HELPED by an improving economy and new methodology for assessing incurred-but-not-reported claims, the non-life insurance business eyes a promising future.
Executives of insurance companies say the Securities and Exchange Commission of Pakistan’s (SECP) new guidelines on IBNR will help them eventually reduce their claims ratio by capturing a correct picture of net premium earnings after standardised provisioning against backlog of IBNR claims.
The new methodology has come at a time when non-life insurance companies are upbeat about business prospects and are busy improving net premium earnings, both by reaching out to under-served segments and by keeping in control undue growth in insurance claims.
“We’re upbeat on insurance growth as economy is picking up, foreign funds under the $46bn China-Pakistan Economic Corridor (CPEC) are going to flow and insurance companies are getting smarter,” says an executive of Adamjee Insurance Company.
Insurance activity, and profitability of insurers, had slumped after the global financial crisis of 2007-08 but both have seen a gradual rise in last two years. But the core issue of insurance penetration, the lowest in the region, still remains unresolved.
IBNR claims are incurred during the period covered by an insurance policy, but are not reported in the accounting year, making it difficult for the firm to adequately provide for such losses.
Effective July 1, 2016, the guidelines prescribe a standard method for the estimation of IBNR claims and will bring about standardisation and uniformity across the non-life insurance sector, the SECP says.
In CY15, Adamjee’s net premium revenue (excluding the UAE) rose to Rs5.5bn, at an annual growth rate of 16pc, more than double the average estimated growth of the entire non-life insurance sector.
“With insurance penetration at just around 0.2pc of total population and the size of the insurance industry below 1pc of GDP, future growth in insurance will come only through increased awareness,” says an SECP official
This speaks of improved performance of a single market leader. But, “by and large, many of the 30 plus general insurance firms have done well in CY14 and CY15 after witnessing lacklustre performance in earlier years,” says a member of Pakistan Insurance Association.
Financial results of all non-life insurance companies for entire CY15 will take a few more weeks to come out. But going by the results of 9MCY15, “one can see that a turnaround in non-life insurance that began in CY14 is taking roots,” according to a senior executive of IGI Insurance. He cites such important factors as increased economic activity, net decline in insurance claims following improved law and order, expense control and wider use of technology as key drivers of the industry’s programme.
Total premiums of IGI Insurance increased 35pc year-on-year in 9MCY15. But the claims went down by 32pc most notably in motor, marine and fire sub-sectors, officials say.
Big insurance companies now rely on software designed to help executives keep a constant check on various key financial ratios and quality of the staff work on daily and weekly basis. Software engineers say even smaller firms are hiring them to develop and run the fintech (financial technology) facility that suits their daily needs like real-time segmental data processing of diverse general insurance activities.
Besides, satellite tracking of insured cars and other vehicles, some companies also monitor high-value insured assets through remote cameras to resolve disputes on asset damage.
One of the reasons why the claims ratio is coming down in general insurance industry is the use of technology because it helps in verifying and resolving disputed claims with more accuracy.
Executives, however, say that the decline in claims as a result of verification by insurance companies is no longer a key driver of overall drop in claims. They recall many cases in which the Insurance Ombudsman ordered payment of the claim. In one such instance, an insurance company had to pay Rs45m under a marine cargo insurance policy due for over three years.
Claims rejected due to improper handling of insured assets by insured parties often result in a net decline in overall claims. But this, too, cannot continue due to increasing awareness about the obligations of the insured parties.
Ultimately, only the safety of the insured assets throughout the coverage period would be decisive in determining the extent to which claims ratio of general insurance industry would be limited, industry officials say.
The sustainable growth rate of premium earnings is deeply linked to the awareness level of people, economic growth, and deeper penetration of insurance companies to the under-served market segments.
“With insurance penetration at just around 0.2pc of total population and the size of the insurance industry below 1pc of GDP, future growth in insurance will come only through increased awareness,” says an official of the SECP.
Courtesy : Dawn News