Capturing: A slow and steady growth for micro-insurance

By Kazim Alam

KARACHI: Unlike its neighbour to the east, Pakistan has largely failed to increase insurance penetration at a sustainable pace in recent years.

Calculated by taking premiums underwritten as a percentage of the country’s gross domestic product (GDP), conventional life insurance penetration in Pakistan was estimated to be only 1.1% in 2013 as opposed to 3.2% in India.

But in contrast with conventional insurance that has mostly remained beyond the reach of a large segment of society, micro-insurance is gaining popularity in Pakistan.

This phenomenon is understandable: conventional insurance is expensive and often involves paperwork and tedious procedures as opposed to micro-insurance, which is both convenient and affordable.

This is why micro-insurance in Pakistan is witnessing steady growth of late. In the second quarter of 2014, the number of policyholders of micro-insurance increased by 4.7% on a quarter-on-quarter basis to reach 3.3 million. Similarly, the insured sum showed an increase of Rs3.3 billion, or 7.8% over the preceding quarter, to reach Rs45.6 billion.

High growth rates in micro-insurance make sense. After all, approximately 20% of Pakistan’s population still lives below the poverty line and almost 45% lives in vulnerable conditions, according to a report on micro-insurance released by the Securities and Exchange Commission of Pakistan (SECP) in 2012.

The SECP believes the potential number of micro-insurance policies is around 31.5 million. It came up with this number based on the estimates of the potential microfinance market. It means the current micro-insurance penetration rate in Pakistan is around 10.5%.

A healthy look at micro-finance

For the health segment within micro-insurance, the SECP believes the potential market would be similar to the life micro-insurance market of 31.5 million policies. After including dependents, the size of the potential health micro-insurance market will increase by approximately two to three times, ie, in the order of 80 million people.

Speaking to The Express Tribune, Tameer Microfinance Bank Chief Executive Officer Nadeem Hussain said his bank is doing a pilot project in Karachi that will allow people to buy stand-alone micro-insurance policies from Easypaisa agents. Backed by Telenor Pakistan and Tameer Microfinance Bank, Easypaisa offers convenient access to financial products and services through mobile phones across Pakistan.

“It will revolutionise the micro-insurance industry if we are able to expand this idea to our 55,000 agents spread over the entire country,” said Hussain.

Typically, products offered by microfinance providers are embedded with micro-insurance policies. In other words, one has to be a borrower/depositor of a microfinance bank in order to receive micro-insurance coverage.

But with Tameer Microfinance Bank’s stand-alone product, anyone can now avail up to Rs40,000 hospitalisation coverage a year against the annual premium of as low as Rs750. A slight increase in the amount of premium will also cover maternity expenses in the micro-insurance policy.

It is not uncommon to hear that hospitals, especially in rural areas, hesitate to accept micro-insurance cards backed by microfinance providers. Their reluctance is based on the fact that most micro-insurance products entail cashless treatment, which means immediate liquidity problems for hospitals.

Hussain says his partner insurance company, TPL Direct Insurance, has now extended credit lines to hospitals in rural areas. “We know hospitals in rural areas prefer cash to cards. But if a hospital has a credit line with the insurance company, it can immediately draw money from it,” he said, adding that immediate availability of cash leaves the hospital with no reason to demand money from the patient.

Published in The Express Tribune, September 28th, 2014.

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