Islamabad, Sep 3: To provide an alternative for insurance companies to park their risks that are either left uninsured or moved to the foreign market, the Securities and Exchange Commission of Pakistan (SECP) has advocated the establishment of an insurance pool in Pakistan.
In light of the well-established necessity to create an insurance pool, the SECP report on insurance pools states that the following factors must be taken into account to guarantee that the pool functions successfully and meets its goals:
To guarantee that payments are provided for risks covered by the underwriter, the kind and complexity of the risks to be assigned to the pool must be established. If not, the cover-all approach would jeopardize the pool goals of required risk categories and hazards.
To guarantee that payments are provided for risks covered by the underwriter, the kind and complexity of the risks to be assigned to the pool must be established. If not, the cover-all approach would jeopardize the pool goals of required risk categories and hazards.
- The costs of setting up and maintaining the insurance pool and the benefits and downside risks should be managed systematically and regularly. The pool members would be liable to cover insurance claims costs, other associated liabilities, and expenses arising from the pool, subject to its participation on a joint and several liability bases, but will benefit from any profit and/or other efficiency-related benefits.
The SECP proposed that an insurance pool must have a clear governance structure that outlines the roles and responsibilities of the participants. This could include a board of directors, an executive/management committee, and a pool manager.
The members of the pools and higher-level stakeholders may designate a technical expert or an insurance brokerage business to serve as the pool manager. It is anticipated that a proficient company will acquire technical know-how from global markets, leverage reinsurance markets to lessen the unpredictability of insurance experience, and reap the advantages of diversity, efficient premium rates, and decreased default risk associated with reinsurance.
The insurance companies can cooperate with one another by signing reciprocal participation agreements, giving up business to the pool and accepting reciprocal coverage from all participants. Members will receive a portion of any profits distributed by the pool, but they may also be responsible for paying all claim expenses and other related liabilities resulting from the pool, maybe up to their personal limits.
Risk assessment: The pool must carry out a comprehensive risk assessment through the pool manager or technical expert in order to determine which risks will be covered and to establish premium costs. Expert opinion, actuarial models, and historical data may all be used in this process.
Reinsurance: In order to safeguard itself against significant losses and to lessen profile volatility, the pool may acquire reinsurance from other insurance providers, especially if it operates in areas that are prone to natural disasters or is exposed to high severity risks. By doing this, you may make sure that even in the case of a significant calamity, the pool has the money to settle claims.
The pool needs to be open and honest about both its financial results and how it runs. The SECP study also stated that this will draw in new members and foster a sense of trust among participants.
