Vi­tal and seek­ing vi­brancy

Le­banese in­sur­ers’ long march into a mys­te­ri­ous fu­ture

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The num­bers for over­all pre­mi­ums growth, pen­e­tra­tion and den­sity in the Le­banese in­sur­ance mar­ket in 2017 may not bring huge sur­prises. In 2016 the sec­tor de­liv­ered 3 per­cent nom­i­nal growth in gross pre­mi­ums, from $1.52 bil­lion in 2015 to $1.56 bil­lion, ac­cord­ing to the lat­est quar­terly re­port of the As­so­ci­a­tion of In­sur­ance Com­pa­nies of Le­banon (ACAL). The com­pounded an­nual growth rate (CAGR) of writ­ten gross pre­mi­ums for the pe­riod 2009 – 2015 was 7.6 per­cent, ac­cord­ing to the lat­est fig­ures pub­lished by the In­sur­ance Con­trol Com­mis­sion in its an­nual re­port for 2015.

The 7.6 per­cent CAGR of writ­ten gross pre­mi­ums was eclipsed by the CAGR of claims at 15.6 per­cent, but in line with the 7.1 per­cent CAGR of the sec­tor’s net in­come after tax. It also is no­table that year-on-year growth for gross writ­ten pre­mi­ums in 2015 was bet­ter than in 2014, at 7.8 per­cent ver­sus 4.3 per­cent, but that the last three years have wit­nessed sig­nif­i­cantly lower an­nual growth rates than the years 2007-2011. To­tal pre­mi­ums were $727.52 mil­lion in 2007, roughly half their level in 2015. To­tal net profit for the sec­tor ac­cord­ing to the ICC stood at $93,150 in 2015.

The over­all un­der­writ­ing ac­tiv­ity of Le­banese in­sur­ers is seg­mented into three main busi­ness lines – life in­sur­ance, med­i­cal in­sur­ance and mo­tor in­sur­ance. The per­cent­age split has been grosso modo sta­ble for years, with about 30 per­cent in life, 30 per­cent in med­i­cal, and 22 - 25 per­cent in mo­tor in­sur­ance. The next busi­ness line by vol­ume is fire in­sur­ance, which ac­cord­ing to ACAL ac­counted for 6.9 per­cent of the to­tal mar­ket in 2016.

All other non-life spe­cial­ties con­trib­ute less than 3.5, and of­ten less than 1 per­cent, to the to­tal pre­mi­ums pie – in­clu­ing cov­er­age for work­ers’ com­pen­sa­tion, engi­neer­ing, con­trac­tors’ all risk, cargo, travel and trans­porta­tion, pub­lic li­a­bil­ity, and credit in­sur­ance, as well as poli­cies against per­ils such as po­lit­i­cal risk, hostage and ran­som, ter­ror­ism, riot and civil un­rest, loss of a com­pany’s key per­son, di­rec­tors and of­fi­cers li­a­bil­ity, and so forth.

Poli­cies and aware­ness of cov­er­age for in­ci­dents that will de­fine the cor­po­rate risk land­scape and in­sur­ance con­tracts of fu­ture decades, like cyber in­sur­ance, seem to still linger be­yond the hori­zon of most com­pa­nies. It seems one can in­sure (al­most) ev­ery­thing in Le­banon (iron­i­cally, the ICC lists no lo­cal com­pa­nies as li­censed for the agri­cul­ture branch, one of six li­cens­ing cat­e­gories un­der the reg­u­la­tory port­fo­lio), but the de­mand here is fo­cused on manda­tory cov­er­age, not on the risks that might have the great­est im­pact on an eco­nomic en­tity or the whole coun­try.


