRDA dir on certain matters which are critical and may require immediate IRDA intervention. Why has actuary suddenly become so important in general insurance companies? Why

was he not so important earlier? What are the areas where requirement of his services mandatory? What are the other areas where he can be of help and his services can utilized with advantage.

Gregory K. Laing, The general insurance industry is a major component of the Australian financial sector and as such general insurance companies are involved in negotiating reinsurance, treaties and lines, within Australia and more importantly with overseas re-insurers. Overseas treaties and reinsurance lines require payments of premiums with subsequent offsetting claim settlements.

These transactions, by their very nature, expose the companies to foreign exchange risk involving issues of solvency and profitability which are key elements in developing a risk management strategy for currency exposure.

BarNiv (1990) compared market-value-cash- flow principles with statutory accounting procedures and found that both were better predictors of insolvency than generally accepted accounting principles in the USA insurance industry. In analyzing the nature of the insurance industry BarNiv (1990, 580) identified cash-flow and investments as important components for monitoring solvency in the industry.

The very issues that were identified as contributing factors in the collapse of HIH in Australia (Westfield, 2003). Prior research has focused on the foreign exchange risk management by reinsurance

companies because of their exposure to currency fluctuations due to the international nature of their liabilities (Louberge, 1983).

However, with many general insurance companies now having diversified their investment portfolios internationally the fluctuating exchange rates pose an additional risk factor when compared to investment in domestic assets. In general fluctuations in the exchange rates have been more difficult to forecast since the adoption.

Rizwan Ahmed Farid discussed the Risk management in the insurance business deals with pure or static risk which is transferred from an individual to the insurer who charges a service fee for agreeing to accept the risk. Pure risk exists when there are no potential gains, only possibility of financial loss.

Insurers do not address dynamic or speculative risks that involve chance of loss or gain; whereas, in static or pure risk there is only the probability of loss or no loss. The insurers accept only pure risks within theirs retaining capacity, inclusive of reinsurance treaties, to absorb the quantum of the probable loss. The risk must normally be accidental in nature, free from moral hazards, predictable, measurable, spread over a large number of similar eventualities and acceptable to the insurer.

In fiqh literature the term gharar is associated with risk and uncertainties in contractual agreements. Bay'al-gharar prohibited by the Prophet (pbuh) includes selling runaway slave and fish in the pond. In shari'ah a contract becomes null and void where presence of gharar in contractual obligations is found.

Allah hath permitted trade and forbidden riba (Quran: Al-Al-Baqarahh: 275). In trading ‘al-bay' is a contract of sale, and no sale transactions in Islam or any other religion is free from risk of market, physical or natural calamities.

Taking these risk is the legitimate way of doing business which is called ghorm i.e. price and market risks, etc. A person cannot expect to make profit without assuming probability of loss or risk in his ventures.

Gharar is indeed different from ghorm, although the English translation of both has applied the same term interchangeably: risk and uncertainty. Rosly, Saiful Azhar, writes:

Farrukh Arif, has discussed Construction is recognized by many researchers to be among the riskiest of industries all over the world, both in terms of safety of the personnel and security of investment. Construction industry represents a big part of the national investment, which is above 2% of the total GDP i.e. the direct 178 contribution of the industry while it gets above 10% if the contribution of the transport and communication sector Federal Bureau of Statistics, Pakistan 2006.

Construction works are characterized by the involvement of man power and the use of equipment and material as the major resources.

There are certain risks involved with either types of the resources used. Annual toll of deaths, bodily injuries and property damage in construction world is very high. Not only this but construction works involve large amount of investment especially in public projects. All of this increases the risk of construction business and makes handling of financial matters more critical. Insurance and Surety are some of the methods utilized by the contractors and client through out the developed world as risk controlling against these unwanted events. Risk insurance helps the contractor transferring its risk related to unforeseen circumstances which has a potential risk of damage to life, property, material or equipment. (Richard H. Clough, 1986).

This study aims at highlighting the current insurance practices of the construction industry of Pakistan. A distinguishing approach of targeting insurance companies has been used for data collection in this regard.

The appropriate political environment always formulate better insurance policy on government levels to promote insurance. However, the current government has now imposed 16% insurance taxes which is too high as compare to the other countries, which has effected the whole insurance industry the growth of insurance has been decreased.

Nevertheless, this can be proposed or suggested to the government to reduce the insurance taxes as much as possible (should be maximum 5% to 10% only) so the people can be able to purchase the insurance products with low cost/price with desired coverages.A 

As long as the political stability is certain in the country this will play a very important role to grow up the insurance industry. Since as per current insurance market most analyst observed that due to certain and stable political environment the insurance industry can grow.

If political environment is stable then we can get better business support from the other countries as well.

In order to get better Reinsurance Support from abroad the political environment should always be certain in the country so it effects the positive image on the other countries and as result every Reinsurers will definitely agree to provide Reinsurance Support with maximum required coverages and low cost/price.

As the current government has now imposed 5% reinsurance remittance tax at the time of making remittance in abroad which is too high if we compare to the other countries, by which the whole reinsurance/insurance industry has been effected.

3. GENERAL INSURANCE INDUSTRY

3.1 Introduction

Both life and general insurance business has made reasonable progress since Pakistan came into being, particularly with respect to premium income generation. However, the progress of Insurance Industry does not lie in premium volume alone. There are many other aspects of insurance business, which are more important than the premium volume. Financial soundness of the company, Technical know-how of the company's work force both within the office and outside in the field, and Such other matters of greater value and merit We inherited a raw country but with tremendous potential of wealth by virtue of the vast natural resources with which it is endowed. The economic activities of the country were accelerated producing more and more wealth with the passage of time. The insurance business also picked up as time passed by. Exports and Imports have gained momentum. The process of industrialization has been going on. In a situation like this, it was expected that there would be a corresponding increase in the volume of life insurance business as well as the general insurance business of our country.

• It appears that this tidal flow of reformation could not be resisted; howsoever much vested interests may try to resist.
• Consequently, the structure and the look of our country's society are bound to change.
• It may cease to be a conservative, closed and tradition-ridden society.
• There will be more and more openness and competition which surely will generate healthy trends towards the building up of healthy in situations- facilitating the growth of financially sound companies being manned by technically competent personal and having clean reputation as regards claim payments.
• As it could be visualized that the private sector have been inducted into life operation as well and since there would be competition various new forms of protections against property, life and liability would have come into vogue, which is unheard of in our country.
• There should be no hesitation to believe that in the near future the Insurance Industry of our country would be on the threshold of a big leap forward.

