Interview of Mr. Shahid Aziz Siddiqui, Chairman, State Life on the Insurance sector of Pakistan
What is the basic purpose of life insurance in an individual’s life?
I think life insurance is a very crucial instrument in an individual’s life. As far as the financial management is concerned, life insurance not only encourages savings but it is also a form of risk management for the policy holder of an individual, a good company can give you around 11 to 12% per year in terms of profits. This has been consistent for a period of 30 years unless you decide to dip into the stock market where there is always an equity risk.
Life insurance is a saving with benefits of increase in terms of profit at the time of its maturity. If God forbids an unfavorable event takes place, it also has the element of risk cover. However, I would like to indicate that 88% of the policy holders get their policies matured within their own life time so identifying life insurance with death or something of that nature is not a very accurate assessment.
Why are people reluctant to get insurance policies?
In my opinion, the penetration of life insurance inPakistanis not impressive due to a number of reasons. Traditional individuals are more consumers oriented in our society. There are not much of movements towards savings and I think in many ways state policies historically have not encouraged insurance to the extent as it has other instruments. If you invest in mutual funds, you get tax rebate. But in Pakistan your policy is taxed. This needs to be examined for which we have been in negotiation with the government.
What is the target audience of your company, Individuals or entities?
Essentially, we target both elements which include life insurance and group insurance. Group insurance is for the corporate sector. We have a large number of groups like government officials, Pakistan Army, Pakistan Navy, various civil armed forces and major organizations with manpower like Pakistan Steel etc. We already have a strong presence in the corporate and the group sector. Considering the limitation of penetration of life insurance policies inPakistan, I think basic penetration is not more than 0.7% in life insurance and general insurance is about 3%. We have our policy holders in life insurance sector of our board are about Rs. 2.9 million and in the group sector is about Rs. 4 million. Altogether, we have almost 7 million Pakistanis who are insured with state life. This contributes about 72% of the life insurance market ofPakistan.
It is an autonomous body and under the ministry of commerce. It is solely a corporation and the ownership of the corporation is totally with the GoP and the profits which grew in the State Life go as a dividend to the government of Pakistan in ministry of finance. Last year we paid about Rs. 350 million as dividend to the Government of Pakistan in terms of profit. Since 1972 state life has paid Rs. 2.657 billion as dividend to the government.
How does State Life differ from other insurance companies?
We are an organization owned by the government of Turkey and have a history of 40 years serving insurance industries. Our profits go back to the people of Pakistan and also the risk for the policy holders is totally covered by the government of Pakistan. Therefore, a policy holder is totally covered in terms of risk as far as his money is concerned. State Life is ensuring its investors and policy holders to give high returns.
The fundamental difference is that we have been giving very high returns. In the last 3 years, we have our profit policies bonus which has been very high.
If you have a policy, your savings will be able to look after the inflationary factor over the period of years. That’s a very good support one can have.
How does the insurance sector can play the role of economic development?
Insurance industry as a whole can play a positive role in the development of economy of the country but now we have life funds of Rs. 224 billion which improves the portfolio of State Life. 70% of our money is in Pakistan Investment Bonds (PIBs), meaning approximately Rs. 170-172 billion profit which we are getting from government as a return on investment. We have one of the largest portfolios of real estate in Pakistan and have 82 buildings all over Pakistan. They are located not only in Karachi and Lahore but also in other parts of the country like Hyderabad, Mirpurkhas, Dera Ismail Khan, and Peshawar. We are making new buildings in Sialokot, Gujrawala, Sargodha, Rahimyar Khan and also looking for land in Quettaand Gawadar as well.
Do you have any other divisions apart from insurance?
We have our own real estate division and also have our consultants through Nespak which is a government company. We follow the Pepperell rules which enable us to follow the governmental procedures for letting out the construction. There is an approval procedure which goes through the Ministry of Commerce, Finance and Planning Division which gives us approval to take any project.
Who checks the estimated cost? Has there been any involvement of corruption in constructing buildings in the past?
The development working party checks everything. There has been no corruption for the past 2or 3 years. The State Life building did not purchase or sale any real estate since the time I joined this organization. By doing this we are protecting our real estate portfolio. We also have a policy to construct new buildings on those plots which we already have purchased. It is a convenient alternative compared to purchasing new real estate from the open market. By constructing new buildings, we will get some capital gain and some commercials presence opportunity and revenue by renting them out. We have not purchased or sold any building or plots for the last 30 months.
How your policy decisions are being approved?
Everything is approved by the BOARD OF DIRECTORS. Nothing can happen without their approval. Policy decisions are also made by the board members. We are also monitored by the Ministry of commerce. The ministry developed the board to take decisions on our policies. At the end of year, our internal board goes back to the ministry to show the results. During the last 3 years, we have shown outstanding results and have taken first year business from about Rs. 4.3 billion to Rs. 6.7 billion.
You professional bureaucrat If government ask to take over PIA? Would you like to go over there? Keeping in view the conditions of PIA?// change the question
If government wants to hold PIA I will be prepared to hold this of course I have the option. Those are challenges then I joined state life there were many things.
Since the time I have join State Life, we have made many good things possible like there is a very rapid growth of first year business, there is an improvement and renewal of temptation of the business I have taken the life front from wall 69 billion to 222 billion in just 2-1/2 years this if you take it about from 55 billion rupees has been added to life front in just 2-a/2 years. It can only be because of hopefully by good management of our resources, good investment policies, we invest in PIBs, equities, share market, government bonds like TFCs so on.. so as a result of heavy mixed kind of policies and very conservative investment policies we have been able to move steadily and get to the returns to the government and to the corporation.
To say that am I ready to face the challenges here or there the government puts to anywhere you have to go. Basically which is I believe that all problems are basically based on management. Basic management has to take strong decisions. Being a head of management I as a Manager will have to tell to government where the line has to be dawn I would have to persuade the government please draws the line here. There are some organizations where issues more than profit and loss. E.g. if one say because Pakistan Railway is running in a loss close it down. You can’t close it. This is not the solution because hundreds and thousands of Pakistanis are benefiting from railway. Pakistanis need their own national railway so you have to do the best job.
I am not in a position to judge those organizations because I am not working there I just can talk about
Do you have any labor union like CBA? What fringe benefits does the State life offer them?
Yes, we have CBA and have excellent relations with them. We have over 90,000 commissioned agents in the field. We have 4,700 permanent employees in State Life. Nearly 100,000 people are receiving their livelihood through State Life by the blessing of Allah Almighty.
20 – 30 millions of Pakistanis are associated with State Life. We are living up to the trust of the nation and you have to be strong enough to resist all temptation, all pressures. Our first priority is the interest of the policy holders and policy holder owned organization. The government is also an owner as it gets the dividends but the money is only of the policy holders. It is my responsibility to protect them.
You want to give any message for the people of Pakistan?
My message for everyone is to try to get insured. The right time to get insured is when you are in your 30s and you are starting a family. At that time, the premium will be very low and you will have approximately 20-25 years to cover your premium. At the time of the maturity of the policy, you will be able to have a reliable nest’s egg to take home.
It is also said that insurance is not Islamic. Allah has asked us to use our hikmat and the hikmat for our future is to save money. As far as the investment is concerned, we do not invest in casinos, banks and bars. We invest in real estate and in Pakistan’s economy. If we invest in stock market, we only invest in those sectors which are according to the Islamic shariya. We do not see any major difference between life insurance and Takaful insurance but if a window is opened for Takaful, State Life has just opened your window in bank insurance. Currently, we feel that our life policies are not in conflict with our religious obligations.
