Study on Lack of awareness about Insurance with Reference to EFU General Insurance Limited

INSTITUTE OF BUSINESS AND TECHNOLOGY PRESENTED BY : NAME OF PROJECT SUPERVISOR: COURSE CODE FACULTY OF : : Niaz Ahmed (BM-25077) Dr. Noor Ahmed Memon MKT-606 MBA (Banking and Finance) MANAGEMENT AND SOCIAL SCIENCES SPRING 2011

CONTENTS
CHAPTER 1
Introduction Beginning of Insurance Industry Products Providing By EFU General Insurance Ltd Purpose of Study Research Objectives Research Methodology

: INTRODUCTION

CHAPTER 2

: LITERATURE REVIEW

Literature Review

CONTENTS

CHAPTER 3


: GENERAL INSURANCE INDUSTRY

Introduction Type of Insurance Type of General Insurance Insurance Market Contribution of GDP

CONTENTS
CHAPTER 4


: PROBLEM AND PROSPECTS

Natural Disaster. Basic Obstacles facing by EFU General Insurance Ltd Political Unsuitability. Competitors. Availability of Reinsurance coverage Reinsurance Cost Volatile Market

CHAPTER 5


: CONCLUSION AND RECOMMENDATIONS

Conclusion. Recommendations

INTRODUCTION

INSURANCE
A promise of compensation for specific future losses in exchange for a periodic payment annually most cases. Insurance is formulated to protect the financial loss of an individual or group, company or other entity in case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the terms of an insurance policy creates a contract between the insured and the insurer. In exchange for payments from the insured (called premiums), the insurer agrees to pay the policy holder a sum of money upon the occurrence of a specific event. In most cases, the policy holder pays part of the loss (called the deductible), and the insurer pays the rest.

INTRODUCTION

BEGINNING OF EFU GENERAL INSURANCE LIMITED

In 1932, established Eastern Federal Union Insurance Company (EFU) with financial assistance from the Aga Khan and the Nawab of Bhopal. Mr. Abdur Rehman Siddique became the founder chairman. The company was originally registered at Kolkata and operated in India and Burma.

INTRODUCTION

BEGINNING
77 foreign insurance companies were dominating the Pakistan market post partition when the strength of local insurers was only Seven. In 1952 Government established Pakistan Insurance Corporation to promote the local insurance industry and number of local insurance companies increased to 60 while number of foreign companies reduced to Seven. In 1976 National Insurance Corporation (NIC) was formed, with the purpose of undertaking General Insurance business relating to any public property.

INTRODUCTION

Key Market Players

The general insurance market comprises two segments Private Sector and Public Sector. Private Sector is composed of 37 Local companies and 2 foreign company. National Insurance Company Limited (NICL) is the only direct insurer for public sector. Allianz-EFU Health insurance company was set up as the first Specialized Health Insurance Company in Pakistan.

INTRODUCTION

Products Providing by EFU General Insurance Limited.

Motor Insurance Marine Insurance Property Insurance Miscellaneous Insurance Aviation Insurance Marine Hull Insurance Cash in Transit Insurance Cash In Safe Insurance Travel Insurance Health Insurance Personal Insurance All Risk Insurance Guarantee Insurance Third Party Liability Insurance Medical Expenses Insurance Theft Insurance

INTRODUCTION
PURPOSE OF STUDY
The purpose of study is to find out the solutions of the obstacles which influenced to increase and availability of insurance. And also try to describe insurance industry to make people aware about insurance.

RESEARCH OBJECTIVES
This report is to highlight the obstacles of General Insurance to the development of Pakistans Economy, the complete working environment of the insurance industry, the macro and micro factors affecting the big insurance operators and their functions. Any person new to the Insurance business can also comprehend this report as it first explains the basics of the Insurance then the actual topic of Obstacles facing by EFU General Insurance Ltd to give the reader a background about the Insurance Industry.

INTRODUCTION
Research Methodology Information Sources
The information has been sourced from various sources like EFU General Insurance Ltd, Adamjee Insurance Co Ltd, NJI Insurance Company Limited, Askari Insurance Company Limited, Reliance Insurance Company Limited, Books, Newspapers, Industry portals,Government Agencies, Trade associations. Monitoring Industry News and developments and trough questioner.

Analysis Method
The following analysis methods have been used: Ratio Analysis, Historical Trend Analysis, Judgmental Forecasting and Cause and Effect Analysis.

GENERAL INSURANCE INDUSTRY

INDUSTRY
Both life and general insurance business has made reasonable progress since Pakistan came into being, particularly with respect to premium income generation. The Insurance Association of Pakistan (IAP), which is the representative body of the insurance companies writing non-life business, has compiled tariffs for all classes of insurance. Although insurance premiums have increase by 11% in 2010 compared to 2009, it reflects only 0.31% of Pakistan's GDP. This shows very low penetration of insurance Market as compared to India and Sri Lanka. It is anticipated that insurance penetration in future will rise at 0.05% per year and it will touch more then 1.0% in 2014. The Market Share of top four companies (including NICL) is 72%, while remaining companies share the balance of 28%.

