Arab insurance sector witnesses autumn winds during Arab Spring
Political turmoil, low investment returns, high reinsurance prices, low insurance awareness are the main challenges facing Arab insurance sector.
Confidence of foreign reinsurers and insurance brokers in Arab markets fell by 33%.
Arab insurance companies are expected to achieve US$ 27 billion and Egypt’s insurers are expected to achieve US$ 2.3 billion worth of premiums.
Arab countries have 20 reinsurance companies with total shareholders’ equity of US$ 2.8 billion.
Abdel-Khalek Raouf Khalil, secretary general of the General Arab Insurance Federation (GAIF), has said the Arab insurance market has witnessed “autumn winds” in the last two years, because of the economic and social repercussions of Arab revolutions, which negatively dampened the volume of insurance premiums and at the same time increased the volume of due compensation in many Arab countries.
Reinsurance companies have adopted a strict policy with Arab insurers, leading the latter to apply a conservative underwriting policy in extending political violence insurance coverage, which in turn affected the results of insurance companies, he elaborated.
Khalil added in an interview with Amwal Al-Ghad that the political disturbances in the Arab countries have shaken the world’s confidence in the Arab insurance sector. A survey has showed that the international reinsurance and insurance brokerage companies’ confidence in the Arab markets has fallen by 33.3%. He expected that the market will not regain confidence amid the current turmoil.
He also anticipated the Arab insurance sector will achieve premiums worth US$ 27 billion in 2012, compared to US$ 25 billion in 2011 and US$ 21 billion in 2010, noting that the sector achieves good growth rates despite the current turmoil.
Has the Arab insurance sector benefited from the Arab Spring?
The Arab insurance sector has witnessed autumn winds not an Arab Spring. These winds have reduced the volume of insurance premiums in many of the Arab countries, but raised the volume of paid compensations.
The economic and social repercussions of Arab revolutions have hardly hit the sector as it compensated customers for losses incurred from the turmoil that followed revolutions and faced strict policy from reinsurers in compensations and reinsurance agreement conditions and prices. This made insurers adopt a more conservative underwriting policy in extending political violence insurance coverage and this in turn affected their results.
What are the most affected insurance sectors by the Arab spring revolutions?
Egyptian and Tunisian insurance sectors are recovering as they have succeeded in withstanding the first shock of the revolutions, but the insurance markets in Libya, Syria and Yemen are have highly hit by the long political disturbances they have witnessed.
Do you think that the Arab governments are taking decisions to boost the insurance sector?
Unfortunately, the Arab countries issued decisions that drew foreign investors away. Billions of investments have exited Egypt, Syria and Yemen in the last period. Therefore, governments should be aware not to place huge pressure on investors when taking any decision and to apply legislation that would boost the sector such as exempting insurance policy holders from taxes to attract a large segment of customers in the Arab region.
Have these disturbances affected the world’s outlook on the Arab insurance sector?
The disturbances have actually shaken the confidence of the world in the Arab insurance sector. A survey conducted in 2012 has shown that 54.4% of reinsurance and insurance brokerage companies have the same confidence in the market before and after Arab Spring events, and 14.3% have more confidence in the market, while 33.3% have less confidence and expect that the market will not regain the previous growth rates amid the current turmoil.
What are the most prominent results of insurance companies in Arab countries in the recent period?
The total volume of premiums achieved by Arab insurers has significantly grown from 2009 to 2011 as it reached US$21.1 billion in 2009 and exceeded US$ 25 billion in 2011.
The total volume of Arab insurance premiums is expected to reach about US$ 27 billion in 2012; of which 10% (US$ 2.7 billion) are allocated for foreign reinsurance companies and US$ 270 million for Arab reinsurance companies.
The value of premiums reached US$ 2.3 billion in the Egyptian market, US$ 6.6 billion in the United Arab Emirate, US$ 4.9 billion in the Kingdom of Saudi Arabia and US$ 2.9 billion in Morocco in 2011.
The health insurance market has grown by 30%; the life insurance market increased by 16% and the non-life insurance market surged by about 9.3%, compared to the results of 2010.
