Name: Awais Tariq

ROLLNO Mi18MBA046
MBA 3rd Semester
Submitted To: Mr. Haroon Iqbal
Assignment: Insurance Liability
Topic: Product Liability insurance

Product liability insurance:

 Defination. Protection against financial loss arising out of the
legal liability incurred by an insured because of injury or damage resulting from the
use of a covered product or out of the liability incurred by a contractor after a job is
completed (completed operations cover).

Liability insurance is a form of business insurance which is designed to cover the legal
responsibilities of the insured legal entity or person in the event of an incident which
results in damage or injury claims by third parties. The two models of liability insurance
used in business are public liability and general liability. The differences and limitations
of the two forms of insurance, as well as certain advantages they might have, are
described below.

Scope for product liability insurance

Public Liability Insurance

Public liability insurance (PLI) protects the interests of a business owner in the event of
an injury (suffered, for example, by tripping over a cable, slipping, or falling down the
stairs), property damage or other loss a third party would suffer while on the business
premises, or as a result of your business activities. This form of insurance is essential
for any business which grants public access to their premises, such as retailers since
accidents can and do happen regardless of all the precautions one might take. The
main advantage of public liability insurance lies in the economical premiums it offers.
Although the total cost can depend on factors such as the size of your business, history
with claims, the level of interaction with the public and the amount of risk involved, PLI
policies can offer you the essential insurance coverage for your business at an
affordable price. On the other hand, public liability insurance is limited to public claims.
This means that it doesn’t cover any claims from employees or investors so you might
want to consider additional insurance to cover these types of claims. Hence, if you opt
for public liability insurance, you should make sure to familiarize yourself with all the
exclusions, i.e. risks which are not covered by PLI policies, and determine whether this
type of insurance is sufficient for your business.

How Much Public Liability Insurance Do I Need?

The answer to this question depends mainly on the type of your business and the level
of risk involved. It is also important to understand that reviewing and expanding the
scope of your insurance policy, as your business grows and new factors are introduced,
is prudent, since you want to be certain that you are covered by your insurance at all
times. In order to be sure you chose the right insurance policy for your needs, you might
want to seek professional advice from lawyers who specialize in this field.
General Liability Insurance
General liability insurance (GLI) provides the business owner with coverage for any
injury (including intellectual property and personal injury) or property damage suffered
due to business activities or faulty products, including medical expenses and attorney
fees. The advantage of GLI is, as its name would suggest, the wider scope of incidents
and events it covers. Obtaining a general liability insurance policy can provide larger
businesses with additional insurance coverage, including the protection of the
company’s assets in case of a catastrophic event, in comparison to public liability
policies, which only cover liabilities stemming from public claims. When it comes to
limitations of GLI, it is important to note that it does not cover everything. For instance,
professional liability and worker’s compensation are not covered by GLI policies so you
may need to obtain additional insurance in order to cover liabilities from negligence
claims and employee injuries. Another factor which could be considered a limitation of
GLI is its high price. This makes the extensive and expensive policies of general liability
insurance better suited for large companies, since small and medium-sized businesses
may find GLI unaffordable.

Making sure the assets of your company are insured against liabilities which can stem
from third-party claims is an integral part of doing business. The wide variety of
insurance types and policies offer protection from claims and different events and
incidents. In order to determine which business insurance type is right for you, you need
to understand the differences between policies, as well as acknowledge the risks your
company is exposed to. Seeking professional advice from experts in this area may
prove useful since you want to ensure your company has enough insurance, without
spending too much money.

A Comparison
There are various factors that you should consider when making the choice which kind
of liability insurance your business really needs. Both of them come with their own set of
pros and cons.

