Islamabad, April 18, 2025 – In a recent report, the Competition Commission of Pakistan (CCP) has expressed grave concern over the extremely low insurance coverage of motor vehicles in the country.
Despite a legal requirement under Section 94 of the Motor Vehicles Act, 1939, which mandates third-party insurance for all motor vehicles operating in public spaces, only 3% of motor vehicles are currently insured in Pakistan.
The CCP report highlights several critical reasons behind this alarming figure. These include a general lack of awareness among vehicle owners about mandatory insurance laws, absence of a verification mechanism for third-party insurance by traffic police, non-enforcement by relevant authorities, and the lack of a centralized database to monitor compliance. The CCP believes that without targeted reforms and enforcement, motor vehicles will continue to operate uninsured, posing financial and legal risks on the roads.
To address the systemic weaknesses in the insurance sector, the CCP has urged the Federal Board of Revenue (FBR) to resolve tax anomalies that are making insurance expensive and inefficient. Currently, policyholders pay provincial sales tax on insurance premiums, while insurers pay additional tax on reinsurance premiums—essentially taxing the same premium twice. These overlapping taxes inflate the cost of doing business and discourage both insurers and consumers from engaging with the system.
The CCP also criticized the underutilization of the Federal Insurance Fee, a 1% charge on non-life insurance policies introduced in 1989, which was originally intended to promote insurance awareness. Instead of funding outreach and education efforts, the fee has become an additional burden for insurers.
The Commission further recommends removing preferential treatment extended to the State Life Insurance Corporation (SLIC) and opening the public property insurance market to private players. This, CCP argues, would create a level playing field and enhance market efficiency. Additionally, reforms to the Insurance Ordinance, 2000 and Insurance Rules, 2017 are needed to allow insurers to freely choose between domestic and foreign reinsurance services.
To improve bancassurance practices, the State Bank of Pakistan (SBP) is being urged to issue clear guidelines to prevent restrictive practices by banks and ensure customers are fully informed about insurance products.
The CCP concludes that a robust enforcement framework for mandatory third-party insurance of motor vehicles, combined with rationalization of taxes and regulatory reforms, is essential to improving insurance penetration and creating a safer, fairer insurance environment in Pakistan.