The Securities and Exchange Commission of Pakistan (SECP) has agreed to establish a registration system for organisations wishing to trade insurance on a digital-only basis and for tiny ticket size insurance, also known as microinsurance.
The goal, according to a report released by the SECP on Tuesday, is to promote financial technology and innovation, as well as to leverage cost-effectiveness and accessibility, increase competition, broaden product offerings, improve customer experience, and increase financial inclusion.
Only 27 online products have been registered with SECP by life insurance carriers under Section 13 of the Insurance Ordinance, 2000’s “file and use” provision.
Also underutilised is the use of technology in other aspects of insurance, such as tech-based new products, automated underwriting, policy administration, claims processing, and payments, to name a few.
The draught modifications to the Insurance Rules, 2017, are being circulated for evaluation and feedback from all relevant stakeholders within thirty days of the publication of this paper, in order to move forward with the introduction of the registration regime for microinsurers and digital-only insurers.
The proposed Registration Regime for Digital-only Insurers and Dedicated Microinsurers is expected to allow small entities with a vision and plan to innovate and serve the insurance market to register with the SECP while meeting lenient regulatory requirements in terms of minimum paid-up capital and solvency.
According to SECP, lenient capital and solvency requirements for specialised microinsurers and digital-only insurers have been proposed in accordance with the idea of proportionality.
Entities wishing to conduct dedicated microinsurance activity may do so after registering as a microinsurer with the SECP and complying with the (proposed) applicable regulatory conditions outlined in the draught amendments annexed to this paper.
Existing insurance companies, on the other hand, may continue to do microinsurance business as usual. As seen in the previous section, flexible capital and solvency requirements have been proposed for the registration of specialised microinsurers, in accordance with the principle of proportionality.
The dedicated microinsurer so registered will comply with the requirements for the conduct of microinsurance business set out in the SEC (Microinsurance) Rules, 2014, including but not limited to disclosure, product features, and filing, claim handling and processing, complaint handling, code of conduct, and consumer protection standards.
Registration as Digital-only Insurer
To enable creative and imaginative fintech organisations to enter the insurance industry, lenient registration criteria, such as eased paid-up capital and solvency requirements, have been recommended for entities desiring to transact insurance through digital medium.
The digital-only insurer will be needed to demonstrate its ability to conduct business through digital modes as well as comply with the business conduct requirements outlined in the draught amendments, the major contents of which are specified.
After registration, the digital-only insurer and microinsurer may obtain authorization to conduct takaful operations on a dedicated or window basis while complying with the applicable provisions of the Takaful Rules, 2012. All regulatory requirements as applicable to the full-fledged insurers registered under Section 6 of the Insurance Ordinance, 2000, will apply to the dedicated microinsurers and digital-only insurers, including inter alia Insurance Rules, 2017, Code of Corporate Securities and Exchange Commission of Pakistan Insurance Division Position Paper – Registration Regime for Digital-only Insurer and Dedicated Microinsurer, Page 7 of 7 Governance for Insurance Companies, 2016, Insurance Companies (Sound and Prudent Management) Regulations, 2012, Takaful Rules, 2012, SEC Cybersecurity Guidelines, 2020, SEC (IBNR) Guidelines, 2016, SECP added.
Solvency Requirements:
Rupees 75 million is specified as the required minimum amount to be maintained as a surplus of permissible assets over liabilities in a life microinsurer’s and life digital-only insurer’s shareholders fund. This sum is limited to Rupees 165 million for full-fledged insurers registered under Section 6 of the Insurance Ordinance, 2000.
According to Annexure III of the Insurance Rules, 2017, the solvency margin required for statutory funds of life insurers is formula-based and will be automatically rationalised in keeping with the entity’s business volume and operations.
Non-life Microinsurance and Non-life Digital-Only Insurance The solvency requirement for a non-life insurer under the insurance regulatory framework is the higher of a set amount of fifty million dollars or a formula-based amount computed in line with Section 36(3) of the Insurance Ordinance, 2000, read with Rule 15 (2) & (3). (3). For non-life Microinsurers and Non-life Digital-only Insurers, a fixed solvency margin requirement of Rs 50 million has been recommended.
This amount is only Rs 150 million for full-fledged non-life insurers registered under Section 6 of the Insurance Ordinance, 2000. The amount calculated using a formula will be automatically rationalised in accordance with the entity’s business volume and operations.