GENERAL INSURANCE INDUSTRY

Particulars

Number

% of Total

KSE Listed Companies 2010

660

100

Listed Insurance Companies in (SECP)

39

5.909

GENERAL INSURANCE INDUSTRY

(Year 2010)
Rank 1 2 3 4 Insurance Company Adamjee Insurance Company Ltd EFU General Insurance Ltd. National Insurance Company Ltd New Jubilee Insurance Company Ltd Sub Total Others Grand Total Premium Written (PKR Billion) 10.2 9.7 5.5 3.56 28.96 11.36 40.32 Market Share 25.30% 24.06% 13.64% 8.80% 71.8 % 28.2% 100.00%

GENERAL INSURANCE INDUSTRY

45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 2010 2009 2008 2007 2006 Total Premium

Private and Goverment Insurance Company Premium

45,000,000 40,000,000 35,000,000 30,000,000 figure in'000' 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 2010 2009 2008 2007 2006 2005
Gov ernment Sec tor Priv ate Sec tor

GENERAL INSURANCE INDUSTRY

Pakistan Economy & Insurance Contribution of GDP
Contribution of GDP Developed countries are receiving the assistance of friendly system of insurance but we are still living with the conventional approach. Pakistan Insurance Industry Contribution to GDP is 0.31%. Luxembourg has highest contribution to GDP, which is 54.42%. In 2010 Total Premium of insurance industry of Pakistan was $ 949 Billion, while India holds $ 43,032 Billion. Premium of World Insurance Market has increased by 75% in the last decade, also growth of Pakistan insurance industry for the same period is increased rapidly.

PROBLEM AND PROSPECTS

Lack of awareness about Insurance knowledge and important aspects by the customers and also lack of good Communication between customers and insurers. Non appropriate Marketing Strategies of insurance companies about client's insurance needs and requirements Religion Bindings / Limitations. Poverty in the Country Instability of Political Environment in Pakistan.

PROBLEM AND PROSPECTS

Unavailability of Reinsurance Coverages. High Cost of Reinsurance Coverages. Natural Disasters like Earthquake & Flood etc. Unawareness about the claims settlement procedure. Lack of funds and resources and support from the Government to train the sales force.

PROBLEM AND PROSPECTS

Natural Disaster
Natural disasters are happening more often and having an ever more dramatic impact on the world in terms of both their human and economic cost. While the number of lives lost declined in the past 20 years800,000 people died from natural disasters in the 1990s compared with 2 million in the 1970sthe number of people affected has risen. In the past decade.

Kashmir quake claims 88,000 lives

The earth only shook for 50 seconds on the morning of 8 October 2005. But that was enough to make hundreds of schools Banks and Collages in Kashmir collapse, obliterating a whole generation in many places Kashmir and parts of North Pakistan were devastated when the magnitude 7.6 earthquake struck at 8.52 local time on 8 October 2005. The tremors lasted for 50 seconds, causing the collapse of some 200,000 houses and razing entire towns and villages to the ground. With 88,000 fatalities, approx. 200,000 injured, and more than three million homeless, the Kashmir quake ranks second only to the December 2004 tsunami as the worst natural catastrophe of the past decade. A generation of young people was almost completely wiped out when hundreds of schools collapsed.

PROBLEM AND PROSPECTS

Political Instability Factors affecting operations of insurance companies
In my view, the problem faced by any business or industry is lack of investment confidence. To build this, there is need for stable political climate and smooth law and order situation. Unfortunately for Pakistan, after the horrifying event of the assassination of Mohatarma Benazir Bhutto, and Insurance Companies got more then 10 billion losses and also the investment climate has deteriorated, loosing investors' confidence. The event of 27 December, 2007 and the political instability post March 2008, changed the business climate in Pakistan, and gave a major hit to Pakistan economy. Yet, the insurance market grew at a rate of 10%, mainly

Competitors
There is a few competition within the non-life insurance sector in Pakistan as there are around 39 non-life & life insurance companies. The promulgation of insurance ordinance in 2000 and subsequent regulatory changes strengthened the regulatory and supervisory infrastructure for NLI companies. For instance, enhancement in paid-up capital requirement improved the equity structure and reduced the number of non-profitable companies.

PROBLEM AND PROSPECTS

Availability of Reinsurance coverage :
The number of general insurance companies have been on a continuous decline over the last three years from around 55 to 42 last year and 39 presently, including 37 local and 2 foreign companies. While these 39 companies managed to improve the collective gross premium by almost 15 per cent from around Rs 10.9 billion in 2009 to Rs 12 billion in 2010. The underwriting results of most of the companies from Pakistan for 2009 & 2010 and for three quarters ended, at 30 September, 2010, were not quite satisfactory. Many companies suffered from either large losses or a multiple risk losses, resulting in an unsatisfactory bottom line to the reinsurers. The commissions were either reduced or were put on sliding scales. The Profit Commissions were deleted. Loss participation clauses were tightened and in many cases the Reinsurers refused to give required proportional capacity.

PROBLEM AND PROSPECTS

Reinsurance Cost
Continuous losses has increased reinsurance cost for Pakistan Insurance Industry. Pakistan Insurance Industry has appropriate coverage from reinsurers but keep effecting losses to reinsurers. If we have coverage of reinsurance so its very expensive its completely favor of reinsurers.

CONCLUSION AND RECOMMENDATIONS

In order to get better Reinsurance Support from abroad the political environment should always be certain in the country so it effects the positive image on the other countries and as result every Reinsurers will definitely agree to provide Reinsurance Support with maximum required coverages and low cost/price.

Eventually, the government should eliminate the reinsurance duties, and the reinsurance remittance should be free of cost i.e. without any cost so the insurance companies can be able to purchase the reinsurance supports with required coverages and with low cost/price.

CONCLUSION AND RECOMMENDATIONS

By adopting the appropriate marketing strategies insurance industry can be developed and can solve the most problems. First companies should know what exactly customers want to purchase insurance and what kind of coverages are required or needed.

Nevertheless, this can be proposed or suggested to the government to reduce the insurance taxes as much as possible (should be maximum 5% to 10% only) so the people can be able to purchase the insurance products with low cost/price with desired coverages.

Study on Lack of Awareness about Insurance with Reference to EFU General Insurance Limited

THANKS