Non Life Insurance (Rating);

• The Insurance Association of Pakistan (IAP), which is the representative body of the insurance companies writing non-life business, has compiled tariffs for Fire, Marine Cargo, Motor and Workmen's Compensation classes of insurance.
• Miscellaneous Accident, Bonds, Engineering, Marine & Aviation Hull are non- tariff business.
• Since the cake is small, there is intensive competition in the market with the result that the tariff rates are observed more in breach than in compliance.

Although insurance premiums have increase by 11% in 2010 compared to 2009, it reflects only 0.5% of Pakistan's GDP. This shows very low penetration of insurance Market as compared to India and Sri Lanka. It is anticipated that insurance penetration in future will rise at 0.06% per year and it will touch 1.0% in 2011.

The Market Share of top four companies (including NICL) is 72%, while remaining companies share the balance of 28%. This shows that non-life insurance Sector is highly fragmented.

(Year 2010)

Rank Insurance Company	Premium Written (PKR Billion)			Market Share
1. Adamjee Insurance Company	10.2			25.30%
2. EFU General Insurance Ltd.	9.7			24.06%
3. National Insurance Company Ltd	5.5			13.64%
4. New Jubilee Insurance	3.56			8.80%
Sub Total		28.96	71.83%
Others		11.36	28.17%
Grand Total		40.32	100.00%

Five Years Growth ofA  General Insurance Industry from 2006 to 2010

3.2 Type of Insurance

As the current insurance industry in Pakistan is providing various types of insurance products which are as under :-

1. Fire Insurance
2. Marine Insurance
3. Life Insurance
4. Personal Accident Insurance
5. Motor Insurance
6. Security Insurance
7. Miscellaneous Insurance

Since, the Insurance industry has not yet become the largest sector of Pakistan due to not developed as of date, the only contributing of 12% in GDP, which is very low as compare to the other countries. This growth performance of Insurance industry of over last 5 years in Pakistan.A 

As per the Insurance Act of 1938 has had lost all its effectiveness, the government of Pakistan decided to repeal the Act and formulated the Insurance Ordinance, 2000 on August 19th, 2000 to strengthen the insurance industry by regulating it effectively. Because of this new Act, the Department of Insurance, headed by the Controller of Insurance under the Ministry of Commerce was abolished and the charge of the entire insurance industry for monitoring and regulating was given to Securities and Exchange Commission of Pakistan (SECP) under the Ministry of Finance. This new regulation has brought the fool proof regulatory procedures to provide full protection to policy holders.

Pakistan Insurance Industry & New Developments ;There are many new products which has in pipeline, there are few discuss,

Crop Insurance:

Credit Linked Crop Insurance: National Insurance Company Limited NICL has come up with three crop insurance product and planning to offer insurance cover to the farmers/borrowers of ZTBL and NBP.

NBP and ZTBL are the two big lenders which are set to offer Rs. 92 billion loans to farmers in the current fiscal year.

NICL is expected to offer crop insurance for next Kharif in June 2011, when sowing season begins.

Cover Limit : 2 Million Maximum

Target Audience : Selected farmers of particular districts of the four provinces.

Coverage : Natural perils like disease, pest infestation, theft, fire and accidental death of the borrower

Exclusion : Malicious Act Damage, Drought, Flood, Rainfall, and other natural disasters. Government intervention in public interest. War. Price fluctuation, etc.

Premium : (1-25-1.75%) on Sum Insured.

Where NICL is initiating crop insurance in the public sector, the top five private insurance companies are also involved in the similar activities in collaboration of Various banks under the supervision of State Bank of Pakistan. They are,

1. Adamjee Insurance
2. EFU Insurance
3. NJI
4. East West Insurance
5. United Insurance

These five companies have asked SBP to provide them with the data regarding the agriculture bank loans disbursed and recoveries made in the last 10 years.

Insurance companies require the premium rate to be (2-4%) which when added to the 12% bank interest on loan sums up to a load of 16% for the farmer.

Currently, East West and United Insurance are operating in crop insurance on a very small scale.

Formerly, operated through Askari Bank, which generally provides support to the retired servicemen involved in farming.

United Insurance operate through bank of Punjab, which has a very big portfolio.

BOP intends to offer Rs. 5.5 billion wile Askari Rs. 150 Billion for the farming purpose.

The three NICL crop insurance products are,

1 Product #1

• Providing cover against natural and atmospheric perils (AA Security).
• Available through the loaning bank at the rate of 1.25%.
• Backed by Swiss Re.

2 Product #2

• Providing a more comprehensive cover both Crop and Livestock including
• pest, locust, viral disease.
• Available at the rate of (1.5-1.75%).
• Supported by Lloyd syndicate.

3 Product #3

• NICL is offering it from its own resources.
• Available to the farmers of the selected districts of the four provinces.
• Claims will be assessed by the top two surveyors.

NICL has also introduced 4 micro finance products in the rural areas, which provide compensation for the loss of life, health and of the assets of the poor man in the village.

Livestock Insurance ;Pakistan Has an agrarian economy and it agricultural sector contribute about 22% to its GDP with its livestock component being more than 50% Adamjee Insurance Company is pound to introduced Livestock Insurance- a services dedicated to meets the growing needs of our farmers and to provide them with much needed support. Livestock insurance is yet another value added proposition to our product line, direct to satisfy the need for our diverse clientele. The Live stock insurance campaign was launched in march, 2007 and was extremely well received by the rural community of Pakistan, which has since then given positive reviews in support of the services.

Travel Insurance ; The FAASLY ASAAN policy is comprehensive travel insurance plan which is in accordance with international insurance standard and guarantees complete pace of mind while traveling. AICL has a partnership with International SOS and provide world- class customer care and support round the clock Adamjee Internationally healthcare and security professionally are easily accessible and can assist you in over 70 different languages in most countries around the world. Extended beyond the boundaries of medical assistance, the company's customer care services excel in providing concierge travel, cash, emergency and a wide range of hotline services to their customers. EFU's similar product named as Travel care Insurance launched Travel Safe.

3.3 Types of General Insurance

There are two types of Insurance product sale in Market, which as follow,

1. Personal Insurance
2. Commercial Line Insurance

(A) Personal Insurance ;It may be useful to clarify at this point what we mean when we talk about personal insurance.

We are referencing to the various policy covers required by private individuals, as opposed to commercial insurances, which are insurance required by commercial entities such as companies and corporate.

We shall looking at the underwriting consideration applicable to these classes, it is important at this stage to consider how the cover provided by the various type of policy impact on the underwriting of those classes.

