Undeterred by challenging economic conditions, the Tunisian insurance sector continued to grow in the past year, underpinned by vigorous life business and encouraging regulatory reforms.
Challenging economic conditions have been the biggest obstacle facing the Tunisian economy following the 2011 revolution and its repercussions in the years that followed. In the past couple of years, positive (though modest) signs have surfaced as the country’s GDP grew 2% in 2017, up from the 1% in the preceding year. Tunisia’s GDP is projected to have reached 2.4% in 2018, according to a World Bank report which also said this figure would gradually approach its potential of about 3.4% over the medium term against a backdrop of improved business climate through structural reforms, greater security and social stability.
Yet, and despite various structural reforms the government have initiated, tough obstacles remain, manifested mainly in the high unemployment rate of 15.2% and the deteriorating purchasing power attributed to the devaluation of the Tunisian dinar. Such indicators are translated to unstable socioeconomic conditions that are reflected on the business environment in general.
As a result, it has been challenging for the insurance industry in Tunisia to grow and achieve notable progress. However, the sector managed to achieve a double-digit turnover in premium volumes, and regulatory reforms are afoot to create sustainable growth on a strong basis.
Growth sustained
Despite challenges in the insurance industry, GWP is projected to have registered around 12% growth in 2018, reaching around TND2,340m ($772.3m) against a growth rate of 12.6% in the preceding year, according to the insurance regulatory body, the Comité Général des Assurances (CGA).
Non-life business, accounting for 79% of overall premiums, is estimated to have reached around TND1,822m in 2018, up by around 10.7% over the preceding year. In 2017, non-life business reached TND1,647m, showing a growth rate of 11.2% over the previous year, buoyed mainly by the almost 13% growth in motor business. Motor insurance grew fast in 2017 because of the increase in prices of complementary motor covers, reflecting the notable increase in vehicle prices due to the devaluation of the Tunisian currency. This growth is expected to have continued at 9.7% in 2018, according to the CGA.
A robust life segment
Life business was the fastest growing line in the past year with premiums estimated to have grown by around 17% to TND518m, or 22% of the total market share. CGA president Hafedh El Gharbi said the notable activity in this line has been a major growth driver in 2018 “thanks to the increase in premium income of companies that write life insurance, especially in the savings segment, which accounts for a notable size of the life premiums, at around 48.6%”.
Life insurance in Tunisia has maintained its double-digit growth trend even during the various socio-political difficulties that hit the country over the past decade.
Mr Gharbi said in light of the structural deficit the state pension scheme is facing, insurers can play a role in offering complementary pension solutions to alleviate the negative impacts of this deficit. He said the CGA has taken certain measures to ensure that there is a successful provision of complementary pension schemes. Such measures include extending the range of tax benefits to cover the group pension’s contracts, where it used to be applicable to individual contracts only. The CGA has also strengthened the regulatory framework for life and savings insurance to guarantee various technical specifications, including group pension schemes.
The tax benefits system for the life and savings insurance line has been revised as well to include new products and an expanded list of beneficiaries who can benefit from exemptions. Moreover, the time frame for benefiting from tax benefits has been reduced to eight years, from the previously 10-year period.
“Consequently, insurers responded positively as they revised their contract general terms for complementary pension schemes to comply with the new regulatory framework,” said Mr Gharbi. He pointed out that CGA also seeks in the future to propose setting up a special tax benefit scheme for the complementary pension insurance product, as well as conducting a further revision of the regulatory status of such product offerings.
Enhancing distribution
Direct and agency channels control the largest share in terms of distribution for general lines, where they generate around 82% of the non-life business. For life business, however, banks and post office branches dominated around 52% of premiums in 2017, an increase from 47% in the previous year.
Bancassurance is a key element in promoting life insurance, and is gaining more traction with time. In general, the CGA looks to develop the insurance business environment and further strengthen the sector’s role and its contribution in supporting the national economy, said Mr Gharbi.
Therefore, the CGA is conducting a revision of the current regulations to expand the distribution mechanisms. “The revision aims at setting up provisions for microinsurance. In that respect, the list of intermediaries has been expanded to include mobile phone operators,” he said.
To further promote life and savings insurance products, the CGA is mulling over whether to expand the range of intermediaries to include those working in the stock exchange and financial institutions in various provinces. Having said that, “the CGA will thoroughly revise the various provisions in the insurance law to precisely control all distribution channels, both traditional and new, to ensure their commitment to laws and protect policyholders’ rights”, said Mr Gharbi.
