Lebanon has struggled through a difficult political and security situation, but its insurance industry has demonstrated remarkable strength by delivering better-than-expected results with growth of close to 10%.
The Lebanese economy witnessed another year of challenges in 2013, characterised by slower economic growth, political instability and regional unrest. The cost of economic disruptions from the Syrian war has been particularly heavy, leaving growth projections almost flat in 2014.
In its latest edition of the World Economic Outlook report released in April, the IMF said GDP growth in Lebanon was 1% in 2013, the lowest among oil importers in the MENA region. In another report, the International Institute of Finance (IIF) estimated real GDP growth in 2013 at only 0.9% compared to 1.2% in 2012. Both institutions have forecast a mere growth of 1% for Lebanon this year.
Beating expectations
Despite the challenges, the insurance industry surprisingly posted a 9% growth in gross premiums to US$1.42 billion last year, much higher than the 4% growth in 2012, according to the latest data available from the Association of Insurance in Lebanon (ACAL).
Life premiums accounted for 29.2% of the market, while non-life premiums were led by medical, with a 29.0% share.
Motor had a 23.9% share, followed by fire (7.2%), workmen premiums (2.8%), and cargo (2.5%). Other lines of business, such as engineering, public liability and credit, contributed the remaining 5.4%. The fastest-growing segments were medical and fire insurance, both expanding at the rate of 12% compared to 2012.
Overall, the insurance sector’s contribution to GDP exceeded 3.5% in 2013. Mr Fateh Bekdache, AROPE Insurance’s Vice Chairman & General Manager, said: “These figures clearly show the Lebanese insurance companies’ immunity and adaptability to the current vulnerable economic situation in Lebanon. Given the circumstances, 2013 results [were] fairly good and better than expected.”
Positive trends
With a total insurance penetration rate of 2.85%, Lebanon ranked 48th globally and second in the MENA region in 2012, according to Swiss Re’s sigma report. The country’s insurance density reached $301.9 in 2012 from $289.8 in 2011, representing an improving consciousness of the need for insurance protection.
Thanks to the growing awareness of the importance of savings and protection, life insurance has grown to become the leading line of business in Lebanon, growing by 10% on a yearly basis to $414.9 million in 2013, despite there being no legal requirement for life insurance.
Mr Jean-Claude Noujaim, General Manager at MetLife Alico Lebanon, said: “We see a high appetite among individuals for life insurance, however, their hesitation making the purchase decision is largely due to personal financial burdens and responsibilities. Having said that, the life insurance market still has got a high potential for growth, and hence there is the need to reach people and communities in various segments to raise the level of awareness.”
Mr Bekdache noted that overall, people are becoming more aware of the necessity of personal lines, mainly life insurance and investment plans, especially in countries like Lebanon which lack proper national retirement and educational plans, “and where the National Social Security Fund (NSSF) does not provide health coverage for citizens after their retirement”.
“All things considered, I believe that we will continue seeing a growth in the life insurance sector in the coming years, particularly with the growing middle class and young population in the country,” said Mr Noujaim.
Impact of the Syrian crisis
With the slew of terrorist attacks ensuing from the Syrian civil war, political violence insurance is becoming increasingly sought after, as hotels, banks, factories and malls seek to protect their assets in the country. International reinsurers are becoming increasingly cautious in underwriting risks, resulting in political violence insurance becoming less accessible and affordable.
Besides big corporations, some individuals are also seeking insurance policies covering terrorist attacks, as regular life policies in Lebanon do not cover death or injury resulting from bombing or war. As a result, the demand for passive war and terrorism insurance has reportedly gone up by at least 30%.
The tense political and security climate has negatively affected the overall economic situation, said Libano-Suisse General Manager Lucien Letayf Jr. “The insurance sector mirrors the real image of the economic activity, therefore a slow growth was achieved in 2013 while we did not witness regress in our business. In general, the affected areas were contractors insurance, marine insurance and motor, due to the decrease in car loans.”