(i) Motor Insurance;There are two types,

(a) Private Motor Insurance;This is the most significant compulsory insurance in the UK. It is illegal to drive or be in a charge of vehicle on a public road, as defined in The Road Traffic Act 1988, unless an insurance policy is in force in respect of legal liability for injury to other or damage to their property.

In the Road traffic Act 1988 ‘road' is defined as meaning, Road Means, any highway or any other roads to which the public has access...

There are four different levels of covers available as follow,

• Road Traffic Act,
• Third Party Only
• Third Party Fire & Theft
• Comprehensive

Road Traffic Act ;It is the minimum cover required to comply with theA  ‘Road Traffic Act 1988' and provides for unlimited indemnity in respect of bodily injury or death to third party or damage to the third party property, claimant cost & expenses, and emergency treatment and hospital charges arising out of the vehicle use.

Third Party Only ;It provides, additional to the above, third party property damage cover, drive other vehicle extension, passenger indemnity and legal cost to defined a claim, it is all includes full EU coverage's (not just Road).

With reference to third party property damage limitations. It is interesting to note that for many years insurers were happy to provide unlimited cover for third party property damage, as there were very few claim, which test these limits.

Third Party fire & Theft ;It includes the cost of repair and compensation of the insured if the vehicle is stolen, damage during theft or attempted theft or attempted theft, and damage by fire and lighting or explosion.

Comprehensive ;Comprehensive or fully comprehensive is the widest possible protection and includes other accidental and malicious damage to the insured vehicle.

The cover is ‘all risks'. With exclusion. These exclusion includes.

1. Wear and tear
2. Depreciation, i.e. reduction in the value of the vehicle following an accident.
3. Loss of use, i.e. cost all alternative transport while the vehicle is off the road.
4. Mechanical and electrical failure,
5. Tire damage from punctures or blowouts.

(b) Motor cycle ;This includes any mechanically propelled cycle, and is also subject to the Road traffic Act provisions. The same levels of cover are available. The policy format is the same as that used in private car insurance, with the following small differences,

There is no cover of theft of accessories or spare parts unless the cycle is also stolen.

The liability section generally only indemnifies the insured.

No personal accident, medical expenses or personal effects cover.

Motorcycle insurance deteriorated to such as extent in terms of result that the market for providing the coverage's has contracted over the past few years. The ready availability of relatively inexpensive high powered motorbikes resulted in a steady increase in the frequency and severity of accident involving motorbikes, so insurers who are prepared to offer cover are doing so an a more restricted basis.

(c) Commercial Vehicles ;Although we are dealing with this class of business as part of our consideration of ‘motor, insurance, you should be aware that it is in fact a type of commercial insurance as opposed to a personal insurance. The main type are,

1. Goods-carrying vehicles
2. Passenger-carrying vehicles (such as taxi)
3. Agriculture and forestry vehicles such as tractors.
4. Vehicles of special construction or special types' e.g. ambulances,cranes, folklift trucks, earthmover.

Like private insurance, commercial vehicles insurance is concerned with insuring against damage to the vehicles, and liabilities to others arising out of the vehicles.

It does not includes damage to good carried in the vehicles, unless by special extension.

This is unusual and is more commonly covered by special goods in transit policy.

There is usually a standard policy wording, which is then modified depending on the vehicle insured.

The range of cover is the same as in privates motor insurance, the covers, however, varies in respect of the exclusion of certain benefits, these include,

1. Driving other car extension
2. Personal accident
3. Personal effect cover.

(ii) Health Insurance ;People are exposed to many risks that may result in a reduction in their income or wealth. Income may be reduced by death, unemployment, accident injury, sickness or

disability. In addition, certain liabilities may increase, e.g. the cost of medical treatment. There is an obvious need to insure some or all of all these risks and this is the object of health insurance.

Health insurance can be broken down a follow,

1. Personal accident
2. It provided payments in the event of accident death or bodily injury.
3. The main benefit is lump sum payment (capital benefits) in the event of, Death,Loss of Limbs, eyesight, speech, hearing.
4. Permanent total disablement
5. Temporary total disablement
6. Temporary partial disablement

(iii) Sickness cover ;Illness or sickness cover is usually offered as an extension to the personal accident policy and provides weekly benefits for persons unable to perform any part of their normal job.A 

A franchise is almost applied.

Most personal accident and sickness policies can be extended to includes such cover as,

(iv) Disappearance ;In which the lump sum applicable for death is paid if an insured person disappears for longer then an agreed period, e.g. for six months.

Medical Treatment to speed up the period of convalescence.

Hospital benefits to help pay for family travel cost.

(v) Medical Expenses ;This insurance cover provided for those who seek private medical treatment outside

the NHS. This enables them to choose the hospital and consultant used and, in many cases, the timing of the treatment.

Typical in-patient cover includes, Hospital charges, there are cost incurred surgery, theater fees, consultant, nursing and after care costs.

Specialist fees: Such as specialist consultant and surgeon's fees

Additional costs: These includes ambulance fees

Exclusion includes,

1. Long-term residential care
2. Pre-existing conditions.

(vi) Household Insurance ;Insurance of private houses and their contents is almost always provides by house owner or householders comprehensive policies. These often combine protection for the house and its contents, and cover damage from fire and a large number of other perils which shall be dealt with in this section.

There is no such thing as a standard household policy, both cover and wording vary. Here we will took briefly at building and contents insurance.

(vii) Building insurance ;This including the main structure but also garages, shed, greenhouse, outbuilding, swimming pools, tennis court, garden paths. Anything you would normally leave behind on moving from the house is part of the building, e.g. double glazing, fitted kitchens etc. the cover generally available is as follows,

1. Fire, Lighting, explosion and earthquake

2. Strom & Flood

3. Falling trees or branches

4. Escape of oil

5. Escape of water

6. Theft or attempted theft

7. Impact

8. Subsidence, ground heave or landslip

9. Lost of rent etc.

(viii) Contents insurance ;This is generally mean household goods and personal effects of every description, belonging to the insured or a family member living in the property. It includes cash and stamped and any fixtures and fitting belonging to the insured.

The risk is covered are essentially the same as for the building cover but with the following differences.

Theft, or attempted theft, of cash or currency, bank notes & stamps may be excluded.

Theft or attempted theft, while the building is lent, lab or sub-let in whole in a part may

be excluded if it does not involves forcible and violent entry or exit.

Accidental damage cover.

The following extensions to cover are usually included automatically.

Temporary removal: the policy is automatically extended to cover the contents whole temporary removed but remaining in the British Isles.