He added that the revision will include organising the provisions of dealings between insurance institutions with vocational associations. “This will lead to the abandoning of current agreements between the associations with any brokers and replacing them with a binding bilateral agreement that should be reviewed by the regulatory authority one month before enforcing it.”
New points system
Motor insurance controls the lion’s share of the market’s GWP at around 45%. As such, its results affect the market as a whole. In the first half of 2018, paid claims for motor insurance reached TND293m, accounting for 55% of the market claims, and showing a 13.2% increase over the same period of the preceding year and markedly registering a higher rate than the increase in paid claims of the 2017-2016 year which recorded around 1.4%.
Historically, motor has been a problematic area because aside from the high rate of accidents and the rocketing rate of compulsory motor insurance losses, fraud has been estimated to stand at around TND150m annually. Starting this year, the market has launched a central database for insurers to exchange data and implement the points system. “Upon implementing the points system, the CGA expects companies not to use the increase or decrease in prices as a competition tool,” said Mr Gharbi.
He said this system would reduce the accident rate and is considered a preventive tool that aims to improve the performance of drivers and encourage safe driving.
In parallel, along with the gradual increase in motor tariff which has been adopted a few years ago to achieve a balanced, liberal tariff system, launching the central database centre and bonus system would help upgrade the motor insurance line and limit the losses it suffers, he said.
In the short-to-medium term, the CGA plans to develop the central database system to include a listing of stolen vehicles and clients who fail to pay premiums, as well as to create a blacklist of fraudulent cases.
Facing Nat CAT
Although dealing with increasing Nat CAT risks has been tackled previously, there are plans to launch a special scheme to combat these threats. The huge human and material losses that Nat CATs cause, in addition to the difficulty and increased cost of modelling such risks, put pressure on sustainability of the insurance scheme that addresses these cases, said Mr Gharbi.
In 2011, a World Bank study revealed that urban areas in Tunis are expected to face annual loss of TND140m until 2030 with 59% of it caused by floods.
In September 2018, flash floods in some areas of Tunisia killed four people and caused serious material damages resulting from record-breaking rainfall equivalent to nearly the total of six months of average precipitation. The Tunisian Federation of Insurance Companies (FTUSA) has reported that insurers received 1,700 claims. Following this incident, FTUSA reiterated the call to impose compulsory Nat CAT insurance scheme.
In a conference addressing Nat CATs held in Tunis last year, Tunis Re president and CEO Lamia Ben Mahmoud estimated the losses caused by the 2018 floods to exceed $40m. She also said Nat CATs in the country, especially floods, have caused damages of TND2.1bn over the past three decades.
Setting up a national scheme to protect against Nat CATs has become a necessity especially with climate change in recent years, said Mr Gharbi. Therefore, a joint technical team comprising members from the CGA, FTUSA and Tunis Re, has been formed to look into the possible options to establish a national insurance system against Nat CAT threats. The team will set a general framework for a work plan to prepare a preliminary legal perception for a national scheme for compulsory Nat CAT insurance programme. “In principle, such a scheme would start with direct material losses that could cause damages to housing buildings and various economic activities.”
Takaful expanding
On the takaful front, Tunisia’s three operators generated contributions of TND86m in 2017, thereby controlling 4.1% market share against 3.8% in the past year. Motor is the leading line for takaful operators as it accounts for over 52% of gross contributions, followed by family takaful with 19.3%, fire and miscellaneous risks with 14.8% and group medical with 9%.
Takaful remains a nascent sector as the first takaful operator, Zitouna, was launched in 2012 and the other two, El Amana and At-Takfulia started operations around five years ago. This could explain the heavy concentration of motor contributions in the portfolios of these operators.
Last year, an interesting development took place in the takaful sector as the Tunisian subsidiary of Qatar’s Majda Group acquired the state’s stake of 70% of Zitouna Takaful Co and 67% of Zitouna Bank for a total of TND370m. This is a positive development for the takaful sector and insurance industry because it is an indication that the market remains attractive to new capital from abroad.
The other two operators’ majority shares are owned by financial institutions, mainly by Tunisian insurers and regional finance houses.
Looking ahead with optimism
The double-digit growth achieved in the past two years is expected to continue this year, according to the CGA. Mr Gharbi believes the market will cross the TND2,160m mark in 2019, registering a growth rate of around 11.5%. He also predicts that life will witness 16% growth rate to exceed TND600m in premium income and raise its market share to 23% of the overall market GWP. The non-life segment would also see a 10.7% growth rate reaching TND2,009m in 2019, controlling around 77% of the market premiums.
Though challenges exist in Tunisia, there is also much room for the sector to grow. M