The Moroccan insurance industry is a good example for the region of how a market can be self-sufficient and yet perform outstandingly. However, there remains a massive untapped potential for players.
Morocco is not among the wealthy oil-producing nations, and the Kingdom has a big population to look after. Yet, the insurance industry has been able to score progress on all fronts. With GWP of MAD26 billion (US$3.2 billion) achieved in 2012, Morocco is the third-largest Arab insurance market, and the second biggest in Africa after South Africa.
The industry’s maturity is evident especially in its large life insurance market. The life and savings branch accounts for around one third of the market, with premiums reaching MAD8.8 billion in 2012. However, life insurance penetration stands only at 0.96%, although this is the highest in the MENA region.
The overall penetration rate in Morocco is around 3%, making it one of the highest in the region, but it is still very far from its potential, noted Mr Mehdi Tazi, Managing Director of CNIA Saada Assurance Co. “It is also low compared to developed countries. We are still catching up.”
But in general, the sector is performing well despite falling investment returns. “Morocco’s financial markets have fallen by almost 15% over the past two years. Because of this, players are going back to basics to increase their technical results and make up for the drop in investments.”
The dominance of banks
The Moroccan insurance market has been growing at reasonable rates, ranging between 6% and 7% per annum over the past decade, but life premiums have been increasing at a slower pace, noted Mr Bachir Baddou, Director General, Moroccan Federation of Insurance and Reinsurance Companies (FMSAR).
“This has been seen especially in the past two years, mainly because banks are increasingly focussed on rolling out investment rather than protection products. The life insurance business used to grow by 7-10% annually, but now it does not exceed 1-3%,” he noted, pointing out that the overall economic condition is also a major contributor for this drop, especially with Europe’s troubled economies.
Life policies, especially for individuals, are distributed mainly through banks, noted Mr Tazi. “The banking network is crucial. There are three major Moroccan banks active in the sector – AttijariWafa Bank, affiliated with Wafa Assurance; BMCE Bank affiliated with RMA Watanya Assurance; and Banque Populaire du Maroc, linked to MAMDA and MCMA Assurances. These three insurers have around 70% of the life market.”
However, since the life business is dominated by savings products, it is not really lucrative, he added. “It is also capital intensive. Although CNIA Saada constantly revises the situation, we do not have a strong appetite for the life business.”
Engaging non-banking intermediaries
Still, life insurance can grow even more, noted Mr Baddou. “But first, insurers need to encourage sales through non-banking intermediaries, namely, agents and brokers. Currently, banks control over 90% of life insurance sales because they have full data about individuals’ accounts, their savings and what products they need. Therefore, products such as education, pensions and retirement are very common and account for about 70% of the life business.”
Attempts to sell life insurance through non-banking networks have been slow, said Mr Tazi. “CNIA Saada is trying new channels, but it is not really working because people trust banks and tend to go through them when buying life insurance.”
However, distribution is changing in Morocco, with the number of non-banking intermediaries growing to over 1,700, from around 700 five years ago, said Mr Baddou. “This is going to develop the sector because intermediaries are increasing their presence beyond the country’s major cities – now you can find them in small cities or even villages.” Encouraging their growth is pivotal to the insurance sector’s growth, he added.
Call for more tax incentives
Another measure FMSAR is calling for to boost the life sector is improving tax exemptions for entrepreneurs and the self-employed, such as doctors and lawyers, said Mr Baddou. “They do not enjoy the same tax exemptions as company employees. They can deduct only up to 6% of their life premiums from their annual income, while company employees have unlimited tax exemption. We have called for the rate to be increased to 20%.”
Non-life is doing well
Motor, the market’s second-largest line with MAD8 billion in premiums in 2012, continues to be profitable although the frequency of claims is accelerating, said Mr Tazi. “The same is seen in the fire and construction businesses which have been profitable as well,” he added. Players have been writing these lines, bearing in mind that the quality of service is the main differentiator.
On the other hand, health insurance and Workers’ Compensation Policies (WCP) are seen as less profitable because of the severe competition and abuse.
CNIA Saada has reaped rewards from its heavy focus on non-life. Last year, it was the largest non-life insurer and the fourth in the market in terms of GWP. “In 2012, our premium income increased by 6%, the result of the over-8% growth in non-life, and a decline in life operations. We are growing faster than the market in non-life, and this is making up for our shortfall in life. But generally, our growth and profitability is higher than the market’s, and we are happy about this,” said Mr Tazi.
The Contract Programme, a five-year plan which introduces new third-party liability covers in various segments, has achieved some progress in certain areas but stagnated in others, noted Mr Baddou. “Recent political changes are delaying the process and causing some difficulties. However, we have succeeded in including two main insurance products among the compulsory covers: decennial liability and Contractors All Risks. We expect the bill to gain parliamentary approval in the beginning of 2014.”
Awaiting takaful
With parliament expected to approve the takaful law in 2014, some insurers are considering setting up takaful operations. “They are seriously interested but waiting for the new law to be issued,” said Mr Baddou.
He expects local operators to be more keen on takaful because of the protection provided by the government in the insurance sector. “This protection has strengthened the Moroccan insurance market. And the same goes for takaful, at least in the first stage.”
Takaful might not significantly add to the volume of business, especially since, at least in the first phase, it will be activated only in the life segment, which is already seeing slow growth, he added. “It has been agreed that family takaful will be introduced first because this is where religious barriers are believed to play a significant role.”
CNIA Saada is considering takaful, but “we are not quite confident that there will be a strong market for takaful, at least in Morocco,” said Mr Tazi, because of the high start-up costs. “Basically, it is another MAD50 million of investment – the capital requirement – which will force investors to think twice about investing in takaful. It is not like launching a new product.”
Expanding overseas
CNIA Saada’s parent, Morocco-based holding company Saham Finance, is present in 22 countries with a strong concentration in Africa, including Angola, Kenya and Niger, and is now eyeing Congo. This is in addition to its acquisition of leading Lebanese player, LIA Insurance in 2011. “All this expansion in less than four years has helped Saham Finance develop the business quite quickly. In 2013, the group closed almost $1 billion in total premiums, ranking as the largest player in Africa, excluding South Africa,” pointed out Mr Tazi.
At some point, the Moroccan market will be more open, but it is probably not going to be as big or profitable compared to other markets in Africa, he opined. “Sub-Saharan Africa might be a better choice for investors because in Morocco, the market is quite mature and competitive. It is growing, but not as fast as sub-Saharan Africa where the market is younger and has more opportunities. Nigeria, for example, has about 170 million people with greater potential.”
Morocco already includes prominent European players such as AXA, Groupe Societe Generale and Zurich, but it is unlikely that there will be new entrants – local or international – in the near future, said Mr Baddou. “Opening the market too widely will have a negative impact on the Moroccan players, as companies are still relatively small and need time to grow.”
Innovating for sustainability
Innovation is the core strategy for successful companies to distinguish their brand and win clients’ loyalty, said Mr Tazi. “This is especially for companies like us who do not have banking partners. We have been investing heavily in building our image and brand as an innovative, fast and responsive insurer, and this has been helping the sector as a whole because other players are following suit as well.”
Agreeing, Mr Baddou said innovation is the key to progress in Morocco and players understand this formula very well. “This is partly why the Moroccan insurance market is profitable – and we will work on keeping it so.”