Get the latest news and updates from Dawn
Recent data from the Securities & Exchange Commission of Pakistan (SECP) shows that insurance became less popular in real terms during 2024 compared to 2023. Insurance penetration, total premiums as a percentage of GDP, fell from 0.79 per cent to 0.7pc, while insurance density, per capita insurance premium, dropped from Rs3,205 to Rs2,913.
A key reason is that large segments of lower-middle-income and poor households remain excluded from formal insurance. This raises an important question: Can we expect financially challenged groups to buy insurance as a retail product like their wealthier counterparts? The answer is no. For low-income and bottom-of-the-pyramid segments, insurance must be treated as an item of infrastructure rather than a retail product.
A risk-transfer tool
In its purest form, insurance transfers the risks faced by individuals, communities or governments to specialists called insurers. When risks are not transferred, they are retained, meaning losses must be covered from one’s own resources. The floods in 2022, for instance, forced the government to fund recovery and rehabilitation largely from public coffers. Risk retention becomes challenging when finances are already weak, pushing people and states further into poverty. Deeper insurance penetration, therefore, is a sign of both micro and macro resilience.