Mr Elie Nasnas, General Manager of AXA Middle East, said that for the marine insurance sector, growth has contracted due to the decrease in the export and import activities. “AXA Middle East was mostly affected in its marine insurance line. We hope that the formation of the new Lebanese government will stimulate the economy and therefore positively impact the insurance sector.”
Mr Noujaim said the political and security environment is still in a transition phase, and this has affected consumer spending. He added: “This has mostly impacted North Lebanon due to the constant political instability. This slowdown has resulted in multiplying all industry players’ efforts, including our own, to sustain the business and keep our leadership positions.”
Dealing with competition
There is also keen competition for market share. Currently, there are 52 international and local insurers operating in the country with minimum paid-up capital at only $1.5 million. Although the number of insurers has consolidated marginally in recent years, falling from 61 in 2001, the market is still overcrowded by a large number of small and undercapitalised players.
This has been detrimental to pricing levels, technical profitability and overall development of the sector, as insurers concentrate on growing in an organic and careful manner rather than seek significant investment in innovation that might not succeed.
Commenting on the issue, Mr Letayf Jr said: “It would be necessary to reduce the number of insurance companies by merging the smallest ones to form big insurance groups [like what banks have done] having high financial and technical capabilities, and able to offer modern insurance products compatible with the needs of local insurance markets”.
Given the pricing war, companies relying on customer service have the best chances for survival, said Mr Bekdache, adding that one of AROPE’s main challenges is to continuously innovate and enhance its products and services.
With profitable growth being a key challenge, Mr Nasnas called on the regulator to “work on implementing professional behaviour in the sector and fighting against illegal and unfair competition”.
In the same vein, Mr Edward Traboulsi, General Manager of Assurex Insurance and Reinsurance, said he hopes to see more discipline in the market practices and fair competition in pricing from the players in Lebanon in order to have a healthier and more sustainable sector.
Overdue law
Underlying the dire need for consolidation is the absence of long-overdue reforms and an unclear regulatory framework with several laws being held back. Mr Bekdache said: “Our regulatory environment requires improvement since it doesn’t properly regulate all industry activities and products, especially considering that the last amendment was published in 1999. Because of the political environment and instability, there is a slowdown in passing new laws.”
Mr Letayf Jr said that with the existence of big insurance companies with high financial and human potential, it becomes crucial for the Lebanese insurance sector to be governed by a new insurance law. He added that ACAL should seek the withdrawal of the draft law in order to re-read it and revise it if necessary, since the draft was submitted years ago and has been “overtaken by time”.
Alluding to the same reason, Mr Bekdache said the regulators need to redraft and modernise old laws and their implementation mechanisms to cope with the current needs of the market. For example, there should be a new law stating new compulsory insurance on material damage in order to avoid the pitfalls of compulsory insurance for bodily injuries.
“Regulators and companies can also work together on drafting new laws making more insurance covers mandatory, like decennial covers for new construction projects, as well as medical insurance, as the National Social Security Fund doesn’t completely fulfil its role,” he pointed out.
New government
On 15 February this year, Lebanon announced a new government, ending a nearly 11-month political deadlock that left the government unable to properly address its growing economic and security issues due to the spillover violence from neighbouring Syria.
The development is seen as a positive step towards a relatively more stable political environment. “It will surely have a positive impact on the country in general as it will restore confidence of the Lebanese people and allow the government to perform its duties and make important decisions in relation to economic and security and various issues,” said Mr Letayf Jr, noting that another key turning point will be the presidential elections.
Echoing the same sentiments, Mr Traboulsi said the formation of the new government will have a positive impact on the economy in general and the insurance sector in particular. “It is very difficult for a country to operate properly if the executive organism is not fully operational and in control,” he said.
Mr Letayf Jr added: “We wish that the minister of economy and trade will accelerate the new insurance law project and take actions in relation to mandatory insurance. In fact, the global economic and security stability will allow us to grow the business and penetrate new Lebanese regions where we can promote our products.”
The task ahead
While insurance has so far proven to be a resilient sector in Lebanon, it needs economic and political certainty to thrive. For this to happen, there needs to be real change and meaningful reform, including major policy changes that could save Lebanon’s economy from collapse and facilitate sustainable growth in the long run.