News MiddleEast26 Jul 2017

Egypt:Potential beckons in takaful and health business

| 26 Jul 2017

Egypt, as a conservative Islamic society with a large rural population and minimal social security, provides excellent potential for takaful, says the international professional services company, EY, in a report entitled "'Insurance Opportunities in the Middle East".

While takaful remains a small category for both life and nonlife lines of business, it is showing promise and has gained notable market share in the last six years (from 0.3% in 2010 to 5.0% in 2015 for life insurance and from 4.9% in 2010 to 9.2% in 2015 for nonlife). This is supported by increasing awareness of Shariah-compliant policies among Egypt’s conservative rural population. Currently, there are eight takaful insurers and 23 conventional players.

Health is another potential opportunity for the Egyptian insurance sector, says the report. The government, though, has had little success in increasing private insurance company participation, because of the presence of key barriers such as the lack of a unified infrastructure and poor health care facilities. Most of the population is covered by social insurance administered by the Health Insurance Organisation and funded by salary contributions from employees and employers.

Government reforms to facilitate increased private insurer participation could significantly impact the size of the health insurance sector as seen in Saudi Arabia and more recently the UAE.

While most other insurance markets in the Middle East report health or motor lines are expanding at the fastest rate, Egypt has seen life insurance taking the lead instead. Growth in life insurance was bolstered by group life insurance (18% CAGR in 2010-15) and a lower level of social security than other oil-rich countries. Population growth, increasing consumer awareness, new investment products and the reintroduction of bancassurance as a distribution channel are driving organic growth.

Egypt's life market (45% share in total insurance premiums in 2015) is almost as large as the nonlife market (45% in 2015), while health and personal accident lines account for the remaining market. Within nonlife, motor is the largest line with property growing rapidly, primarily driven by the government’s investments in infrastructure and demand from the construction sector.

Public sector giant dominates

The Egyptian insurance market is heavily concentrated, with Misr Insurance (MIC) leading the nonlife segment (54% share in 2015). The remaining 18 nonlife insurers have a share of less than 6% each. The life segment, too, is concentrated, with the top four players accounting for 84% of the premiums. Misr Life Insurance, a sister company of MIC, leads with a 37% share, with the remaining 10 life insurers having a share of 4% or less.


Expense ratios have deteriorated in recent years because of sustained high inflation. Being relatively low on both maturity and scale, the sector has observed issues around operational efficiency. Adoption of technology is in the early stages, with most processes being handled manually. While key profitability measures have improved for both life and nonlife, there is still a long way to go.

Reinsurers have been hit hard by significant payouts related to security, terrorism and fire covers. While insurers have made good on their promises in the aftermath of the 2011 Egyptian Revolution, enhancing their image, profitability has been hampered.

Also weighing on profitability is the sharp deterioration of the Egyptian pound. As part of the agreement with IMF, Egypt last November removed its currency peg of US$1=EGP8.8, which resulted in a massive 51% devaluation of the Egyptian pound. This has made reinsurance premiums more expensive in local currency and led to rapid rise in inflation, thus impacting general and administration expenses.

The magnitude of insurance payouts, primarily in motor and health, has been increasing as the cost of imported goods — such as automobiles and automobile spare parts — and medical expenses have risen significantly despite limited increases in premium rates.

This environment necessitates leading insurers and foreign players to focus on areas traditionally neglected, including innovation, automation and efficiency, says the report.


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