THE recent acquisition by IGI Insurance of American Life Insurance Company (Pakistan) indicates that the insurance industry is seeking more diversified market penetration, instead of focusing on exclusive domains.

In a changing corporate environment, where the size and outreach of companies matter more in keeping costs low, “our insurance sector needs such acquisitions and mergers,” says a former chairman of the Insurance Association of Pakistan.

“Once a company starts providing both life and non-life insurance facilities, this fact alone will help in expanding its overall business.”

However, all general insurance companies cannot take the course adopted by IGI. For majority of them, increasing efficiency will continue to remain the only option for seeking additional business.

Reaching out to “more and potentially larger and fast-growing prospects and retaining relationship loyalties of existing clients” hold the key to both survival and growth of the insurance business.

With the gradual opening up of new distribution channels like e-commerce and SMS marketing, a lot of space is available for insurance companies to reach out to hitherto untapped business potential.

The selling of insurance policies via banking products has already gathered pace in the last few years, while the performance of traditional channels of distribution like insurance agencies and brokers deteriorated.

This is the crux of what insurance executives have to say about product marketing. They say that with the introduction of the rules of business for Micro Insurance 2014, the stage is now set for the evolution of a whole new series of products.

And as for seeking greater market penetration, from the current less than half per cent in case of general insurance, they say the economic recovery and enhanced awareness about insurance are big supporting factors.

Financial results of 25 non-life insurance companies (whose data are available) show that in nine months of last year, they earned a cumulative pre-tax profit of Rs6.229 billion. This exceeded, by a wide margin, even the full year 2012 pre-tax profit of Rs5.552 billion.

However, the higher profits principally originated from higher incomes on investment and not from underwriting — the core business of insurance. Investment income totaled Rs5.721 billion in nine months of 2013, against Rs5.298 billion in the entire 2012.

Fatter investment incomes are attributable chiefly to the rising stock market, as well as pricier real estate and double-digit returns on long-term Pakistan Investment Bonds (PIBs).

But the recent shift in the government’s borrowing policy, which seeks to raise more domestic debt through long-term bonds, may eventually lead to lower effective returns on PIBs, affecting their yields in the secondary market. Insurance companies sitting on piles of PIBs would see their investment returns falling.

“That is all the more possible if the central bank goes for a policy rate cut,” says the CFO of a big general insurance company.

In nine months of 2013, underwriting profits of 25 companies totaled Rs1.98 billion. Whether full year 2013 underwriting profits would reach close to the 2012 level of Rs2.35 billion or exceed it, will depend on how much business these companies may have gotten in the last quarter of 2013.

Those who keep an eye over the industry’s performance say just four leading companies have already undertaken enough underwriting business to allow the industry’s underwriting profits to exceed the 2012 level.

“As compared to investment income, earning a net balance on underwriting is not a sure shot for all,” says a senior executive of Adamjee Insurance. “It requires real insurer’s guts, efficiency, outreach to under-served clientele and other such factors.”

Small wonder then, that in nine months of 2013, five out of 25 companies reported underwriting losses, and some made such little profits as Rs2 million. One of them reported a negligible underwriting balance of below Rs1 million, against the industry’s highest of Rs439 million reported by EFU General Insurance.

The premium revenue of general insurance companies has ranged between Rs22-Rs23 billion between 2009 and 2012.

In nine months of 2013, net premium revenue of the companies totaled Rs17 billion. This figure may touch the Rs23 billion-mark when the full year data trickles in, but surpassing that level by a big margin doesn’t look possible, insurance executives say.

They, however, add that micro insurance, particularly to small and medium enterprises and small agri-businesses would enable even some smaller companies to tap into the vast business potential lying dormant. Another hitherto unexplored area is event insurance.

“In India, the fever of event insurance has caught up. There is no reason why we can’t exploit it,” asserts a mid-level executive of a local insurance company.

“Event management companies have long been operating here. Selling insurance cover to them will be easier rather than selling directly to principal organisers of marriages, exhibitions and sport galas.”