Is it true that there are no strong Arab reinsurance companies and insurers rely on foreign companies?
This is inaccurate, as there are 20 reinsurance companies in the Arab countries with total shareholders’ equity of more than US$ 2.8 billion and high solvency ratios. Accordingly, these companies are capable of extending suitable insurance coverage for direct insurance companies and promptly disbursing compensations. These companies have the required technical and financial capabilities which make them capable of competing with foreign companies. However, some tend to deal with foreign companies due to a sense of “cultural cringe”. I call on top officials at insurance companies in the Arab countries to support Arab reinsurers rather than foreign ones. Arab reinsurance companies do not make sufficient deals with Arab insurers, although they have high-level technical capabilities and meet their liabilities in the determined time.
What are the technical reasons that lead insurance companies not to rely on reinsurance companies in the Arab world?
Arab insurance regulators place severe conditions on these companies such as being highly rated by international rating agencies. As we all know, differences in ratings do not always stem from financial and technical differences, but they rather mainly rely on the credit sovereign rating of the country.
What is the role of the General Arab Insurance Federation (GAIF) in overcoming this obstacle?
The Arab Reinsurers Association, which is a subsidiary institution of GAIF, will study during its meeting in Beirut this May the possibility of setting up an Arab rating agency of insurance and reinsurance companies, in collaboration with the bodies supervising and monitoring insurance activities.
In your point of view, what does the Arab insurance sector mainly need to flourish in the coming period?
The Arab insurance sector has the main factors of advancement and growth, but it has some requirements such as technical support to offer new products, which will attract new customer segments, updating legal and regulatory frameworks of supervisory and monitoring bodies and fostering their independence, as well as raising insurance awareness and developing the skills of employees in designing insurance products, underwriting, risk assessment and pricing.
What are the most prominent modern insurance products that will be needed next?
Micro-insurance is the most needed product in the meantime, as the impoverished are living in risky environments where they are subject to disease, accidents, loss of property, loss of agricultural crops, natural and man-made disasters and they comprise the social class that is least adapted to these risks. Therefore, micro-insurance product is one of the best ways to shield the poor from the difficulties they are facing. A study conducted by the Micro-insurance Center in the United States of America on the World’s 100 poorest countries has revealed that the number of micro-insurance customers rose 135 million, up from 80 million three years earlier.
What is the expected future vision for micro-insurance?
The Micro-insurance Center estimates that this kind of insurance has the capability to grow in the next 10 years to attract billion customers and reach new customer segments, as large international companies such as AXA Group, Allianz and Prudential Insurance Company have entered this sector.
Insurance regulators have to play a vital role in creating a motivating environment for micro-insurance through analyzing its points of strength and weakness and also potential risks, holding a related discussion with insurance products providers, brokers and customers, applying the appropriate regulations, facilitating and developing the training process of micro-insurance supervisors, setting suitable performance indices and disclosure requirements for monitoring this kind of insurance and studying micro-insurance supervision experiences in other countries.
What are the main challenges and obstacles facing insurance in the Arab world?
There are currently many challenges facing the Arab insurance sector including the unstable political and regional situation and the low investment returns as well as challenges expected in the short term such as the absence of regional and international insurance experience, high reinsurance prices and risk management difficulties, in addition to the long-term challenges such as lack of insurance awareness and unorganized insurance regulatory environment as well as challenges facing Takaful (Islamic insurance) and bank insurance.
What is the General Arab Insurance Federation’s role in overcoming these challenges?
The Federation has a futuristic view to develop the Arab insurance market in order to reach international standards, expand the customer base through offering high-quality products at reasonable prices, develop technical and administrative efficiencies, remove obstacles facing Takaful and improve human resources as being the intellectual capital of the sector which is capable of developing the sector.
What are the most prominent upcoming conferences and seminars scheduled to be held by GAIF?
The agenda of GAIF’s general secretary includes holding a seminar for insurance brokers in Lebanon, conference on new insurance coverage in Morocco next June, a civil liability insurance forum in Bahrain, the 10th annual Gulf insurance forum in Dubai next October and a conference on the government’s role in keeping up with the insurance industry in the Arab world in Morocco next November.
