All questions

The legal framework

i Sources of insurance law and regulation

The field of insurance in Pakistan is primarily governed by the Insurance Ordinance 2000 read with the Insurance Rules 2017. In addition to this, there are also regulations governing specific areas of the insurance business such as the Insurance Accounting Regulations 2017, Insurance Companies Sound and Prudent Management Regulations 2012 and Corporate Insurance Agents Regulations 2021.

In recent years, the insurance industry in Pakistan has started to place increasing reliance on technology in distributing and selling insurance products, making it imperative for adequate measures to be taken to ensure that the information technology systems of the insurance companies and their partners and intermediaries are secure and resilient. Accordingly, the apex regulatory body for insurance companies in Pakistan, the SECP, recently issued the SEC Guidelines on Cybersecurity Framework for the Insurance Sector 2020, putting in place regulatory measures for threat and vulnerability reduction and deterrence.

In 2022, the SECP issued a master circular compiling all statutory and regulatory requirements and instructions issued via circulars and directives to the insurance sector from 2005 to the end of 2021. It contains requirements pertaining to, inter alia:

  1. licensing and registration of persons and entities operating in the insurance sector;
  2. financial and regulatory reporting;
  3. management expense limits;
  4. training and certifications of key insurance personnel;
  5. complaint handling;
  6. cybersecurity matters; and
  7. marketing incentives for small ticket insurance policies.

In keeping with its efforts to encourage innovation, more recently, the SECP also approved a new tech-based life insurance product equipped with insurance technology features such as artificial intelligence and data analytics that would allow insurance companies to track the health policyholders. The regulator has also made amendments to the existing legal framework to provide for digital insurers and insurance.

ii Insurable risk

The Insurance Ordinance 2000 divides insurance business into life and non-life insurance business. Life insurance business entails life business, capital redemption business and pension fund business, whereas non-life insurance business includes:

  1. reinsurance business;
  2. fire and property damage business;
  3. marine, aviation and transport business;
  4. motor third-party compulsory business;
  5. liability business;
  6. workers' compensation business;
  7. credit and suretyship business;
  8. accident and health business; and
  9. agriculture insurance, including crop insurance.

The type of risk that can be insured in Pakistan is extensive. This includes risks for:

  1. accidental or natural death, injury or incapacitation;
  2. loss of or damage to property;
  3. loss of or damage to, or arising out of or in connection with, the use of means of transport;
  4. loss of or damage to merchandise, baggage and all other goods in transit;
  5. liabilities incurred by third parties arising out of or in connection with the use of motor vehicles on land;
  6. liabilities incurred by workers arising out of or in connection with their employment;
  7. contracts for fidelity bonds, performance bonds, administration bonds, bail bonds, custom bonds or similar contracts of guarantee; and
  8. loss of or damage to agriculture-related property, including crops.

In relation to marine insurance, under Section 7 of the Marine Insurance Act 2018, every person who has an interest in a ship, goods or other movables that are exposed to maritime perils is deemed to have an insurable interest. This interest is such that they have a legal or equitable relation to the ship, goods or other movables being exposed to maritime perils in consequence of which they may benefit from the safety or due arrival of insurable property, or may be prejudiced by its loss, damage or detention, or may incur a liability in respect thereof.

Notwithstanding the above, there are certain types of risks that are to a large extent uninsurable. These include reputational risks, regulatory risks, trade secret risks, political risks and pandemic risks.

Under Pakistan law, for an insurance policy to be issued, the policyholder has to establish its insurable interest in the risk being insured. Courts in Pakistan have defined insurable interest, inter alia, as 'a right arising out of a contract in relation to the property/person insured which if . . . injured will cause . . . pecuniary loss to the insured'.5 The courts have also cited with approval the ratio in Lucena v. Craufurd,6 where it was held that an insurable interest is 'to be interested in the preservation of the . . . [insured property] . . . as to have benefit from its existence, prejudice from its destruction'. Therefore, under Pakistan law, for an insurable interest to exist, the policyholder must stand to suffer a direct financial loss if the event against which the insurance cover was bought occurs.

Pursuant to Rule 18 of the Insurance Rules 2017, no insurer shall reinsure knowingly outside Pakistan any insurance business or any part thereof underwritten by it in Pakistan without the permission of the SECP. Such permission may be granted if the insurance or any part thereof is in excess of the insurer's treaty arrangements, and the SECP is provided with documentary evidence that the excess cannot be reasonably placed within Pakistan or if the insurance business is of a special nature and there are no treaty arrangements for it.

Under Pakistan law, any contract to procure insurance of any property, liability or life from any specific or named insurer or insurers, other than insurers specified generally as a class according to objective criteria based on financial strength, is prohibited, except for all general insurance coverage for state-owned movable and immovable assets belonging to the federal and provincial governments, local authorities and statutory corporations, which is to be procured from the National Insurance Company Limited.

Section 165 of the Insurance Ordinance 2000 further states that the federal government may make rules imposing conditions on the ability of any person to insure outside Pakistan any risk in respect of any property or interests that are located in Pakistan at the time the insurance is effected. The federal government may also make rules imposing conditions on the ability of any insurer to issue life insurance policies denominated in currencies other than the Pakistan rupee to persons who are citizens of Pakistan and resident in Pakistan at the time the insurance is effected.

iii Fora and dispute resolution mechanisms

Insurance tribunals have been established under Section 121 of the Insurance Ordinance 2000. These tribunals are to comprise of a serving or retired judge of the High Court and at least two members having knowledge of life insurance, non-life insurance, actuarial science, finance, economics, law, accountancy, administration or other discipline that would enable them to discharge their duties to the tribunal. A recent judgment from the Lahore High Court has highlighted the importance of the constitution of the tribunal under Section 121.7 In the case of Premier Insurance Ltd v. Ihsan Yousaf Textile (Pvt) Ltd & others, the Division Bench held that a judgment passed by a tribunal that does not meet the requirements of Section 121 is not lawful, and directed the case to be remanded to be decided afresh by a tribunal that is constituted in compliance with the legal provisions.

Section 122(1) of the Insurance Ordinance 2000 states that the insurance tribunal is to exercise all the powers of a civil court in relation to claims filed by policyholders against insurance companies concerning insurance policies. It is important to note that under Section 122(3) of the Insurance Ordinance 2000, no other court or tribunal is permitted to exercise jurisdiction with respect to any matter to which the jurisdiction of the insurance tribunal extends. To this extent, the insurance tribunal has exclusive jurisdiction.

There are, however, two caveats to the jurisdiction of the insurance tribunal:

  1. under Section 115, it only has jurisdiction in relation to cases where the insurance policy was issued after the promulgation of the Insurance Ordinance 2000.8 Thus, claims that pertain to policies issued prior to 2000 cannot be filed in the insurance tribunal; and
  2. it only has jurisdiction in cases that are filed by the policyholder under Section 122.9 Therefore, any claim by an insurance company is required to be filed in the civil court.

Under Section 124 of the Insurance Ordinance 2000, appeals from decisions of the insurance tribunal are heard by the High Court.

Section 125 of the Insurance Ordinance 2000 also establishes the office of the Insurance Ombudsman. Section 127 provides that the Insurance Ombudsman has the power to receive complaints and conduct investigations into allegations of maladministration against insurance companies.