The Securities and Exchange Commission of Pakistan (SECP) has decided to introduce the concept of ‘index-based insurance’ or ‘parametric insurance’ that will make payments of insurance claims against the losses from weather and catastrophic events without the assessments of claims.
Sources told Propakistani today that the concept has been introduced in the draft of the Insurance Ordinance (Amendment) Bill, 2020 to amend the existing Insurance Ordinance, 2000. The new definitions and concepts are under review by SECP officials to improve the Insurance Ordinance (Amendment) Bill, 2020.
Under the new concept, the ‘index-based insurance’ or parametric insurance’ mean a contract of insurance whereby in consideration of a premium received, an insurer or a group of insurers promises to pay a person or a group of persons based on a predetermined index or parameter and make payments of claims against the losses arising from weather and catastrophic events without assessment of each insurance claim.
The scope of index-based insurance does not include life insurance businesses and accident and health insurance businesses. This will not restrict the issuance of a life insurance policy or a non-life insurance policy to the individuals covered under the index-based insurance cover by utilizing the information, data, arrangements and/or infrastructure of the index-based insurance scheme. Also, the coverage will be through a separate policy.
The SECP is also introducing the concept of ‘microinsurance services’ which means insurance, either on an individual or group basis, that meets their need for risk protection; savings or investments; and relief against distress, misfortune, or a contingent event for defined benefit levels subject to the maximum amounts of the sum cover and/or premium as it (the SECP) specifies.
It has also defined the ‘insurable interest’ which is the interest that a person has in a life insurance or in a property (or asset) which is insured. A person has an ‘insurable interest’ in something when loss or damage to it will cause the person in question to suffer a financial loss or certain other kinds of losses. A person who buys a policy must have an insurable interest in the subject of the insurance as well.
Similarly, the SECP will introduce the concept of an ‘insurance self-network platform’ — an electronic platform set up by a person to conduct insurance e-commerce activity and essentially to engage in the sales of insurance products or policy servicing, or provide other related services through the use of electronic means such as a website or mobile application.
Another concept of ‘InsurTech’ will also be introduced, which means the variety of emerging technologies and innovative business models that have the potential to transform the insurance business and encompasses technologically-enabled financial innovation that results in new business models, applications, processes, or products with an associated material effect on the insurance industry and the provision of insurance services. This will include but will not be limited to distributed ledger technology or blockchain, artificial intelligence, and big data analytics, the SECP added.