First of all, we have already ascertained that there is a significant difference in terms of
coverage. General Liability Insurance encompasses pretty much everything. This
includes various disastrous events such as all kinds of injuries, IP infringement, product
issues, and so on. Basically, it is more comprehensive than its counterpart. Still, as it is
a complicated matter, it requires assistance from public liability lawyers.
Public Liability Insurance only deals with the liability of a customer getting injured while
on your business premises. Still, this is probably the most important type of coverage
since it can make – or break – the sustainability of a business. The reason why many
small business’s opt for this option brings us to the next factor, which is the price.

The fact is that General Liability Insurance most often costs a lot more than its
counterpart. This is, of course, due to the fact that it encompasses pretty much
everything that relates to your business operations. So, it is a comprehensive but
expensive solution. Sometimes it is more than your business really needs and can
afford, particularly if you are running a small or medium-sized business. Therefore, such
business most often pick the latter, as it costs them a lot less on a monthly basis and
makes them safe enough for their current needs.

Finally, both of these kinds of insurances have their own limitations. General Liability
Insurance doesn’t encompass professional liability and worker’s compensation. And, of
course, as we have previously established, the high price is also a limitation due to the
fact that the majority of small businesses cannot afford it. On the other hand, Public
Liability Insurance doesn’t protect your company from the worker, vendor, or investor
claims. This means that you have to eventually purchase other kinds of insurances in
order to deal with such issues.

In Summation

Basically, it is up to you to decide which kind of liability insurance is suitable for your
situation. GLI is more comprehensive but also more expensive, and if you are running a
small business, the chances are high that you cannot even afford it.

For many small businesses, PLI can be enough, but there are situations when they may
have to purchase other forms of insurance due to investor, employee, or vendor claims.

If you are running a larger, better-financed business, you should have no trouble
purchasing GLI, but you should keep in mind that it doesn’t cover worker’s
compensation and professional liability.
 Challenges & Opportunity
Challenges
There are always lots of challenges for insurance industry in emerging markets. Most of
the challenges are different with respect to the jurisdiction. Following are some major
challenges insurance industry is facing in Pakistan:

1. Awareness
2. Skilled Human Resources
3. Clear Rates
4. Customers Access
5. Political Pressure
6. Economic Changes
7. Halal and Haram conflicts
8. Challenging Customer Behavior
9. Inflation Effects
10. Regular Growth
11. Product Development
12. Per Capita Income
13. Technological Development

Opportunities

Low penetration and density shows that there is tremendous scope for expansion in
insurance industry. Following are the opportunities an insurance company is likely to
have in most of the conditions:

1. Social Network
2. Awareness Programs
3. Innovation
4. Use of E-Commerce
5. Flexibilities in Resources
6. Children Saving Plans
7. Deteriorating health, education and rail/road infrastructure
8. Acts of Terrorism
In emerging markets there are both challenges and opportunities. Customers’ demand
and use of electronic media are the most important factors in setting long run objectives
for any insurance company. Insurance companies with innovative team work and
professional human capital can be very successful if other factors like economic and
political pressures do not affect the big picture. For insurers and investors in emerging
markets, the future middle class is a huge business opportunity based on potential
customers and innovative solutions. As margins in the emerging markets are low, so
operational efficiency is important. Operational excellence is a key for insurers and
investors to come at par with developed markets.

The China-Pakistan Economic Corridor (CPEC) will provide new opportunities for the
local insurance industry especially the non-life sector. Pakistan is expected to witness
continued growth in almost all sectors of the insurance industry with significant growth
expected in the Takaful segment. The operations and investment returns of the
insurance industry are subject to market volatility and macro-economic factors. The
insurance industry may face financial risks due to an adverse change in the capital
markets.

One of the biggest risks that the insurance industry faces is concentration risk. The
private insurance segment is dominated by two companies, though others are catching
up with the market leaders. In addition to six life insurance companies, including the
state-owned State Life Insurance Corporation of Pakistan (SLIC), operating in the
country along, two family Takaful firms are also working in this segment. Though the
market share of the Takaful operators remains small owing to lack of much public
awareness about Shariah-compliant products and services, the opening of takaful
windows by conventional life insurance companies is expected to help grow this
segment.

