Legal Framework for Insurance Company License in Pakistan

Securities and Exchange Commission of Pakistan is the top licensing and regulatory authority for Insurance Broker Companies. SECP was established under the Securities and Exchange Ordinance, 1969. All the laws and rules related to the registration, licensing and other proceedings are stated under the Insurance Ordinance 2000 and the Insurance Rules, 2002, and all insurance broker companies must abide by all relevant rules and laws.

Before going deep into the matter, let us first discuss what an insurance broker is. According to Section 2 (xxviii) of Insurance Ordinance, an “insurance broker” is a person who operates the business of insurance broking. And as stated in part xxix of Section 2, “insurance broking” is basically the insurance arrangement for reward by anyone except an insurance company’s agent.

What is the eligibility criteria and license requirements for an insurance company in Pakistan?

According to Insurance Ordinance Section 102, if a person doesn’t hold a current insurance broker’s license issued by SECP, it is unlawful to describe or act as an insurance broker.
According to Section 102 subsection (2) of the Ordinance, a person cannot get a license to be an insurance broker until they are a company.
The above paragraphs mean that an insurance broker must get their company registered with SECP as a limited company as stated under the Companies Ordinance, 1984. After that, they shall be eligible to get a license.
According to the Ordinance and Rules, an insurance broker willing to be licensed has to fulfil the criteria mentioned below, at the application date and during the period he holds the license.
As we discussed above, a person should get registered as a limited liability company with SECP, with a minimum paid-up share capital of PKR 10 million for local brokers and $1 million for foreign insurance brokers to get registered in Pakistan.
In case of cash/approved securities, the minimum value of half a million Pakistani rupees is to be deposited with a bank.
Indemnity insurance has a limit of PKR 10 million in case of any one occurrence.
There should be two or more employees, where at least one must be at the position of a director, having at least five years of experience in the relevant industry, as:
Insurer’s employee
Agent
Agent’s employee
Insurance broker’s employee
A person in the insurance business must satisfy the Federal Government authorities that they have relevant knowledge and experience to operate the insurance broking business.

Another thing to be sure of is that neither corporate body nor any director or the officer in the business:

Comes under the category of minor
Is regarded having an unsound mind by a court of competent jurisdiction
Has been charged guilty by a court of competent jurisdiction in the last five years
Insurance Tribunal terms them as disqualified
Any amount other than remuneration payable to the insurance broker by an insurance company shall be deemed to be kept on trust for the company. And if a policyholder pays any amount to the insurance broker, it shall be deemed to pay to the insurer
Any amount payable by the insurance broker to the insurer shall be paid as soon as possible.
Unless there is no previous agreement in writing on the payment date, the amount payable by the insurance broker to the insurer shall be paid as soon as possible.
Any insurance broker having a license must act as an agent to the insurance company. The agent has to abide by work policies, and he is liable to the company in case of any misconduct. Whereas a licensed insurance broker company doesn’t need to act as an agent, and it shall be liable to the policyholder. In case of any misconduct, an insurer will not be responsible for any misconduct of the broker company.
No insurance company shall have any direct or indirect interest in the ownership of a broker company, and vice versa.
A licensed broker company shall disclose any relationship between any insurer and the company to the prospective or existing policyholder.
If a licensed broker company involves into a contract of agency with any insurer, shall, before the effect of the insurance contract, must disclose to the policyholder about the contract of agency and that the broker company is acting as an agent to the insurer.
Crossed cheque, pay order, or electronic transfer shall be the mode of payment in case of any payable amount by an insurance broker company to an insurer, and vice versa.
A licensed insurance broking company shall not receive any sort of gift, gratuity, or reward except remuneration for provided services from an insurer or on behalf of an insurer.
A licensed insurance broking company shall submit a yearly report to SECP. The annual report shall contain audited accounts of the broker company and related information.
An insurance broking company is liable to notify an insurer about any changes in the requirements of registration application within three months of effect. The notification must be signed be written and signed by a minimum of two body corporate’s directors.
According to prescribed procedures, SECP may visit an insurance broking company or an agent of the company to ensure compliance by an insurer, agent and a broker company.

Procedures to Get Insurance Company License in Pakistan

Any company, who is eligible according to above-mentioned criteria, can apply to SECP to get registered. The registration application must be signed by a minimum of two directors and should be submitted with a fee of 10,000 rupees, which is refundable in case the license is not granted. The application for the grant shall contain the following information:

Body corporate’s name
Registered office’s address
Postal address (if it is different)
Business’ description other than insurance broking
Mention of insurance companies which have hired the applicant’s company as an insurance broker agent
Name of shareholders with over 10% of the issued share capital
All Directors of the body corporate
Details of stated qualifications

Following documents should accompany the application registration:

Evidence of fee payment
A true copy of the certificate of incorporation certified by the Company Registration Office
A true copy of Memorandum and Articles of Association certified by the Company Registration Office
Cash deposit/approved securities having a value of a minimum of half a million rupees
In case of one occurrence, professional indemnity insurance having a limit of 10million rupees
A support letter in favour of an applicant from a minimum of 5 insurance companies in the specified forms and each must contain a signature from an authorized representative
A statement having complete information of workers along with their full names, addresses and other specified details

Other than above-mentioned documents, a declaration by the applicant’s company must accompany the application. It should be in a written form on a stamp paper, signed by a minimum of two directors, and attested by Notary Public, stating that:

All details are true and in compliance with the Ordinance
The requirements and qualifications as stated under the Ordinance are complied with

After receiving an application, SECP may grant a license, having one year term, to act as an insurance broker. The grant of license is given only when the Commission is satisfied that the proposed company is qualified and eligible for a license.

Renewal of Insurance Certificate License

The license for an insurance broker is valid for a year and can be renewed for a term of another 12 months. The renewal should be requested through an application and a fee of 10,000 rupees, which is refundable if the renewal is not granted. Specified documents and a declaration shall accompany the renewal application.

Cancellation of Insurance License

In case of cancellation, SECP has the authority to cancel or refuse renewal of an insurance license. This happens if the Commission believes that a company has breached a provision of the Insurance Ordinance, including the company failing to maintain specified minimum levels of paid-up capital, statutory deposit, or professional indemnity insurance.

SECP may apply for an order from Insurance Tribunal, stating that the company is disqualified to act as an insurance broker, director, or a principal officer. This happens in the case where activities of an insurance company would cause damage to the interests of policyholders.