ISLAMABAD (November 18 2006): Commerce Ministry is preparing a strategy to make the public sector insurance companies more business-friendly and efficient as compared to private sector to avoid international financial institutions' resentment on their privatisation.
The plan is being deliberated at a time when Asian Development Bank Financial Management Governance Program (FMGP) mission is coming here to discuss progress on the targets set for the government to qualify for an $80 million loan, sources said.
An official of Finance Ministry told this scribe that ADB is of the view that all insurance business should be handled by the private sector, as public sector entities are comparatively inefficient.
Sources said that Commerce Minister Humayun Akhtar had convened a meeting of all stakeholders in Islamabad a day before to discuss the weaknesses of public sector insurance industry and restructure it in accordance with future requirements. The World Bank has also asked the government to liberalise insurance industry in line with banking sector reforms.
“Insurance penetration is very low as compared to other countries at Pakistan's income level which requires further consolidation and liberalisation of the industry,” sources quoted WB as saying. They said that the Commerce Minister also expressed dissatisfaction over the performance of public sector insurance companies, and directed them to attract more investment through improvement in their existing schemes.
“Insurance companies have been asked to bring improvement in their existing schemes besides introducing new schemes to attract more investment,” sources quoted the minister as directing the heads of insurance companies.
Commerce Ministry also fears that if right and in time decisions were taken to improve the insurance sector, Finance Ministry, which has lost its control over banks after privatisation, would detach insurance sector from it.
Sources said that ADB had committed $260 million loan to restructure the insurance sector and the Securities and Exchanges Commission of Pakistan (SECP), of which the bank had released $100 million as first tranche, while $89 million was given in September last.
The remaining $80 million tranche would be disbursed as and when the government fulfils the commitments ie amendments in SECP laws, improvement in governance standards and restructuring of insurance sector. Most of the commitments the government made with the bank have not yet been fulfilled and, according to sources, the scheduled mission would certainly express its displeasure on these issues.