Anatomy of an in­surance sec­tor

In­dus­try still has room for growth and im­prove­ment

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Nu­mer­ous com­pa­nies – 50 – share $1.5 bil­lion in gross pre­mi­ums

The Le­banese in­surance in­dus­try is enig­matic in the sense that nu­mer­ous com­pa­nies – 50 – share $1.5 bil­lion in gross pre­mi­ums but that not one of the com­pa­nies is listed. For a con­sid­er­able time – at least in the era of the cur­rent in­surance law which was up­dated al­most 20 years ago – the coun­try’s in­surance sec­tor has also been char­ac­ter­ized by a di­chotomy be­tween on the one hand be­ing among the largest in­surance in­dus­tries in the Arab world in terms of in­surance pen­e­tra­tion, mean­ing the role of in­surance in per­cent­age of gross do­mes­tic prod­uct, and on the other hand be­ing over­shad­owed by com­mer­cial banks in their con­tri­bu­tion to jobs and to the econ­omy in gen­eral.

In­surance providers count among the pil­lars of de­vel­oped economies be­cause of their stew­ard­ship of the peo­ple’s pen­sion money and thereof re­sul­tant longterm in­vest­ments. This role of in­sti­tu­tional in­vestors is largely ab­sent from the Le­banese mar­ket as the In­surance Con­trol Com­mis­sion (ICC) noted in its re­cently pub­lished an­nual re­port for the sec­tor.

Ad­di­tion­ally, the Le­banese in­surance mar­ket has seen nu­mer­ous op­por­tu­ni­ties for de­vel­op­ment that have not been uti­lized. As in­surance ex­ec­u­tives con­firm, pass­ing in­ter­ests in the newer lines of busi­ness

– whether in­sur­ances in case of ri­ots and civil com­mo­tion or un­rest (which are types of prop­erty cov­ers), kid­nap and ran­som poli­cies, or li­a­bil­ity in­surance for di­rec­tors and of­fi­cers of com­pa­nies – are spe­cial­ties that do not gain more than fleet­ing de­mand in Le­banese and re­gional mar­kets.

Some in­surance in­no­va­tions will make their way into the Le­banese mar­ket – whether be­cause of the in­ter­net of things, the shift of economies (and of eco­nomic con­fronta­tions) in the dig­i­tal and cyber se­cu­rity world or be­cause of the is­sues re­lated to our cli­mate and need of in­sur­ing al­ter­na­tive en­ergy gen­er­a­tion and preser­va­tion.

LIFE, MO­TOR, MED­I­CAL DOM­I­NATE

Ac­cord­ing to the records pub­lished by the ICC, the num­ber of in­surance providers which un­der­write risks in the six dif­fer­ent cat­e­gories that re­quire li­cens­ing un­der the ex­ist­ing law ranges from 45 in gen­eral ac­ci­dent in­surance (which in­cludes mo­tor and med­i­cal) to 10 in credit and zero in agri­cul­tural un­der­writ­ing. For life in­surance, 36 com­pa­nies are li­censed of which all but a hand­ful of firms can act as com­pos­ite com­pa­nies that of­fer non-life cov­er­age along­side their life in­surance li­censes.

How­ever, for the time be­ing the Le­banese mar­ket is still best de­scribed in terms of the mar­ket shares for the dif­fer­ent in­surance vol­ume spe­cial­ties, namely mo­tor and health in­surance in the non-life or gen­eral sec­tor and life in­surance with the va­ri­eties of pro­tec­tion only, pro­tec­tion with sav­ings, and unit-linked (with risk par­tic­i­pa­tion) lines. Life, mo­tor and med­i­cal in­surance ac­count for around four in ev­ery five dol­lars in cov­er­age sold by in­surance providers in the lo­cal mar­ket.

It is in­struc­tive to see that in the life in­surance sec­tor the split be­tween the three sub-spe­cial­ties is tend­ing to­ward growth of pro­tec­tion-only poli­cies which, ac­cord­ing to the ICC, rose from 9.4 per­cent to 11.3 per­cent of to­tal pre­mi­ums writ­ten in the years 20102014. Pro­tec­tion-only cov­ers played main roles in bank-in­duced in­sur­ances of loan tak­ers in the re­tail seg­ment. Over the same time pe­riod, the is­sues of wealth-build­ing in­surance through pro­tec­tion­cum-sav­ings con­tracts stayed com­par­a­tively sta­ble, whereas unit-linked prod­ucts saw both fluc­tu­a­tion and degra­da­tion as up­take of such con­tracts fell to 8.1 per­cent in 2014, com­pared with 9.9 per­cent of the mar­ket in 2010.

DE­MAND STILL LIM­ITED

From an op­er­a­tional per­spec­tive, the de­mand for life in­surance is there­fore a re­flec­tion of in­vest­ment needs in the rather lim­ited seg­ment of so­ci­ety where such needs are present and on the other hand the needs and re­al­i­ties of peo­ple in the wider Le­banese econ­omy, which in re­cent years suf­fered a down­turn from the growth of in­comes that was seen in the pe­riod prior to the out­break of the Syr­ian cri­sis and other crises af­fect­ing Le­banon.

This also cor­re­lates with the growth con­cen­tra­tion in gen­eral, or non-life, in­surance lines where the five years from 2010 to 2014 saw a shift to med­i­cal in­surance as the num­ber one cat­e­gory in writ­ten pre­mi­ums, mov­ing ahead of mo­tor in­surance where de­mand for ve­hi­cles stayed buoy­ant but cus­tomers often opted for new cars that were less costly in ac­qui­si­tion, up­keep and main­te­nance, in­clud­ing in­surance. Fire in­surance saw in­creases amidst new min­is­te­rial scru­tiny over pol­icy re­quire­ments for en­ter­prises but other branches of gen­eral in­surance, in­clud­ing pro­fes­sional li­a­bil­ity and sim­i­lar cov­ers, did not wit­ness ex­pan­sions that would have been in­tu­itive in mar­kets with more de­vel­oped frame­works and stronger economies.

Ac­cord­ing to the an­nual re­port on the sec­tor, it is now pos­si­ble to see which com­pa­nies ex­actly are lead­ers in un­der­writ­ing of the var­i­ous busi­ness lines (see ta­bles).

The mar­ket is served largely by three types of com­pa­nies: lo­cal firms that as­so­ci­ate with in­ter­na­tional com­pa­nies, lo­cal firms that are owned by lo­cal banks and firms that are lo­cal and in­de­pen­dent. The lo­cal firms serve the long tail of the mar­ket while firms with re­gional or in­ter­na­tional ties often have stronger op­por­tu­ni­ties for prod­uct di­ver­si­fi­ca­tion and size-wise de­vel­op­ment. The ques­tion is what in­surance com­pa­nies are fi­nan­cially se­cure (see story page 64) and how to en­cour­age greater fi­nan­cial and op­er­a­tional trans­parency of in­surance com­pa­nies in Le­banon.

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