The chal­lenges in this sit­u­a­tion, where in­sur­ance is un­der­stood as be­ing vi­tal for the Le­banese econ­omy and so­ci­ety, while aware­ness of its im­por­tance is still fo­cused on ba­sic cov­er­age, were high­lighted in the In­ter­na­tional Mone­tary Fund’s (IMF) lat­est eval­u­a­tion of in­sur­ance in con­text of the na­tional fi­nan­cial sec­tor. The eval­u­a­tion was pub­lished ear­lier this year un­der the IMF’s Fi­nan­cial Sta­bil­ity As­sess­ment Pro­gram (FSAP) and notes that the Le­banese in­sur­ance sec­tor is con­fronted with “struc­tural chal­lenges” to its de­vel­op­ment.

The FSAP, re­search for which was com­pleted last au­tumn, points to the ob­vi­ous fact that the to­tal as­sets in the in­sur­ance sec­tor at $4.3 bil­lion, or 8.6 per­cent of GDP, are “small com­pared to the bank­ing sec­tor,” (with $150 bil­lion in de­posits equal­ing 280 per­cent of GDP). It con­tin­ues, “There might be scope for mar­ket ex­pan­sion and deep­en­ing [of in­sur­ance], which would help cor­po­rates and house­holds bet­ter man­age risk ex­po­sures, sup­port in­vest­ment, con­trib­ute to fi­nan­cial in­clu­sion, and ex­pand con­trac­tual sav­ings that could con­trib­ute to cap­i­tal mar­ket de­vel­op­ment.”

The FSAP doc­u­ment de­scribes Le­banon’s In­sur­ance Con­trol Com­mis­sion pos­i­tively (for in­ter­view with the act­ing head of the ICC, see page 52) but notes crit­i­cally of the in­sur­ance sec­tor, “There is a large num­ber of un­spe­cial­ized com­pa­nies, in­clud­ing many small, fam­ily owned and man­aged com­pa­nies, re­sult­ing in in­tense price com­pe­ti­tion. Many of these firms have made lim­ited in­vest­ments in risk man­age­ment and pric­ing tech­niques, and the ICC con­sid­ers some do not have ad­e­quate

pro­fes­sional ca­pac­ity, re­sult­ing in op­er­a­tional risks and mis­pric­ing.”

With re­gards to the over­all fi­nan­cial sys­tem of Le­banon, the FSAP sees sov­er­eign and credit con­cen­tra­tion risks as po­ten­tial vul­ner­a­bil­i­ties in the na­tion’s bank­ing sec­tor, based on sol­vency stress tests and sen­si­tiv­ity anal­y­sis. It fur­ther as­serts that nei­ther the cap­i­tal mar­kets nor the sec­ondary debt mar­kets are well de­vel­oped. “Cap­i­tal mar­kets are small and con­trib­ute lit­tle to the fi­nanc­ing of the econ­omy, and ex­pan­sion prospects for the in­sur­ance sec­tor are hin­dered by a rel­a­tively weak reg­u­la­tory and in­sti­tu­tional frame­work,” con­cludes the doc­u­ment’s ex­ec­u­tive sum­mary.

Given the over­all state of the fi­nan­cial en­vi­ron­ment, in­sur­ers in Le­banon are fac­ing an eco­nomic path that looks mildly chal­leng­ing, but at the same time slightly promis­ing – more promis­ing the more the econ­omy and re­gional sta­bil­ity re­cov­ers, and the more the Le­banese state over­comes its in­ef­fi­cien­cies and in­equities. That notwith­stand­ing, to bor­row from Ge­orge Or­well, some in­sur­ers ap­pear a bit more equal than oth­ers when it comes to think­ing about the fu­ture and ini­ti­at­ing promis­ing new tra­jec­to­ries.


While it is true that some in­sur­ers have out­per­formed the over­all sec­tor in 2016, this is not a nar­ra­tive that will ad­vance the Le­banese in­sur­ance in­dus­try on a path to new life. The real story is that some of these out­per­form­ers are the very com­pa­nies that have de­clared them­selves ad­her­ents to prac­tices and prin­ci­ples which in the past were not com­mon prac­tice in the sec­tor.