The improved income and awareness of middle class households has also driven the
demand for life insurance. Besides, life insurance is now being seen by customers as
another investment vehicle, triggering greater public interest and participation. With a
significant proportion of premium invested into the life insurance companies’ own
managed funds, customers are able to earn a handsome return on their investments.

The current growth momentum is expected to continue in the future as more distribution
channels are being explored. The use of information technology tools has also
increased for back-end operations as well as for sales services to reach out to the
customers.
The trend, in past, the market penetration for
liability insurance products:
 Analysis of Pakistan insurance companies shows that overall financial
performance of the industry has increased in the last few years. Moreover,
Pakistan share in the world insurance market was 0.02% in 2004 that has grown
to 0.03% in 2006. It indicates that insurance industry in the country is growing
and potential exists for future growth of Takaful as well.

 In the insurance companies of low and high HDI countries, Pakistan found to
have GDP of US$2,224 per capita that is quite low as compared to Malaysia and
some other advanced counties. It is a measure of purchasing power of the
people of the country.

 73.6% of people were estimated to live below poverty line i.e. earnings less than
$2 per day (UNDP, 2006). It means only 26.4% are earning more than $2 per
day. It affirms the low purchasing power of the people as reflected in low GDP
per capita.

 GDI value was found to be 0.513 in case of Pakistan that is quite low as
compared to other advanced countries. It indicates that women empowerment
and their participation in economic activities of the country is quite low and they
suffer greater deprivation as a result of low overall achievement in human
development than men .

 In the insurance comparison in the Asian region, GDP per capita for Pakistan
was found to be lower than India and China. It was even lower than Sri Lanka
that has low HDI value and lower insurance volume rank than Pakistan.

 Population of India ND china is about 8 and 9 times greater than Pakistan , yet
Insurance premium (in $US millions) for India and china was estimated to be 45
times and 75 times higher than that of Pakistan. It indicates a relatively lower
value of insurance premium for Pakistan with respect to its population as
compared with India and China.
Concluding Remarks:
Previous sections have shown the individual performance of life as well as general
insurance business. This section attempts to combine and compare both the life and the
general insurance and show an overall picture of insurance industry of Pakistan. It
shows growth of insurance premium, net profit growth and asset growth for life and
general insurance business besides giving a combined view of asset growth and return
on assets (ROA). Figure 3 below gives a comparison of life and general insurance
premiums for the 5-year period 2001-2005. Life insurance gross premium, as estimated
in 2001, was Rs.8,028 millions that has grown to about Rs.19,100 million in 2005 (a
total of 140% growth in 5 year period). The average growth rate for life insurance
business has been 28% per annum. General insurance gross premium, as
estimated in 2001, was Rs.7,835 millions that has grown to about Rs.16,500
million in 2005 (a total of 110% growth in 5 year period). The average growth rate for
general insurance business has been 22 % per annum. It shows that life insurance
business is growing faster than general insurance business. It could also been seen in
the year 2005 in the Figure 8 on the next page. The gives a comparison of net
profitability of life and general insurance for the 5-year period 2001-2005. Life insurance
profit, as estimated in 2001, was Rs.302 millions that has grown to about Rs.510
million in 2005 (approximately 68% growth in 5 year period). The average growth rate
for life insurance business has been about 14% per annum. General insurance profit, as
estimated in 2001, was Rs. 1,514 millions that has grown to about Rs. 5,454 millions in
2005 (a total of 260% growth in 5 year period). The average growth rate for general
insurance business has been 52 % per annum. It indicates that net profit for general
insurance has grown faster than that of life insurance. The Figure 5 gives a comparison
of life and general insurance assets for the 5-year period 2001-2005. Life insurance
assets, as estimated in 2001, were Rs. 83,543 millions that has grown to about Rs.
143,729 millions in 2005 (approximately 80 % growth in 5 year period). The average
growth rate for life insurance business has been16% per annum. General insurance
assets, as estimated in 2001, were Rs. 26,534millions that has grown to about Rs.
49,800 millions in 2005 (a total of 90 % growth in 5 year period). The average growth
rate for general insurance business has been 18 % per annum. General insurance
assets have grown faster than life insurance assets due to heavy investment by
insurance companies in equity and paid up capital to maintain capital adequacy margins
The Figure 6 compares the asset performance (return on assets) of both life
and general insurance business and also shows overall asset performance of
insurance industry in 5-year period (2001-2005). It is obvious from the above chart that
ROA (Return on Assets) ratio for life insurance is quite low as compared to general
insurance. Moreover, ROA ratio for life insurance has been steady trend while for
general insurance it has decreased in the year 2003 but overall has increasing trend.
Overall ROA ratio was estimated to be 1.6 % in 2001 which increased to 2.4 % in 2002.
It decreased to 2.1% in the following year but slightly rose to 2.2 % in 2004 and further
increased to 3.1% in 2005. Hence overall asset performance of insurance industry has
increasing trend in 5-year period.
 GLOBAL COMPARISON
This section provides a global view of insurance in two scenarios and compares
Pakistan’s insurance business with the world market. First, it provides insurance
comparison among low and high HDI countries. Then it makes an assessment of
spread of insurance business in Asian Region.