Clothing and personal goods of domestic servant: such as currency notes, bank notes and stamps are excluded.

1. Accidental breakage of mirrors and glass furniture's.
2. Loss of rent

Other extension can be included for additional premium,

1. Accident damages to entertainment equipment.
2. Accident damages whilst in the course of removal.
3. Cost of replacing door locks after theft of key etc.

Typically exclusion.

1. Property more specially insured elsewhere.
2. Medals and coin, unless specially insured.
3. Motor vehicle.
4. Livestock (other than horses).

Optional Extension ;The most common extension apart from those already discussed in relation to the specific sections of building and contents are as follows,

(ix) All Risk ;Such cover is an available for personal possession regularly taken outside the property. Usually such cover is only available in conjunction with contents cover.

(x) Money and Credit Cards ;The money extension provides a from of ‘all risk' cover much wider than that includes under the content section. Cover relates to accidental loss of money, ‘money' usually covers cash, cheque, post orders, bankers draft and postage stamp, premium books gift token and travel tickets. Specific exclusion may apply includes.

1. Shortage due to error or omission

2. Losses not reported to the polices within 24hours.

The credit card extension provides in respect of financial losses or theft of a card and it is subsequent misuse. Credit cards usually include cheque cards, cash cards and charge cards, as well as credit cards.

(xi) Freezer content ; Cover is in respect of deterioration of freezer contents due to a change in temperature or contamination as a result of accidental escape of refrigerant fumes. Some insurers set a limit of indemnity.

(xii) Caravans ;Most insurers provide cover under these sections, Caravans and equipments. Cover is in respect of ‘all risk' of accidental loss of or damage to the caravans. Its fixture and fitting. Clothing and personal effects. This provides 'all risk' cover whilst the property in the caravans, awning.

Liability: This cover legal liability for bodily injury or damage to property caused by or in connection with the caravans up to a limit of indemnity.

(xiii) Small Craft ;Small craft defined as vessel not exceeding 16 feet overall and with design speeds not exceeding 17 knots. Cover is usually provided under four functions namely.

1. Accidental loss or damage to craft
2. Personal effect
3. Salvage charges
4. Liability to third parties and passenger, with a limit of indemnity
5. Sport equipment
6. Cover is for accidental loss or damage to sport equipment and specialist sports clothing owned by any member of the insured household.

(xiv) Domestic animals ;Cover is available for horses, ponies, domestic cats and dogs.

1. Horses and ponies ;Cover includes death from accident, sickness, disease and loss by theft or straying. Covering includes temporary incapacity, veterinary fees, saddles, other riding tacks, and third party liability.
2. Cats and dogs Cover includes veterinary fees, accidental death, and death from illness. Loss by theft, advertising and reward etc.

(xv)Legal Expenses ;The legal expenses extension provides cover for the following costs,

Recovery cost, for legal action taken to enforce the legal right of the insure against third parties.

Civil defense cost, for the defense of certain type of civil claims not covered by other form of insurance.

Prosecution defense cost, of the defense of certain criminal charged which may arise from unwitting acts of the insured.

Employment dispute costs.

(xvi) Travel Insurance ;Many people may require cover for personal accident, sickness and other related expenses during specific periods, sometime when they are particularly at risk.A  A good example of this is when people go traveling insurers therefore often provide policies to compensate for these losses, and specialist travel insurance policies have developed and will be covered here.

Most of the traveling policy covers the following,

1. Personal accidental benefits
2. Medical and associated expenses
3. Loss of deposit
4. Baggage, personal effects and money
5. Personal liability
6. Delayed baggage
7. Hospital cash benefits
8. Travel interruption
9. Travel delay.

In addition a to the standard cover, the following optional extension are usually available.

1. Failure of tour organizer
2. Lack of services or amenities
3. Loss of passport
4. Legal expenses

1 B. Commercial Line Products

(i) Property insurance:

1. Fire & Special Perils Insurance ;Fire insurance developed alongside the need for businesses to insure their assets. Initially the need for insurance was seen as very straightforward, to insure property against damage or destruction by fire.

The insurance market sees the ‘Standard Fire policy' as the basis for its wording. The policy provides standard fire cover and then ‘extra' perils can be added. It is now common to issue policies covering fire and special perils as standard.

So what is ‘standard' fire Cover? Standard fire cover is made up of three parts:

1. Fire (excluding explosion resulting from fire, earthquake or subterranean fire, and its own spontaneous fermentation or heating).
2. Lighting
3. Explosion (restricted to explosion of boiler or gas used for domestic purpose only).

The special perils that may be includes are as follow, each is preceded by damage caused to the property by and can be added individually or in combinations. The usual practices nowadays is for all perils to be covered,

1. Explosion ;Namely those emanating from chemical reaction producing suddenly expanding gas.
2. Aircraft ;An aircraft or aircraft parts falling through the roof of a building.
3. Riot & Strike Damage ;The ‘Public order Act 1986' defines a riot as a group twelve or more people gathered for carrying out a common purpose with intent and with force if necessary and in a such way as to alarm a person of reasonable firmness and courage.
4. Malicious damage ;Vandalism
5. Earthquake ;You will recall that in some countries ‘earthquake' is a classed as a fundamental risk due to the frequency and severity of earthquake incident.
6. Subterranean fire ;Otherwise know as underground fire. Particularly important if you live in an area with former mining activity.
7. Spontaneous fermentation or heating ;Certain sustain can self-combust in certain conditions. Oil rags in garages for instance can react with the atmospheric and decompose. This process creates oxidation and heat build-up.
8. Storm ;Defined as some sort of violent wind usually accompanied by rain or hail or snow.
9. Flood ;Defined as the escape of water from the normal confines of any normal or artificial watercourse, lake, canal or dams.
10. Sprinkler leakage ;Offered to companies with sprinkler fire protection in their premises and subject to the system being installed in line with loss prevention council ‘sprinkler rules'

Standard exclusion ;Certain causes of damage are excluded. Some of these are because they are regarded as fundamental risks (war, riot, radiation, pollution) and other because they are more properly insured under other types of commercial insurance policy (marine, consequential losses).

1. Riot or civil commotion
2. War risk
3. Radioactive contamination/explosive nuclear assemblies.
4. Terrorism
5. Northern Island excluded perils
6. Pollution or contamination
7. Marine policies
8. More specifically insured clauses
9. Consequential losses i.e. loss or profit or income following and consequent upon a loss proximately caused by an insured perils.

