An in­dus­try-wide up­grade

A mas­sive over­haul in gov­er­nance and leg­is­la­tion is re­quired

Executive Magazine - - LEADERS -

Times of change and up­grades of op­er­at­ing sys­tems are con­fus­ing events, or, in to­day’s eco­nomic lingo, dis­rup­tive. Few things can be more dis­rup­tive than the abrupt up­grade of a whole in­dus­try to a higher level, forc­ing it into new ways of do­ing busi­ness and, in­evitably, al­ter­ing its whole iden­tity in the process. That’s what’s cur­rently hap­pen­ing to in­sur­ance.

The up­grade of this in­dus­try en­com­passes on one hand the tran­si­tion into the dig­i­tal age, with a host of new chal­lenges in dis­tri­bu­tion, se­cu­rity, con­sumer be­hav­ior, and, per­haps most im­por­tantly, new risks, ac­cu­mu­la­tions and syn­er­gies of risks. On the other hand, in­sur­ance has been deeply af­fected by the global trans­for­ma­tion of the fi­nan­cial econ­omy and the rise of un­cer­tainty and change trig­gered a decade ago in the Great Re­ces­sion, which re­mains far from over.

Since Le­banon’s eco­nomic re­birth after the in­ter­nal war­fare of the 1970s and 80s, the in­sur­ance in­dus­try has made some re­mark­able strides. Pre­mi­ums grew al­most ex­po­nen­tially and rates of in­sur­ance pen­e­tra­tion, or per­cent­age of GDP spent on pro­tec­tion, re­mained at the top among Arab coun­tries.

But one can­not over­look the fact that the Mid­dle East is a global lag­gard when it comes to in­sur­ance pen­e­tra­tion, some­thing that is not ex­pected to change rad­i­cally in the next 10 years. Global in­sur­ance group Al­lianz pre­dicts that the av­er­age per capita con­tri­bu­tion in the Mid­dle East and Africa will only grow from $139 to $180 from 2016 to 2026, and that the MENA re­gion will ac­count for just 1.8 per­cent of global pre­mium in­come in 2026.

Cur­rent in­sur­ance pen­e­tra­tion in Le­banon – es­ti­mated by Swiss Re Sigma at 3.42 per­cent for 2015 – shows the coun­try to be at the fore­front of Arab mar­kets, and re­spectable in com­par­i­son with mid­dle in­come coun­tries from Ar­gentina and Rus­sia to Bul­garia and Iran. But this is not much to write home about when com­pared to the av­er­age global in­sur­ance pen­e­tra­tion rate of 6.23 per­cent. In purely do­mes­tic terms, the Le­banese in­sur­ance sec­tor’s as­sets, pre­mi­ums and prof­its in 2016 (while not yet of­fi­cially an­nounced) are dwarfed by the as­sets, de­posits and prof­its in our bank­ing in­dus­try.


Within the fi­nan­cial land­scape, Le­banese in­sur­ance stands timidly in a swamp of un­de­vel­oped cap­i­tal mar­kets and foggy leg­is­la­tion. More­over, when com­pared with the friendly but bois­ter­ous bank­ing ogre and its sub­stan­tial mar­ket­ing power, the sec­tor is prac­ti­cally in­vis­i­ble. In Ex­ec­u­tive’s view, this sit­u­a­tion war­rants rem­edy.

By con­ven­tional wis­dom, great change is a time of great op­por­tu­nity. Agility and open­ness to new ways are a re­quire­ment for ben­e­fit­ing from these op­por­tu­ni­ties. But ef­fec­tive ex­ploita­tion of change re­quires le­gal em­pow­er­ment. Ex­ec­u­tive be­lieves that it is not enough to pur­sue piece­meal im­prove­ments in the le­gal frame­work for in­sur­ance and calls for the adop­tion of a new in­sur­ance law in Par­lia­ment.

With a view to in­sur­ance, we re­it­er­ate our de­mand for a sup­port­ive frame­work for growth in the fi­nan­cial mar­kets, and our call for the Cap­i­tal Mar­kets Author­ity of Leba- non to fo­cus equally on the reg­u­la­tion and de­vel­op­ment of our cap­i­tal mar­kets. The CMA has to step up its ef­forts and ef­fec­tive­ness to in­vig­o­rate the mar­kets un­der its su­per­vi­sion, and the Beirut Stock Ex­change has yet to de­liver vi­brancy to the bourse. We would like to see all lo­cal in­sur­ance com­pa­nies listed, and ad­here to the cor­po­rate gov­er­nance struc­tures and sys­tems that be­fit a mod­ern cor­po­ra­tion.

One of­ten en­coun­ters the per­cep­tion that in­sur­ance is bor­ing. In truth, it is a com­plex cog in the fi­nan­cial in­dus­try and one with much hid­den – or dif­fi­cult to un­der­stand – po­ten­tial and at­trac­tion.

Re­port­ing on these is­sues in our cur­rent is­sue, Ex­ec­u­tive en­dorses the view, ex­pressed by the chair­man of the coun­try’s largest in­sur­ance provider, Al­lianz SNA (see in­ter­view page 56 and con­sol­i­da­tion story page 36), that an in­dis­pens­able pre­con­di­tion for suc­cess­ful adop­tion of cor­po­rate gov­er­nance and trans­parency in our pri­vate in­dus­tries is pub­lic sec­tor lead­er­ship by ex­am­ple. We need full and speedy im­ple­men­ta­tion of the new law on ac­cess to in­for­ma­tion (see leader page 10), and trans­parency and ac­count­abil­ity in our gov­ern­ment in­sti­tu­tions be­fore we can re­al­is­ti­cally hope to see tax com­pli­ance, proper re­port­ing, and real trans­parency in our pri­vate sec­tor.

As for in­sur­ance stake­hold­ers, we af­firm our view that it is time to free in­dus­try minds from the last re­main­ing bur­dens of ego­ism that symp­tomized the in­dus­try in the past; they must cast off the cloak of in­vis­i­bil­ity and put on the ar­mor of trans­parency and good cor­po­rate gov­er­nance.

In­sur­ance is a com­plex cog in the fi­nance in­dus­try

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