The first of these is a com­mit­ment to trans­parency and gov­er­nance. Noth­ing cur­rently obliges in­sur­ance com­pa­nies in this coun­try to prac­tice ei­ther. And no Le­banese in­sur­ance com­pany is listed in the stock mar­ket, so even if the Beirut Stock Ex­change had much stronger gov­er­nance re­quire­ments, this would not mat­ter for in­sur­ers.

In this desert of trans­parency, void of cul­ture and in­cen­tives for gov­er­nance, it is en­cour­ag­ing to en­counter a full and proper board struc­ture in a size­able Beirut-based group like Che­did Cap­i­tal Hold­ing, whose bread and but­ter is in­sur­ance, and find that it is in­deed pos­si­ble for such a group to per­form well in the cur­rent eco­nomic en­vi­ron­ment. Ac­cord­ing to group chair­man Farid Che­did, or­ganic top line growth in the past year was over 30 per­cent (in­clud­ing the ac­qui­si­tion of Shar­jah-based bro­ker­age Al Ma­nara, “we reached growth of over 40 per­cent in the top line,” he says).

Even more im­pres­sive is that the boards of units in the group are not opaque or stuffed with names of only one fam­ily, but en­tail cred­i­ble Le­banese and for­eign names among their in­de­pen­dent, non-ex­ec­u­tive di­rec­tors. There are other ex­am­ples of lib­er­ated fi­nan­cial think­ing in the man­age­ment strata of lo­cal in­sur­ance com­pa­nies, such as an ori­en­ta­tion to­ward com­pe­ti­tion over qual­ity, sol­vency and sus­tain­able long-term prof­itabil­ity.

This con­trasts with the lack of a re­gional or na­tional cul­ture in Mid­dle Eastern in­sur­ance sec­tors, with very poor habits when it comes to an­nual re­port writ­ing, com­mu­ni­ca­tion and gen­eral trans­parency to­ward an­a­lysts and the pub­lic. Sec­tor prac­tices have for many years given an unin­spir­ing im­pres­sion of a field char­ac­ter­ized by pol­i­tick­ing, nar­row in­ter­ests, un­demo­cratic de­bate, and horse­trad­ing or in­flu­ence ped­dling.

The sec­ond un­com­mon valor is mod­ern po­si­tion­ing vis-a-vis the cus­tomer and an em­pha­sis on em­ployee wel­fare. In De­cem­ber of last year, Le­banon’s largest in­sur­ance com­pany by con­sol­i­dated pre­mi­ums un­der­took its in­au­gu­ral cus­tomer loy­alty sur­vey, con­ducted by a multi­na­tional mar­ket re­search com­pany. The sur­vey was fo­cused on cus­tomer ex­pe­ri­ences in life in­sur­ance, but there are plans to con­duct a sec­ond sur­vey on non-life in­sur­ance, Al­lianz SNA’s chief mar­ket man­age­ment of­fi­cer Raed Labaki tells Ex­ec­u­tive.

“It was an ex­ter­nal sur­vey to com­pare the sat­is­fac­tion of our cus­tomers in life in­sur­ance with our main peers and with the rest of the life in­sur­ance mar­ket. We were happy to find that we were the loy­alty lead­ers com­pared with the av­er­age of the mar­ket but, most im­por­tantly for us, [the sur­vey] helped us to iden­tify our strengths and our weak­nesses, both [our cus­tomers’] de­lights and pain points,” he says. Ac­cord­ing to him, the com­pany will now con­sult with ex­perts in the global group and de­velop a cus­tomer ex­pe­ri­ence ac­tion plan to im­prove on the pain points that were iden­ti­fied. “Our aim now is to main­tain this loy­alty leader po­si­tion,” he en­thuses, adding that the group’s lead over the mar­ket in terms of loy­alty was in dou­bledigit per­cent­ages for each mea­sured touch point.

Some in­sur­ers ap­pear a bit more equal than oth­ers when it comes to think­ing about the fu­ture

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