Islamabad: In a bid to unlock the potential of micro and inclusive insurance in Pakistan, the Securities and Exchange Commission of Pakistan (SECP) has called upon the Federal Board of Revenue (FBR) to eliminate multiple layers of taxation on insurance products.
This move aims to alleviate the financial burden on insurance companies and policyholders, fostering a more conducive environment for the industry’s growth.
The SECP’s recommendation comes following the release of its comprehensive report titled “Unlocking the Potential of Micro and Inclusive Insurance in Pakistan.” The report sheds light on the current landscape of insurance in the country and highlights the vast untapped market for inclusive insurance.
One of the major hurdles identified by the SECP is the prevalence of multiple layers of taxation, which significantly inflate the cost of insurance products. This not only hampers affordability but also exacerbates existing inequalities by placing a disproportionate burden on lower-income segments of society. Addressing these taxation issues is seen as crucial for promoting financial inclusion and ensuring that insurance remains accessible to all strata of society.
Moreover, the report underscores the religious considerations prevalent in Pakistan, where 98 percent of the population is Muslim. A significant portion of religious individuals refrains from purchasing conventional insurance products due to beliefs associated with them. This further underscores the need for tailored solutions to make insurance more acceptable and accessible to all segments of society.
According to the data collected, the inclusive insurance market in Pakistan is still in its nascent stages. While there has been a notable uptake in insurance policies sold through microfinance banks/institutions, the majority of these policies (89 percent) are focused on credit life insurance, primarily covering underlying credit risks. Furthermore, only a handful of insurers are actively involved in the digital distribution of small-ticket insurance products, indicating a need for greater innovation and technological adoption in the sector.
Aamir Khan, Commissioner Insurance, emphasized the importance of inclusive insurance for overall insurance penetration. He stressed that fostering greater financial inclusivity requires collaborative efforts from insurers, regulators, and other stakeholders to develop products and services tailored to the needs of underserved populations.
To address these challenges, the SECP proposes amendments to the Micro-insurance Rules 2014 and leveraging technology to enhance product accessibility. Collaborative initiatives involving insurance companies, InsureTech firms, and the government are deemed essential to drive inclusive insurance growth and accessibility.
The SECP’s recommendations signal a concerted effort to overhaul the insurance landscape in Pakistan, making it more inclusive and accessible to all. By addressing taxation issues, promoting awareness, and leveraging technology, stakeholders aim to pave the way for a more resilient and inclusive insurance sector that caters to the needs of the entire population.
