Digitisation: Insurance sector poised for premium growth

Insurance industry gained quite a vigour in 2021 as manufacturing started firing on all pistons during the post-Covid recovery, analysts said, terming digitalisation as the game-changer for the sector that still mostly operates on a paperwork-based model.

Insurers can trhive in the digital epoch if they act quickly and decisively.

“Last year started with economic recovery on account of successful handling of the pandemic situation. The pent-up demand from 2020 was reflected in higher demand for automobiles, fast moving consumer goods, petroleum products, and cement sales in 2021,” said a report by BADRI Consultancy on the performance of listed general insurance companies during last year.

“However, the restart of economic activity across the globe resulted in supply chain disruptions which created inflationary pressures tackled by central banks hiking key interest rates.”

The theme of economic growth was soon marred by an objective of economic stabilisation, it said, adding that amidst these developments, the general insurance sector experienced growth in premiums and earnings. This report focuses on the top three general insurance companies, i.e., Adamjee Insurance Company Limited (AICL), EFU Life, and Jubilee General Insurance Company Limited (JGICL).

It covers them in terms of market share that experienced a 3 percent increase in their net earned premiums, 140 percent increase in underwriting profitability, and a 43 percent increase in their profit before tax.

On an overall basis, the net earned premium (NEP) for the trio increased by 3 percent to Rs27.6 billion.

Adamjee leads the market in terms of the NEP at Rs12.6 billion followed by EFU at Rs9.8 billion, and Jubilee at Rs5.2 billion. AICL experienced a 6 percent fall in NEP while EFU and JGICL experienced a 14 percent and 5 percent growth respectively in NEP compared to the same period last year.

Analysts say the revival of the industrial activity evidenced by increase in large-scale manufacturing industries output is expected to help raise the bank credit to the private sector, boosting demand for insurance from the corporate sector which constitutes a significant portion of overall insurance demand. The insurance sector is directly linked to the banking credit growth.

The industry’s gross written premium currently stands at less than 1 percent of GDP and thus remains significantly underdeveloped. However, this also provides the industry ample room for growth in the future.

Pakistan’s insurance firms are embracing digitalisation to meet the customer needs and keeping the relevance of their business models. The pandemic created the opportunity for many insurers to digitalise their operations. In a post-Covid economy, customers now expect and prefer speed, simplicity, and delivery of services in digital settings.

Industry officials see a shift in the way that insurance products are sold and serviced. They expect the industry to rely more on digital apps for its sales and distribution.

The leading insurance providers in the country such as State Life Insurance Corporation of Pakistan, Jubilee, Life Insurance, EFU Life etc are innovating their digital customer experiences.

Pakistan's general insurance industry is poised to undergo rapid growth over the next decade given favorable demographics, increasing urbanisation and more importantly, the emerging industrialisation waive under CPEC.

The total assets of Pakistan’s insurance industry increased 20.7 percent to Rs1.692 trillion as of March 2021, according to the data available. The industry’s net profit rose 16.5 percent to Rs0.581 billion in the first quarter of 2021.

The insurance industry of Pakistan increased its asset base by 13.03 percent in 2020 (14.99 percent growth in 2019) to Rs1.871 trillion. This upward trend in asset growth is despite significant health challenges of the pandemic, which severely affected the economic and financial conditions in the economies, the SBP said in the Financial Stability Review (FSR) 2020.

There were a total of 28 companies in the general insurance industry in 2020.

The growth was significant both in the non-life and life sectors. Asset base of the non-life sector grew by Rs23 billion to Rs232 billion, while the balance sheet footing of the life sector, which dominates the overall market, improved by Rs187 billion to reach Rs1.563 billion in 2020, the SBP’s FSR said.