The great life insurance swindle

A customer described to Profit a typical way insurance is sold in Pakistan. He walked into his mai

n bank branch for unrela

ted work regarding his bank account. After wrapping up his work, an agent walked up to him about a ‘saving investment scheme’. The ag

ent made a pitch about getting high returns after a few years, after depositing a sum of Rs200,000. The customer thought it sounded like a good idea, and was also told that, by the way, this comes with some

insurance benefits.

The customer also assumed the agent was a bank employee, and went along with the scheme, as after all, he trusted his bank. He was told, again in passing, that he might not be able to access that Rs200,000 sum for a few months, but this was not made super clear to him. This would become a problem, because a few months later, during a financial crunch, he asked to get his money back. Whoops – that money was actually stuck in a life insurance scheme, and he would have to wait five years to access it.

Almost everything about this anecdote is typical of how insurance is sold – that is, it is not sold as insurance. In fact, it is sold as an investment vehicle.

Therein lies one among the many problems facing the insurance sector in Pakistan: the industry does not know how to sell its own product and has hence routinely relied on providing misleading information to its customers and highly skewed incentives to its employees and distributors.

This embellishment of the truth that can often veer into outright lying on the part of some insurance salespersons is unlikely to do the industry any favours in a country where the overwhelming majority of people have never even considered getting insurance for themselves for any purpose.

We do not say this lightly. But it is a fact: that the penetration of the insurance industry in Pakistan is absurdly low, even when compared to other countries with similar per capita income. In 2019, the insurance penetration in Pakistan was at 0.9% of the gross domestic product (GDP, or the total size of the economy). This is much lower than India’s penetration, at more than 3.6%, the region’s average of 2.2%, the emerging markets average of 3.2%, and the global average of 6.3%. Before one despairs, that figure is still a massive improvement on what it was previously: in 2012, it stood at a measly 0.67%.

Which leads to the obvious question: what happened? Why are we struggling to insure 200 million Pakistanis? And whose fault is this? This, primarily, is a story of nationalization, lost time, lazy selling, and desperate attempts to change how Pakistanis change their spending habits (and that is harder than you think).