COMPARISON WITH ADVANCED COUNTRIES

After analyzing the position of Pakistan among Muslim countries, share of insurance
in the world market was compared among low HDI as well as high HDI countries to
further analyze the position of Pakistan with that of advanced countries. Seven
countries were selected in the comparison of high and low human developed countries
including as shown in Table 1 below. In 2006, the three largest insurance markets
(USA, Japan, and UK) covered almost 55 per cent of the total world insurance market,
but only 8 per cent of the world population (Muslim population worldwide, 2007).
Pakistan, though better than Kenya and Nigeria, has quite low GDP per capita, low
literacy rate and low women participation and empowerment in society as expressed by
low GDI value (0.513). Low GDP indicates low purchasing power. As a result of this low
purchasing power, 73.6% of total population is living below poverty line (earning less
than $2 per day). All these factors have contributed towards low share of Pakistan
insurance industry in the world market as compared to advanced countries like UK,
USA and Japan (in the table 1, it is only better than Kenya and Nigeria). Patel (2004 )
concluded that insurance is not as widespread in developing countries as compared to
the developed world and in the poorest of countries it is virtually non-existent. All
developing countries, even those with large populations, have a very low proportion of
the world insurance market. In developed countries, insurance has become a legal
necessity and is compulsory by law. On the other hand, in developing countries (most of
which have large Muslim populations), insurance is not being made available
compulsory where it is needed the most, where human well-being is at the lowest and
vulnerability is at its highest.

REGIONAL COMPARISON
In the regional comparison as shown in Table 2 below, five countries of Asian region
were Selected and position of Pakistan was compared based on insurance rank by
volume, GDP per Capita (in $US), insurance premium, insurance density, insurance
penetration and share in the world market. Pakistan was ranked at 58 position in the
world insurance market by volume as compared to 9 position of China and 15 of India.
GDP per capita for Pakistan is lower than China, India and Srilanka and only slightly
better than Bangladesh which has 84 insurance ranks by volume in the world market.
Insurance Premium for Pakistan is also lower than China and India. It could be argued
that Pakistan has lower premium than the two countries due to their large population.
Yet, Pakistan position is also low in insurance density and penetration
comparisons which give another angle of the measure of level of insurance in the
country. It is shown in the following charts.
Analysis of Pakistan
insurance industry shows
that overall financial
performance of
Tactful as well (See insurance share in Table 1 an

Analysis of Pakistan
insurance industry shows
that overall financial
performance of t