(ii) All risk insurance ;While the standard fire policy lists what is and is not insured, demand arose for a policy, which offered cover for accidental damage as well as the standard perils. All risk insurance developed in response to this although the names ‘all risk' is slightly misleading, as it dose not cover everything it simply cover everything that is not specially excluded.

It was realized generally that uncertainly of loss is not restricted to even bring about by fire and special perils, nor limited to event occurring on or about the insurer's premises.

Exclusion ;Can be divided into four group,

1. Absolute exclusion: war pollution, contamination etc.
2. Gradually operating excluded: corrosion/rust, wind/rain damage etc.
3. Aspect of covers, which can be written into the policy
4. Property or risk more appropriate to another class of business.

(iii) Theft insurance ;While damage to property caused by fire was one of these earliest obvious causes of loss, other people stealing it, or damaging property while trying to steal it followed close behind and so theft insurance developed in response to this need.

It is however very important to note that ‘theft' has a very specific meaning in insurance terms and it is important to differentiate this from the strict legal definition.

The Theft Act 1968 state that a person is guilty of theft if they

Dishonesty appropriate property belonging to another with the intention or permanently depriving the other of it.

Insurer includes a phrase that it must include force and violence either in breaking in or out of the insured premises, effectively, this mean that a loss not involving a ‘break in' would not usually be covered.

(iv) Glass insurance ;Glass insurance usually be insured against damage caused by a fire theft if a fire or theft policy were in place. However some common causes of damage to glass are excluded

from these standard cover, so a business with large amount of glass with often want cover for this.

The standard policy cover destruction or damage to all fixed glass including windows, door, fanlight, showcase, mirrored glass and glazed partition and usually includes an extension to provides for the cost of boarding up damaged glass unit replacement can be effected.

(v) Money ;Think about many business operate, especially retails shops. They sell good for cash

and often have large amount of cash and cheques on the premises. Clearly there is a risk to this money, both while on the premises and while in transit. As a result many businesses will want to take out special insurance to protect against loss of money.

The definition of money includes cash, bank and currency notes and money order, postage stamps, national insurance stamps and luncheon vouchers.

It is wider then just cash because all of the items includes within the definition have a cash value and might not be capable of being replaced in the event of the loss, damage or theft.

(vi) Pecuniary insurance ;So far we have dealt with losses that effect business by causing loss or damage to property belonging to the policyholder. But when running a business there are other financial losses that can be insured against. Because the loss here involves direct financial loss they are know as ‘pecuniary insurances'.

(vii) Business interruption insurance ;This cover the actual or potential loss of earning and additional expenses incurred as a result of a material loss covered under property insurance.

In assessing the need for business interruption insurance it is necessary to estimate the maximum time the Income of the business could be affected as a

result of a damage caused by, for example, fire. This period is known as the ‘indemnity period'.

A maximum indemnity period is then chosen by the insured e.g. 12 or 18 months. The maximum indemnity period is the longest period over which the business interruption cover will support the business.

(viii) Liability insurance ;In law we all owe a duty to each other to ensure that our action do not injure others or damages their property. This known as the ‘ duty of care'.

In the event of a breach of the duty, a party can be liable to pay damages to other who suffers loss or damage arising from negligence. The most common example of this would be in a motor accident, where the person who is fault is liable to pay for the repair to the other' car paid from by the insurer.

It is worth spending a little time on the concept of negligence here, as this drives liability and liability insurance. Without someone being in some way negligence there is not usually a legal liability to pay for injury or damage. In general terms negligence can be defined as,

“Doing something which the reasonable or prudent person would not de or omitting to de something which are reasonable person guided by those consideration which ordinarily regulate the conduct of human affairs, would do”

1. Employee liability insurance ;It required that every employer must be insured against liability for bodily injury by their employees arising out of and in the course of their employment. And that a certificate of insurance must be displayed at each place of business.
2. Public liability insurance ;This policy is open in that it cover all legal liability that is not excluded. It provides as, indemnity to the insured for legal liability to third parties damages in respect of bodily injury, death, disease or illness, and for any loss of or damage to property which happens inA  connection with the business insured under the policy and occurring during the period of insurance.
3. Product liability insurance ;The standard policy cover legal liability for bodily injury or property damage which arise out of goods or product manufactured, constructed altered, repaired, serviced, treated, sold, supplied or distributed by the insured. Covers is not usually offered separately from the basic public liability policy and is often sold in conjunction with the public liability policy as a combined product covers.
4. Professional indemnity insurance ;This cover professional people's liability for injury, damage or financial losses to client or the public as a result of breach of professional duty.

An example might be an insurance broker giving advice on insurance coverage to a client on a fire insurance for their factory, getting the business from the client and then simply

forgetting to place that cover. If the factory burns down the broker has clear

been negligent, the client has suffered loss as a result of this and the broker would be able to pay a damages. Professional indemnity cover is intended to provides insurance against the possibility of having the pays these damages.

3.4 Insurance Market

Insurance is not a material commodity but a service of availability, and the market in which it is dealt embraces the insuring public on the one hand and Insurers on the other with the various insurance intermediaries. The market is represented diagrammatically.

Diagram of the Insurance Market

1. Some industrial life assurance agents are permitted to place general branch business with outside Companies.
2. Insurances at Lloyd's can be arranged only through Lloyd's brokers. Such brokers also place a considerable amount of business with the Companies.
3. An own case agent is one who receives commission on his own insurance only, and who introduces no other business.

Pakistan Economy & Insurance Contribution of GDP ;The Insurance industry in Pakistan has performed exceptionally well during the last past year as a result of liberal policy and incentive provide by the government. Actually the performance of insurance industry is linked with the national economy, which has taken a turn around during recent years and so the trickle down effect on the health of insurance industry is significantly visible.

Pakistan's economy continues to maintain its strong growth momentum for the fifth year in a row in the fiscal year 2009-10. With economic growth at 7.0pc in the current fiscal year. Pakistan's economy has grown at an average rate of almost 7.0pc per annum during the last five year. This brisk pace of expansion on sustained basis has enabled Pakistan to position itself as one of the fastest growing economies of the Asian region.

Financial and insurance sector spearhead the growth in the services sector and registered stellar growth of 18.2 pc during the current fiscal year 2008-09 which is slightly lower than 33.0pc of last year.

Finance and Insurance has also contributed 13pb or 0.9 percentage point to this year's growth. If we analyze the contribution from aggregate demand side for 2008-09 it emerged that consumption accounted for 49.8pc or 3.2-percentage point to economic growth and while investment accounted for 52.7pc or 3.4 percentage point of growth.

Population ;We generally hear that economic development in Pakistan is slow, because of it large and increasing population. There are some indeed some countries with lower population density and high per capita income.

