Explain in detail important laws/rules issued in insurance act 1938 and insurance ordinance 2000 to conduct insurance business in Pakistan.

Answer:

The Insurance Act, 1938 is a law originally passed in 1938 in British India to regulate the insurance sector. It provides the broad legal framework within which the industry operates.

The President of Pakistan had promulgated the Insurance Ordinance, 2000 on 19 August 2000 repealing the Insurance Act 1938.

The new ordinance has divided Life Insurance Business and Non-Life Insurance Business into following classes:

LIFE INSURANCE BUSINESS:

1.       Ordinary Life Business.

2.       Capital Redemption Business.

3.       Pension Fund Business.

4.       Accident and Health Business.

NON-LIFE INSURANCE BUSINESS:

1.               Fire and Property Damage Business.

2.                Marine, Aviation and Transport Business.

3.                Motor Third Party Compulsory Business.

4.                Liability Business.

5.                Worker’s Compensation Business.

6.                Credit and Surety-ship Business.

7.               Accident and Health Business.

8.                Agriculture Insurance including Corp, Insurance.

9.                Miscellaneous Business.

A public company or a body corporate can start insurance business in Pakistan. A certificate of registration as insurer will be obtained within six months for life business and non-life business separately. The registered insurer will meet the requirements of minimum paid up capital, statutory deposits, solvency, requirements, and reinsurance: arrangement appointment of auditors and to comply with Provisions of this Ordinance. A registered insurer shall have to pay an annual supervision fee to SECP at the rate of R.s. 1 per thousands of gross premia written in Pakistan during the calendar year with a minimum of R.s. 100,000.

LIFE INSURANCE BUSINESS: 150 MILLION RUPEES.

Ø  100 Million Rupees will be attained up to 31st December 2002.

Ø  150 Million Rupees will be attained up to 31st December 2004.

NON-LIFE INSURANCE BUSINESS: 80 MILLION RUPEES.

Ø  50 Million Rupees will be attained up to 31st December 2002.

Ø  80 Million Rupees will be attained up to 31st December 2004.

Every insurer will maintain a minimum deposit equal to 10% of its Paid-Up-Capital with State Bank of Pakistan. The deposit in excess of amount required can be asked for with permission from SECP for refund.

Reinsurance Arrangements:

The insurers will maintain assets in excess of liabilities to meet solvency requirement as per this Ordinance. Insurance companies will maintain adequate reinsurance arrangements.

The insurers will submit the quarterly returns on the prescribed form to SECP. The auditors shall be appointed by the commission to audit the accounts of insurer’s. Actuary report for life insurance business shall be necessary. If any return is considered inaccurate or defective the Commission can call for further information, call upon insurer; examine any officer of insurer (or decline to accept the return).

The process of implementation of new insurance law is very slow. In fact, the new law is the outcome of the findings and recommendations of the National Insurance Reforms Commission which worked in 1988-89 and presented its reports in 1990. Under the Capital Market Development Program, the ADB supported Pakistan and consultants were engaged in 1997. The consultants presented the draft bill of Insurance Act, 1999 in July 1999. At lasts on 19th August 2000 the President of Pakistan Promulgated the Insurance Ordinance, 2000 repealing the Insurance Act, 1938.

However, now the economic environment of the country is changing. The foreign exchange remittances have been increased and the exchange rates have been stabilized. The sick industries are being revived through CIRC (corporate and Industrial Restructuring Corporation). The public and private sectors are expected to be involved in the reconstruction of Afghanistan. The Motorway and other highway projects are being completed. The construction of the third seaport at Gwadar has also been started. Foreign investments are also anticipated.