An insurance company functions as a financial entity, which can be either privately owned or publicly government-managed, that offers a commitment to cover specific costs in return for a consistent payment, known as a premium. An insurance provider assesses the risk or loss of personal and business properties (general insurance), along with health and life aspects (life and accident insurance).

Types of Insurance Companies in Pakistan

Some entities focus exclusively on one of these domains, while others, termed ‘composite’ insurers, engage in both areas. Insurance providers create policies to protect against various uncertainties (such as fire, flooding, damage, theft, and mortality), which involve a possible financial burden to policyholders or their beneficiaries in exchange for regular premium payments.

An insurance Company provider functions by aggregating risks from a large pool of policyholders; premiums are determined by the likelihood of specific incidents happening and the average financial loss tied to them. This assessment is carried out by the company’s actuarial team employing statistical methods to review historical claims. In cases of extremely large insurance risks, a provider may seek reinsurance, distributing the insurance premium with other companies according to the portion of potential claims they agree to take on. Additionally, many insurers provide savings plans tied to contracts.

Insurance Policies & Coverage Explained

Insurance policies that are not classified as life insurance are referred to as general insurance. General insurance encompasses various sectors, including home, travel, automotive, and health (non-life assets), protecting against events like fires, floods, accidents, human-caused disasters, and theft. These policies generally provide a form of financial security by safeguarding various assets such as your residence and belongings within it, vehicles, machinery, and crucially, your health, against unexpected occurrences like fires, natural calamities, accidents, damages, or medical crises.

General insurance spans a broad array of categories, with Marine Insurance being one example; Marine cargo insurance protects goods, freight, and cargo from loss or damage experienced during transportation by rail, road, sea, or air (ensuring the safety of imported goods). Another category, Commercial Insurance, addresses the diverse challenges faced by the industrial sector as a result of business activities. Auto insurance offers protection against legal claims that may arise from accidents.

Additionally protects your car from theft, damage, or any natural calamities. Furthermore covered is any harm caused on inventory, equipment, or other assets from fire. Subject to the company’s policies, health insurance companies would pay medical costs and income lost brought on by sickness. Companies of property and casualty insurance offer coverage for non-physical damage to property as well as for incidents.

This covers vehicle accidents, property damage, or damage to personal possessions. Theft, property, aviation (usually including both property and liability insurance for aircraft), livestock, and crop insurance companies are all covered under general insurance. This includes damage to personal goods, property, or car collisions. Moreover, specialised insurance policies suited to meet the specific needs of several companies are offered by insurance companies.

Key Laws & Regulations Governing Insurance

The insurers registered in Pakistan are governed by the following laws and rules:

• Companies Act, 2017  Governing company incorporation, corporate governance, directors’ duties, shareholder rights, restructuring, and compliance requirements.
• Companies (Issue of Capital) Rules, 1996  Regulating issuance of shares, capital restructuring, and related corporate procedures.
• Insurance Ordinance, 2000. The primary legislation regulating insurance business operations in Pakistan.
• Insurance Rules, 2002: Setting operational, reporting, and compliance standards for insurance companies.
• SECP (Insurance) Rules, 2002  Providing regulatory oversight guidelines under the Securities and Exchange Commission of Pakistan.

Takaful & Shariah-Compliant Insurance Options

• Takaful Rules, 2012  Governing Islamic insurance operations and Shariah-compliant risk management structures.
• Insurance Companies (Sound and Prudent Management) Regulations, 2012  Ensuring proper governance, financial stability, and risk management practices.
• SECP (Microinsurance) Rules, 2014, Regulating microinsurance products designed to serve low-income and underserved segments.
• Third Party Administrators for Health Insurance Regulations, 2014, Supervising entities that manage and administer health insurance services.

Insurance firms aim to safeguard the populace; nevertheless, there are times when the insurance firm also demands a form of financial assurance. In such situations, the insurance firm seeks coverage from another entity; this procedure is referred to as reinsurance. This mechanism alleviates the risk for other reinsurers, enabling insurance companies to undertake larger risks, since without reinsurers, insurance firms may hesitate to engage in ventures that exceed their limits.