There are many countries with a large population, measured in terms of density of population, but are included among the most developed countries. Similarly there are many countries with shall population but low income per capita. What really matter in economic development, is not size of population, but quality of population as judged in terms of education, hard work, honesty, discipline and devotion.

Growth of population reflects increase in “survival rate” not increase in “birth rate” or “flood” of population, to be checked. A major cause of increase in population is that fewer people die, both because there are fewer cases of infantile mortality and fewer deaths of adult.

It is necessary to have a look at the pattern of population tendencies in the process of economic development. We in Pakistan have seen that obsession of family planning.A 

Despite this growth in the last few years, the performance is far behind the real potential and as such there is much room for improvement. Pakistan is one of the largest Muslims state in he world with a population is about 160 millions. For a country the size of a Pakistan, the insurance sector is undeveloped.

3.5 Contribution of GDP

Developed countries are receiving the assistance of friendly system of insurance but we are still living with the conventional approach. Pakistan Insurance Industry Contribution to GDP is 0.23%. Luxembourg has highest contribution to GDP, which is 54.42%. In 2007 Total Premium of insurance industry of Pakistan was $ 949 million, while India holds $ 43,032 million. Premium of World Insurance Market has increased by 75% in the last decade, but growth of Pakistan insurance industry for the same period is more than 900%.

Economists believe, insurance is a vital tool for the economic stability of the country, but unfortunately this industry overlooked from its foundation. Comparing with other financial sector industries such as banking, mutual funds and securities etc, insurance industry on the whole is far behind. People still customarily faith that "It is something haram", but what really happens in it and how does it works, majority is unaware. This is the route cause of backwardness of the insurance industry. It says "Customer is the King" but if customers are not aware, then how can we expect from them that he will purchase insurance policy. Unluckily in the past, Insurance association of Pakistan (IAP) and Insurance Companies did not take steps to highlight its importance and promotion of the insurance mechanism and also to remove the misconceptions in the minds of people.

In year 1997, Asian Development Bank (ADB) provides $250 million, under the "Capital Market Development Program" for the repeal and renewal of Insurance Act 1938, which later on result in promulgation of Insurance Ordinance 2000.

Keeping in view the need of the industry, "Hailey College of Banking and Finance" with the mutual collaboration of Insurance association of Pakistan (IAP) started insurance educational program at graduation and masters level in 2005, with an objective to develop the insurance professionals, which is considered to be a milestone for the future of this industry. Analysts consider it, an asset generation factory of Insurance Industry. Now administration of Hailey College of Banking and Finance and IAP is planning to start CII (Chartered Insurer) in the college, which will also contribute a lot such as.

4. PROBLEM AND PROSPECTS

4.1 Natural Disaster

Natural disasters are happening more often and having an ever more dramatic impact on the world in terms of both their human and economic cost. While the number of lives lost declined in the past 20 years-800,000 people died from natural disasters in the 1990s compared with 2 million in the 1970s—the number of people affected has risen. In the past decade, the number of people affected by natural disasters tripled to 2 billion.

The International Red Cross, which publishes an annual World Disasters Report, says the economic cost of natural disasters has skyrocketed. In the past two decades alone, direct economic losses from natural disasters multiplied five fold to US$629 billion. Annual direct losses from weather-related events increased from an estimated $3.9 billion in the 1950s to $63 billion in the 1990s. Other recent statistics show:

• In the 1990s, an average of 80,000 people died each year in natural disasters.
• In 2003, there were about 700 natural disasters which killed about 75,000 people and caused about US$65 billion damage (source: Munich Re, 2004). Of this insured losses accounted for only US$15.8 billion.
• Between 1980 and 2003, the World Bank financed 147 post-catastrophe reconstruction projects worth about $12.5 billion.

The Red Cross warns that the frequency and cost of natural disasters is likely to further increase because of:

• Environmental degradation
• Climate change
• Population growth, especially in cities
• Globalization

4.2 Basic problems that EFU General Insurance Limited facing are ;

• Lack of awareness about Insurance knowledge/information and important aspects by the customers and also lack of good Communication with the customers i.e Communication Gap between Insurance Companies and Customers.
• Non appropriate Marketing Strategies of the Companies the client's Market Needs and requirements
• Religion Bindings / Limitations.
• Poverty in the Country.
• Instability of Political Environment in Pakistan.
• Unavailability of Reinsurance Coverages.
• High Cost of Reinsurance Coverages.
• Natural Disasters like Earthquake & Flood etc.
• Unawareness about the claims settlement procedure.
• Lack of funds and resources and support from the Government to train the sales force.

International insurance company Munich Re's annual review of natural catastrophes in 2003 said the earthquake that devastated Bam in Iran on December 26, 2003, killedA  more than 40,000 people in large part because the mud brick houses were not designed to handle a major tremor.

Munich Re also warns that a lack of suitable construction in many earthquake-prone cities in developing countries could have devastating consequences:

Kashmirquakeclaims88,000 lives ;The earth only shook for 50 seconds on the morning of 8 October 2005. But that was enough to make hundreds of schools Banks and Collages in Kashmir collapse, obliterating a whole generation in many places

Kashmir and parts of North Pakistan were devastated when the magnitude 7.6 earthquake struck at 8.52 local time on 8 October 2005. The tremors lasted for 50 seconds, causing the collapse of some 200,000 houses and razing entire towns and villages to the ground. With 88,000 fatalities, approx. 200,000 injured, and more than three million homeless, the Kashmir quake ranks second only to the December 2004 tsunami as the worst natural catastrophe of the past decade. A generation of young people was almostA  completely wiped out when hundreds of schools collapsed.

4.2 Political Instability

Factors affecting operations of insurance companies ; In my view, the problem faced by any business or industry is lack of investment confidence. To build this, there is need for stable political climate and smooth law and order situation. Unfortunately for Pakistan, after the horrifying event of the assassination of Mohatarma Benazir Bhutto, the investment climate has deteriorated, loosing investors' confidence. The event of 27 December, 2007 and the political instability post March 2008, changed the business climate in Pakistan, and gave a major hit to Pakistan economy. Yet, the insurance market grew at a rate of 10%, mainly due to inflation factor.

The year ahead will be a challenging one, although the majority of insurers have begun 2010 on a positive mood, not looking back to 2009, as it has concluded with many big losses to the industry. There are clear opportunities for those who wish to grow, though huge expansion is unlikely in the current climate. Now the emphasis is shifting from privately funded power and energy related projects to government-backed or public- private partnership projects such as power plants, roads, bridges etc, this may improve property insurance business in 2010.

