Fintech drives insurance access in Pakistan, targets millions outside formal safety net

KARACHI: When Shahbaz Hussain, a 33-year-old hairdresser working for daily wages at a salon in Lahore, suffered serious injuries in an accident, his prospects for quality medical care seemed bleak. In a country where private healthcare remains inaccessible to most low-income individuals and public hospitals are widely perceived as inadequate, such medical emergencies typically spell financial catastrophe.

Yet Hussain’s story took an unexpected turn. “I received an insurance payout of Rs60,000 due to my accident,” he explained. “I signed up for the mobile wallet from home, and the money was transferred without any hassle. My health insurance covers up to Rs0.5 million, with an annual premium of just Rs1,950.” Hussain’s experience exemplifies a nascent but rapidly accelerating transformation in Pakistan’s financial landscape, where fintech innovations are creating pathways to insurance coverage for previously excluded populations.

Insurance penetration in Pakistan stands at less than 1.0 per cent of GDP, among the lowest rates globally and significantly below regional averages, underscoring a profound protection gap, leaving millions of households vulnerable to financial devastation from accidents, illnesses or deaths.

The traditional insurance model simply hasn’t worked for most Pakistanis. High premiums, complex documentation requirements, and limited distribution networks have effectively excluded the majority of the population from accessing financial protection. This exclusion is particularly acute in a country where poverty rates are rising. According to the World Bank, approximately 13 million people in Pakistan live below the poverty line, with many more hovering precariously just above it. For these households, unexpected healthcare costs often trigger a downward spiral of debt and asset liquidation.

Salman Mian, senior project officer for the financial sector at the Asian Development Bank (ADB) Pakistan office, points out that insurance penetration in Pakistan, which is measured as premiums collected as a percentage of gross domestic product (GDP), stands at just 0.79 per cent. This figure is significantly below the global average of 7.23 per cent and considerably lower than regional peers such as India (3.76 per cent) and Sri Lanka (1.39 per cent).

Fintech’s growing footprint

In this context, fintech platforms and web aggregators are emerging as the key players to disrupt the sector, boldly offering microinsurance products tailored specifically for the country’s underinsured lot in need of such products.

With their broader consumer bases across the country and embedded financial services, digital platforms soften the preexisting barriers to adoption, making small-ticket insurance policies more accessible to Pakistan’s largely unbanked population.

The Securities and Exchange Commission of Pakistan (SECP), the regulator of the nation’s corporate sector, admits that insurer collaborations with fintech, mobile network operators (MNOs), e-wallet providers, and insurtech firms could significantly expand the coverage. The watchdog has set a five-year strategic goal towards insurance penetration to 15 million individual life policies.

“The SECP’s focus is not only to boost digital distribution but also to increase premium share by more than 5 percent, as fintech platforms can significantly enhance insurance penetration in the country,” Musarat Jabeen, an executive director, chairman’s secretariat, and official spokesperson for the SECP, said.

JazzCash, Pakistan’s leading digital financial services provider with over 20 million active monthly users, began its insurtech journey in November 2023 with the introduction of motorway insurance, designed to address risks car owners face while traveling on motorways. Following its success, similar models were extended to ReadyCash and utility bill payments, offering insurance coverage for unforeseen events affecting a breadwinner’s life or health. The mobile wallet model is particularly effective because it integrates insurance into transactions that customers are already making. This dramatically reduces customer acquisition costs while simultaneously demystifying insurance for first-time buyers.

“Our ambition is to make JazzCash synonymous with accessible digital insurance solutions, setting a benchmark in Pakistan’s insurtech ecosystem,” said Murtaza Ali, president of JazzCash. The company’s growth in digital insurance has been remarkable. Currently, it distributes over 650,000 policies daily through everyday transactions -- including digital loans, utility bill payments and motorway toll top-ups. Since January 2024, JazzCash has helped insure over four million lives and now aims to expand coverage to 10 million unique lives through its partners by 2027.

Ali also explained how Pakistan’s leading digital services provider, Jazz, has been at the forefront of insurtech innovation in Pakistan with the FikrFree Insurance and Healthcare Marketplace, which brings together over 30 insurance products from multiple service providers, ranging from health and handset insurance to bike coverage. “What sets FikrFree apart is its holistic approach to customer well-being, integrating healthcare services such as e-pharmacy and online video consultations with over 2,000 doctors,” he said.

Rising competition in the insurance space

Other major players are following suit. easypaisa digital bank will be offering Takaful plans in partnership with Jubilee Life. U Microfinance Bank provides life and health insurance services through its branchless banking platform, UPaisa. Through its partnership with EFU, Zindigi, a digital banking app by JS Bank, offers a wide range of insurance plans directly within the app. These plans cover life, accidental, hospitalisation, income continuation, mobile theft and protection, and transactional insurance. Zindigi is actively integrating embedded insurance into its ecosystem. Traditional financial institutions are also responding to the digital shift. HBL, UBL, and EFU Life have entered the digital insurance space with microinsurance plans and app-based offerings, recognising the potential of technology to expand their customer base beyond traditional segments.

Industry experts estimate that Pakistan’s microinsurance market could exceed $2 billion if fundamental challenges related to awareness, trust, and affordability are adequately addressed. The growth potential is enormous in a country with over 247 million people, the vast majority of whom have never had any form of insurance protection. Digital channels allow providers to reach these consumers with products specifically designed for their needs and financial capabilities. The industry is essentially reinventing insurance from the ground up. Traditional insurance products weren’t failing to reach these consumers because of a lack of distribution; they were failing because the products themselves weren’t appropriate for the market segment.

Despite promising growth, significant obstacles remain. Integration issues with insurers’ legacy systems and fragmented data complicate automation, while lengthy claims processes frustrate users. Religious concerns surrounding conventional insurance discourage adoption in some segments of the population, despite the availability of Sharia-compliant Takaful alternatives. Macroeconomic conditions present perhaps the most formidable challenge. Inflationary pressures have decreased disposable incomes precisely when insurance providers are trying to convince consumers to allocate resources to financial protection. Fintech companies themselves face additional challenges, including high customer acquisition costs despite digital channels, intense competition in a rapidly evolving market, and difficulties in scaling operations to reach profitability.

For consumers like Shahbaz Hussain, the hairdresser who received prompt insurance payment after his accident, these innovations represent more than convenience; they offer genuine financial security previously beyond reach. “Before this, if someone in my family got sick, we either couldn’t afford proper treatment or had to borrow money at very high interest rates,” Hussain said. “Now I feel more secure knowing we have some protection.”

Pakistan’s fintech-driven insurance evolution remains in its early stages, with penetration rates still far below global averages. However, the convergence of technological advancement, regulatory support, and innovative business models suggests a potential inflection point. If the current trend continues, insurance penetration could double or even triple within the next decade, bringing millions of Pakistanis into the formal financial safety net for the first time.