Reinsurance: Sharing Risks the Smart Way

Facultative Coverage

This safeguards an insurer exclusively for a specific individual, risk, or agreement. If multiple agreements or risks exist, they must be handled separately.

Reinsurance Treaty

This operates for a designated timeframe and is not based on individual risks or agreements. Throughout the contract’s duration, the reinsurer consents to assume responsibility for either a whole or a portion of the risks that the insured insurance company may face.

Proportional Reinsurance

The reinsurer acquires a designated fraction of the premiums from all policies issued by the covered insurance company. Therefore, when claims arise, the reinsurer will also take on a segment of the losses. The allotment of premiums and losses that the reinsurer will absorb will be determined by a mutually agreed percentage.

Non-proportional Reinsurance

In this structure, the reinsurer becomes involved only if the losses incurred by the insurance company surpass a defined threshold, known as the priority or retention limit. The reinsurer does not have a proportional entitlement to the premiums and losses associated with the insurance company.

Excess-of-Loss Reinsurance

This type falls under the category of non-proportional reinsurance. The reinsurer will provide coverage solely for losses that go beyond the insurance company’s retained limit. However, this only pertains to catastrophic incidents.

Risk-Attaching Reinsurance

Compensation for claims will only occur within the active periods of reinsurance coverage; any losses incurred outside this coverage timeframe will not be compensated.

Loss-occurring Coverage

The insurance company is entitled to claim for all losses that happen during the timeframe of the reinsurance agreement. It is the timing of the losses that is significant, not the moment when the claims are submitted.

Who Can Register an Insurance Company?

According to The Companies Act, 2017, the following companies can register as an insurance company:

• A public limited company;
• A body corporate incorporated under the laws of Pakistan (not being a private company or a subsidiary of a private company).

The Memorandum of the organisation must receive approval from the SECP before the company’s establishment. International investors are permitted to invest, with a minimum equity threshold set at US$4 million.

The company must select a suitable name that aligns with the cultural beliefs of the population and is not the same as or too similar to the name of any other current business.

Incorporation & Registration of an Insurance Company

The Insurance Division within the Securities & Exchange Commission of Pakistan (SECP) is responsible for the processes of registering and removing from registration insurance firms, insurance agents, insurance assessors, licensed surveying officials, and third-party administrators (TPAs) for health coverage.

To submit a registration request, at least two directors must provide their signatures, along with a payment of PKRs 10,000, which will be returned if the license application is denied.

An insurance firm must be established in accordance with the Companies Act of 2017, and the legal forms and documents required to be handed over to the registrar include:

• A formal declaration confirming that all legal requirements for company incorporation have been fulfilled
• Details of the company’s registered office address
• Complete information and particulars of the proposed directors
• The Memorandum and Articles of Association were prepared in accordance with the Companies Act, 2017
• Original paid challan deposited in favour of SECP for the prescribed incorporation fee
• Proposed shareholding structure demonstrating compliance with the required minimum paid-up capital. The minimum paid-up capital requirement is PKR 300 million for a non-life insurance company or general takaful operator, and PKR 500 million for a life insurance or family takaful operator
• Copies of CNIC or passport of each director
• Copy of the name availability letter issued by SECP
• A detailed business plan outlining the company’s proposed operations

In case of foreign investors:

• The complete legal name and registered office address of the parent company, including the jurisdiction in which it is incorporated
• The nature and class of insurance business conducted by the parent company
• The duly audited annual financial statements of the parent company for the preceding five (5) financial years

How We Help: Legal & Regulatory Support

SARDAR KHAN & CO helps clients with every detail of establishing an insurance company in Pakistan. We assist with clarifying details about the laws, drafting necessary documentation, and complying with all the requirements of the SECP. SARDAR KHAN & CO ensures that your company meets all the legal and regulatory obligations, so you can concentrate on operating and expanding your business. We also assist with legal, risk management, and insurance Company advisory, which simplifies the journey significantly.