With the prevailing recession, when the imports are being cut the marine insurance is

likely to be affected during 2010. This is mainly due to cost of oil which has come down to US$ 35 from the highest peak price of US$147 in July 2009. Further, austerity measures adopted by the Government, discouraging imported luxury items or increasing duties on these items, the premium for this business may remain static or may increase depending upon inflationary factor and strength of Pak Rupee against foreign currencies.

Motor insurance premiums have increased in last few years manifold. In 2009, it has not grown as compared to 2008 because of surge in interest rate and leasing facility becoming expensive. With decrease in demand, as cars have now become expensive due to US$ - Pak Rupees parity, and factors explained here, the premium for this class may touch Rupees 15 billion in 2010.

In order to restore investors' confidence, we need special efforts on part of Government to improve law and order situation and create conducive political climate.

I feel the Government priority for this sector should be an establishment of Pakistan Insurance Regulatory Authority (PIRA), which will help the industry in many ways, especially for investment and promoting its image.

4.3 Competitors

There is a monopolistic competition within the non-life insurance sector in Pakistan as

there are around 49 non-life insurance companies. The promulgation of insuranceA  ordinance in 2000 and subsequent regulatory change strengthened the regulatory and supervisory infrastructure for NLI companies.

For instance, enhancement in paid-up capital requirement improved the equity structure and reduced the number of non-profitable companies.
The non-life insurance sector's profitability has jumped by 17 percent in the 1st half of current year over the same period last year. The demand for auto insurance, marine insurance, and fire insurance augmented owing to availability of consumer financing at low interest rates, unprecedented rise in trade volumes and increased uncertainty due to terrorist attacks in many regions, surge in industrial activity and high growth construction business respectively. The structure of the NLI sector is still skewed. The top 5 companies have more than 70 percent in the overall assets and net premium of the sector.

Insurance companies are facing reducing rate's problem from Competitors and every one wants to get business in any cost that's way market premium reduce against risk

4.4 Availability of Reinsurance coverage

The number of general insurance companies have been on a continuous decline over the last three years — from around 55 to 42 last year and 38 presently, including 34 local and 4 foreign companies. While these 38 companies managed to improve the collective gross premium by almost 15 per cent from around Rs 10.9 billion in 2001 to Rs 12 billion in 2002 the performance masked many inequalities.

For instance, 60 per cent of the total gross premium was claimed by three companies — Adamjee, EFU General and New Jubilee — while 13 companies shared 27 per cent of the business while the remaining 22 companies shared among themselves the rest

of the 6 per cent of the business. The year 2003 would be challenging in many other ways for these companies due to a number of internal as well as external factors: the absence of minimum fixed tariff resulting in rampant undercutting practices to acquire business, the prevalent law and order resulting in snatching and theft of cars pushing

the loss ratio beyond economical levels, and the reluctance of the foreign re-insurers to issue terrorism risk cover. The first two have resulted in a market which is driven more by the urgency to get the business at any cost while the third has made many companies to decline to grant terrorism risk coverage due to the non-availability of re- insurance arrangements. It has also made many other companies to issue the terrorism risk coverage on their own, which despite an encouraging idea can result in building substantial pools of reserves over the years, is an extremely risky idea.

Huge claims and response of global reinsurers ; The underwriting results of most of the companies from Pakistan for 2007 and for three quarters ended, at 30 September, 2008, were not quite satisfactory. Many companies suffered from either large losses or a multiple risk losses, resulting in an unsatisfactory bottom line to the reinsurers.

Further, the insurance companies were required to comply with the SECP guidelines, with regard to the requirements of minimum share and credit rating requirements of Reinsurers, the reinsurance program of many companies, saw tough terms and conditions under the treaties. The commissions were either reduced or were put on sliding scales. The Profit Commissions were deleted. Loss participation clauses were tightened and in many cases the Reinsurers refused to give required proportional capacity. Proportional treaties were replaced by Non Proportional structure, Excess of Loss Treaties.

Consistent Motor Insurance losses have been effected to reinsurance companies that's way insurance companies do not have appropriate reinsurance coverage to protect our motor business Insurance companies few type of reinsurance coverages have insurance company Like Third Party Bodily injury and Third Party own damage and eventA  also covered like earthquake ,flood , Riot and strike damages.

Proportional coverage of reinsurance hasA  been lifted form Pakistan by reinsurer due to consistent losses in property class of business for five years.

Through this cover Pakistan's insurance company give huge risk to reinsurers against proportional premium of risk and get commission.

Pakistan has been effected terrorism for five years, its also problem for insurance companies to cover from reinsurance if its available so it very costly.

4.5 Reinsurance Cost

Continuouslosses has increased reinsurance costA  for Pakistan Insurance Industry. Pakistan Insurance Industry has appropriate coverage from reinsurers but keep effecting losses to reinsurers. If we have coverage of reinsrance so its very expensive its completely favor of reinsurers.

4.6A  Volatile Market

Colossal impairment cost ;The stock market turmoil of 2009 plunged the KSE to a record low. The problem is believed to be widespread for the companies investing heavily in equities. After due deliberations, a solution was worked out and recently SECP has issued the guidelines for drawing up financial accounts for the year 2009. It is difficult to comment, how impairment cost will affect profits of key players of various industries, as the results of two companies of the industry, opting for different methods of accounting were not comparable.

Declining auto sales ; Due to slowdown in the country's economy, growth in the new business will be slower. Therefore in order to maintain its position for every insurance company, motor insurance business will still be an important business. However, at the same time if there are clients who are not performing well, which have bad loss experience, these clients may be offered revised terms or weeded out of the companies' portfolio.

Car leasing business, it is the new business which is on the decline. However besides the maturity of the lease arrangement, the renewals of the previous leases arrangement will continue till the expiry of the lease arrangement which is usually 3 to 5 years. For non-leasing segment, the motor insurance comes as a part of a packageA  / client portfolio along with property and marine insurance. Insurance companies cannot be selective to attract or ignore a particular class of business.
Motor insurance business is sizable proportion of any insurance companies' portfolio. Due to the expected slower growth in the other classes of business, motor insurance will not loose its attractiveness. It will still be an attractive business for an insurance company, specially the non leasing segments.

Curbing operations of fake companies ;There are few stalls outside Civic Center, (sporadically there may be few stalls in some other places in the city) are doing this business. EFU jointly with other insurance companies from the platform of IAP has worked on some proposal and has sent to SECP to streamline the third party insurance, with the support of provincial excise departments and National Banks.

