Many of us have bought life or auto insurance, the two most popular categories of insurance in Pakistan, at some point in our lives. Others have received and fended off multiple representatives of insurance companies that try to convince them to buy a policy. However, there is much more to insurance than life and health insurance policies. Let’s review what insurance is and why it is important for managing uncertainty for businesses and people.
Defining Insurance
Insurance is basically a means of protection from financial losses in which, in return for a specified fee, a party agrees to compensate another party in the event of a certain loss or damage to their property or in case of death and injury.
Simply put, insurance is a form of future risk management. It is mainly used to hedge against the risk of a contingent or uncertain loss that may happen in the future.
Generally speaking, insurance is classified under the broad categories of life insurance and non-life or general insurance.
Life insurance is the promise of a certain predetermined amount after the death of the insured to his or her dependents or registered beneficiaries.
General insurance covers the damage as specified in the insurance contract and has categories like auto, fire and property, crop, and marine insurance, to name a few.
Insurance Statistics
In Pakistan, agriculture or crop insurance is 23.1% of the non-life insurance segment worth Rs. 114 bn, according to a 2022 PACRA report on the non-life insurance industry in Pakistan.
Farmers or any other entities that opt for agriculture or crop insurance will be secured against crop failures, pest infestations, floods, and other risks that they opt to pay for.
The industrial sector’s share in the general insurance sector is 18.9pc. Services (retail, home, auto, and so on) form a huge 58 % of the total size of non-life insurance.
Again, businesses that opt for general insurance can protect themselves from specific risks like fire, theft, vandalism, natural disasters and others that they decide to add on to their policies
Advantages of Insurance
Investing in insurance coverage offers many advantages. It is a safety net, providing coverage for different kinds of risks during unforeseen events, allowing for quicker recovery and a return to normalcy for individuals and businesses alike.
By investing in insurance, businesses are able to gain financial stability, protection against the unexpected, the ability to rebuild and recover swiftly after a disaster.
Insurance acts as a protective shield that empowers individuals, businesses, and communities to cover risks in their lives and endeavors without being overwhelmed by financial burdens.
With the right insurance coverage, businesses can confidently navigate most routine risks and recover faster through the financial coverage that their insurance policy provides them.
Insurance and Climate Change
The unpredictable and severe weather caused by climate change is placing immense pressure on farmers. For instance, in the year 2022, during the floods in Pakistan, PULA Advisors took the initiative to improve crop insurance programs.
Their aim was to shift from providing disaster relief to promoting disaster preparedness.
PULA introduced a smart insurance plan for the province of Sindh. This plan offers automatic payouts to farmers, enabling them to safeguard their source of income against unforeseen calamities by acquiring suitable insurance coverage for their crops and livestock.
With climate change affecting operations to a greater extent every year, it becomes important for businesses to have general insurance coverage.
It’s no wonder that insurance premiums have increased by an impressive 17% as businesses across Pakistan realize the importance of financial protection against uncertain times. They are taking proactive steps to secure their personal and business assets, as well as business operations.
Uncertainty and Insurance
It is important for businesses to thoroughly assess their insurance coverage to ensure they are adequately protected from the appropriate risks that apply to their businesses.
This involves reviewing their current insurance policy to understand the provisions, exclusions, and limitations related to water damage, flooding, and other risks.
Standard business insurance policies may not provide enough coverage for the specific risks posed during the monsoon season, so additional inclusions may be necessary.
Different policies offer protection against various types of damage, such as heavy rains, flash floods, landslides, and windstorms, depending on the terms and conditions you negotiate with them.
These policies cover different types of losses, including structural damage, water damage to business assets, and more.
To make informed decisions, it’s best to seek guidance from insurance professionals who specialize in the type of coverage that would best suit your business’s specific needs.
Prevention from Damages
While insurance coverage is essential, adopting preventive measures regularly can significantly minimize potential damages during the monsoon season.
Have a schedule prepare to regularly inspect and assess your office and other operational areas (if they are separate) to ensure drainage systems to prevent blockages and ensure smooth water flow.
Check fire alarms for their proper functioning, and make sure fire escape routes are clearly marked. Fire extinguishers and sprinkler systems should also be checked periodically.
Consider installing water barriers, reinforcing windows and doors, and installing valuable items like IT servers and gensets above ground level.
What to Do in Case of Any Damages
In the unfortunate event of any damage to your assets, you must promptly report the incident to your insurance provider to streamline the claims process and facilitate a swift settlement.
It is important to keep in mind that insurance requirements are constantly changing. Therefore, it is crucial to review your policy periodically.
If there are changes in your business requirements or if you make changes to your property, it is recommended that you consult your insurance provider. This helps to ensure that your policy coverage is still appropriate and adequate.
When it comes to protection against uncertain outcomes, insurance can be a powerful tool in safeguarding all your business assets. Although you cannot control the elements of life, having a trusted insurance partner in your corner can help you handle them more effectively.
Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.
