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For business information, annual reports, laws, ordinances, regulations and articles. |
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viii REGULATION OF
INSURANCE
The business of insurance in
Pakistan has been regulated under the Insurance Act, 1938. In order to implement and
administer the provisions of the aforesaid Act, the Government established the Department
of Insurance, in April 1948, as a department of the Ministry of Commerce, headed by a
Controller of Insurance. Until eventual implementation of the new law of insurance,
namely, Insurance Ordinance, 2000 which has only recently been enacted, the insurance
industry has continued to be regulated by the Controller of Insurance. While formulating
the programme for reform of the Insurance Industry, the Government considered two options:
either set up a body exclusively for regulation of the Insurance Industry or vest the
Commission with the necessary regulatory authority. It was finally decided that the
Commission should be assigned the responsibility of regulating the Insurance Industry. As
a consequence, the duty of administering the insurance law was passed on to this
Commission in August 1999. This policy decision of the Government was ratified by the
Insurance Ordinance, 2000, which has replaced the Insurance Act, 1938.In view of the above
decision and requirement of law, an Insurance Division has been incorporated in the
Corporate Plan of the Commission. As this Division was not in existence during the period
under review, its performance would be reflected in the next report of the Commission.
However, its main functions would be as under:
q registration and regulation of insurance companies;
q examination of several matters including annual accounts, actuarial reports,
solvency margins to be maintained by insurance companies, re-insurance arrangements, level
of management expenses, premium rates and terms and conditions of policies of insurance
companies;
q Investigation into the affairs of insurance companies and issuance of directives
under the Law;
q Inspection of the record of the companies and insurance intermediaries;
q Approvals and permissions under the powers conferred under the Insurance Law; and
q Appointment of administrators to replace board of directors and to make applications to
the Courts for winding up
MAIN OBJECTIVES OF THE INSURANCE ORDINANCE, 2000
The new insurance law has the following objectives:
q To correct the existing defects in the insurance market and strengthen the
regulatory system of insurance.
q To replace the existing Department of Insurance with a new regulatory authority
i.e. the Commission with a view to strengthening the role of the regulator in the public
as well as private sector for effective enforcement of insurance laws.
q To improve the capitalization and administration of insurance industry, remove
prevailing malpractices, strengthen the role of insurance intermediaries and surveyors and
improve their quality of services. Also introduce insurance brokers in the market.
q To improve and strengthen the financial soundness of insurance companies by
enhancing their level of minimum paid up capital and solvency requirements. Also, bring
public sector insurance corporations under the purview of Insurance Ordinance.
q To introduce market conduct provisions for developing capital market and establish
criteria for sound and prudent management of insurers, as well as protect the rights of
policy holders.
q To gradually liberalize and make reinsurance arrangements more effective.
q To establish the institution of Insurance Ombudsman for investigating the
complaints of aggrieved persons.
MAIN FEATURES OF INSURANCE ORDINANCE, 2000
q The Ordinance provides for regulation of Insurance Industry by an autonomous body i.e.
the Commission replacing the institution of Controller, Department of Insurance.
q The insurance business has been bifurcated into two main divisions,
(i) Life Insurance Business; and
(ii) Non-Life Insurance Business. Each of these two divisions have further been divided
into different classes.
q Capital requirements for life insurance and non-life insurance companies have been
raised from Rs. 100 million to Rs. 150 million and from Rs. 40 million to Rs. 80 million
respectively.
q The minimum solvency margin has not been fixed and is to be prescribed under the rules
from time to time.
q Enforcement of the insurance law has been made more effective by giving to the
Commission powers of investigation and issuance of directives.
q Detailed provisions have been made to prevent insurers from indulging in practices
prejudicial to the interest of policyholders.
q Provision has been made for the institution of an Insurance Ombudsman who shall have the
authority to investigate mal-administration of insurance companies and to redress
grievances of the insurers.
q Provision has been made for the constitution of an Insurance Tribunal, which shall have,
civil as well as criminal jurisdiction.
q Special provisions have been made for the establishment of a Small Disputes Resolution
Committee for speedy settlement of minor claims.
q Penal provisions for contravention of the insurance law have been made stricter.
q Reinsurance arrangements have been strengthened and rules would be made for reinsurance
arrangements even outside Pakistan.
q Life insurance business companies are required to maintain separate funds for separate
classes of their business.
q Adequate disclosure requirements by insurance companies have been prescribed for
purposes of reporting to the regulator