Curbing the operations of fake/ghost insurance companies is more a matter of implementation of the law of the land. The law is there (Motor Vehicle Act 1939) which requires every motorist to have a third party liability insurance policy; the insurance product for the third party insurance is available with every insurance company. Curbing fake insurance is a matter of implementation of law, ensuring that every motorist has valid motor third party liability insurance available with him, from a Genuine and authorized insurance company.

5. CONCLUSION AND RECOMMENDATIONS

5.1 Conclusion

Despite the fact that Insurance is still considered to be an involuntary expense, CY06 saw a substantial growth in the insurance industry of Pakistan. This trend is a reflection of the recent growth in the economy, prevailing economic stability, and innovative reforms which are bringing at par the regulatory environment with international standards. The growth in the insurance sector is reflected in the increase in premiums and profitability, as well as assets for both non-life insurance sectors.

The insurance industry is the only component of the financial sector which is still heavily dominated by state-owned entities, and there is a need to privatize the large state-owned organizations. It is expected that with the implementation of the planned reforms for the insurance sector, the overall efficiency and competitiveness of the industry will be enhanced. These efforts will also reduce the concentration of business in the sector, where only a few top 3-5 companies lead the market in asset size and premiums written. Not only do these companies have a very high equity structure but they also have very strong backward linkages as they are the part of leading industrial and banking groups in the country.

In order for other companies to attract potential clients, it is necessary for them to go beyond conventional methods of insurance and to provide innovative products and improved service standards.

The concentration of non-life business in motor insurance, which accounts for 53.2 percent of overall net premiums, is also a cause for concern. The higher claim ratio of motor insurance (62 percent) as opposed to the overall claim ratio of 57.1 percent, indicates the vulnerability of the sustainability of underwriting profits from motor business. Insurance companies need to look for other avenues to extend their business, for instance, agriculture and crop insurance as initiated by one of the leading companies in the industry. Moreover, the proportion of investments made by the insurance companies in the stock market are also considered to be risky, given the inherent fluctuations in trading business. Insurance companies therefore need to manage their portfolios in a more balanced way to protect the quality of their asset portfolios.

The low share of Pakistan in the global insurance industry also highlights the need for concerted efforts to increase the competitiveness and outreach of Pakistan's insurance industry. Insurance sector reforms in the offing are expected to help promote the future growth of the industry; for instance, the increase in capital requirements will result in the emergence of stronger players in the industry. Appointment of the Insurance Ombudsman is another measure which would also go a long way in boosting the confidence of the public by settling complaints expeditiously.

One of the major reasons of the low share of insurance sector assets in total financial assets is general public awareness. There is a general dearth of information for prospective life insurance policy holders to use it as an investment instrument. The education of prospective insurance consumers would result in a rise in the demand for insurance products.

5.2 Recommendations

• The findings of the research has shown strong existence of insurance practices in Pakistan in General scenario but still need to improve strategic and risk mechanism
• IAP (Insurance Association of Pakistan) should play role to make standards for control price war.A A A 
• There are some weaknesses in the insurance system that are needed to be overcome.
• There is a strong need of a mechanism that can measure the past projects performance of construction firms.
• Government should take action to overcome terrorism and Riot .
• Government should make policy to mitigate of natural disaster and its Impact.
• PRCL (Pakistan Reinsurance Company Ltd) should be strong and hire competent peoples whoA  will take decision for improving capabilityA  to take more risk . Through this act we can save foreign reserve which is very huge amount to go outside Pakistan.
• To identify the core and practical obstacles which have negative effects on the insurance growth and economic progress in Pakistan
• By the study of this report some recommendations and suggestions can be proposed at Government and Public levels to enhance the insurance literacy level specially in the rural areas to make the people aware about insurance services and facilities.
• Expansion or Change of the insurance literacy programs in all over country i.e. rural and urban areas by free of cost so it can solve the major issues.
• In order to make the people aware with the insurance we should adopt the new and appropriate pattern of the insurance literacy programs which have directly positive effects on the insurance growth of the country.
• The Government should take measures and should organize the training programs and also make the insurance subject as compulsory in the eduction system.
• The government should also provide the business incentives to the insurance companies i.e. Tax Relaxation in Government duties so that the insurance companies can promote the insurance products and services on the better way.
• Recently, the Government has announced to increase the taxes upto 16% on the insurance which is too high and has also increased in remittances charges on reinsurance arrangements abroad which gives negative impacts on the insurance growth and overall country economic condition.
• Positive Marketing Strategies of the Companies towards the clients Market Needs and requirements.
• Most Companies do not know the client needs and requirements. The basic market need is a comprehensive insurance, but the most companies are providing partial insurance coverages which are not required. Brokerage that has not developed clear lines of communication with the client. With better communication, company will not be able to offer better value to the customers by addressing their true needs.
• By adopting the appropriate marketing strategies insurance industry can be developed and can solve the most problems. First companies should know what exactly customers want to purchase insurance andA  what kind of coverages are required or needed.A 
• Since, the efficient services can play the major role in insurance growth, by adopting efficient and timely services i.e. All documents, policies and endorsements are delivered to the each client in time with minimal errors. The sales force should also be very efficient and they should go in time to the clients as and when required without delay.A 
• Keeping in view of the materializing the above all sales force should be fully trained and full of insurance knowledge.
• The appropriate political environment always formulate better insurance policy on government levels to promote insurance. However, the current government has now imposed 16% insurance taxes which is too high as compare to the other countries, which has effected the whole insurance industry the growth of insurance has been decreased.
• Nevertheless, this can be proposed or suggested to the government to reduce the insurance taxes as much as possible (should be maximum 5% to 10% only) so the people can be able to purchase the insurance products with low cost/price with desired coverages.
• As long as the political stability is certain in the country this will play a very important role to grow up the insurance industry. Since as per current insurance market most analyst observed that due to certain and stable political environment the insurance industry can grow.
• If political environment is stable then we can get better business support from the other countries as well.
• In order to get better Reinsurance Support from abroad the political environment should always be certain in the country so it effects the positive image on the other countries and as result every Reinsurers will definitely agree to provide Reinsurance Support with maximum required coverages and low cost/price.
• As the current government has now imposed 5% reinsurance remittance tax at the time of making remittance in abroad which is too high if we compare to the other countries, by which the whole reinsurance/insurance industry has been effected.
• Eventually, the government should eliminate the reinsurance duties, and the reinsurance remittance should be free of cost i.e. without any cost so the insurance companies can be able to purchase the reinsurance supports with required coverages and with low cost/price.A 

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