The Competition Commission of Pakistan (CCP) has issued a policy note to the federal government recommending it to amend Section 166 of the Insurance Ordinance, 2000, which currently prevents competition in the non-life insurance market by extending exclusive rights to the National Insurance Company Limited (NICL) with respect to insurance of public property.
Section 166 (3) of the Insurance Ordinance, 2000 provides that all insurance businesses relating to any public property, or to any risk or liability appertaining to any public property, shall be placed with NICL only and shall not be placed with any other insurer. The NICL is the only state-owned company under the administrative control of the ministry of commerce which is involved in non-life insurance business in the country.
The CCP observed that this statutory monopoly of NICL harms competition in the insurance market. In this case, the government is the direct consumer and is denying itself the benefits of competition such as improved quality of service and competitive premiums. The CCP’s policy note further states that the monopoly position of NICL has emerged not because of business acumen but through the creation of statutory barriers that reduce competition. It is important to note that NICL has a share in total industry assets of 22 per cent but its share in gross written premium was only 12 per cent.
Such preferential treatment for the NICL creates de facto subsidies and leaves no incentive for NICL to maximize its efficiency. Statutory monopoly of NICL limits opportunities for potential competitors because legislative exclusive rights create barriers to entry for the new entrants.
The policy note recommends the federal government to take measures to amend Section 166 of the Insurance Ordinance, 2000 in order to open insurance of public property to the private sector, excluding public property that is related to national security, which will create a level playing field for all non life insurers in the insurance market.
CCP has lost its head if it thinks public sector would rely on private insurers in its sensitive imports and affairs.
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