GWP continues to see a slower growth pace but the market forces, including the regulator and federation, are on track to equipping the sector with the necessary tools to build a solid industry for a better future.
The Tunisian economy has been witnessing difficulties over the past five years, with growth slowing down markedly to 0.8% in 2015, compared to 2.3% in both 2013 and 2014. A World Bank report, however, suggests that 2016 will show some moderate improvement with the economy expanding by 1% and 1.4% in the first and second quarters of the year, respectively.
The lacklustre economic growth has affected the growth rates of the insurance market, noted Mr Hafedh El Garbi, Chairman of the Comité Général des Assurances (CGA), Tunisia’s insurance regulatory body.
In 2015, the market’s GWP reached TND1.68 billion (US$726 million), around 8% increase over the past year, but down from the 10% growth rate achieved over the last few years. In the first half of 2016, the premium income of the market reached TND1.02 billion, an increase of 8.6% over the same period of the previous year. Mr Al Garabi expects achieving this growth rate for the rest of the year but foresees better prospects in the coming year.
“The same level of growth is expected in 2016 but 2017 should see notable development on the back of the launch of Tunisia’s five-year development plan, from one side, and implementing the Contra Programme by the CGA – a programme which would boost growth in the coming period.”
The Contra Programme is an initiative which proposes expanding the range of compulsory insurance coverage in the sector, while carrying out structural reforms to develop the insurers’ level of services, especially in claims handling and compensation, strengthening players’ financial capacities, and enhancing their profitability.
On another positive note, profitability of the sector in 2015 has seen notable increase of 94% compared to an average of 10% between 2011 and 2015, pointed out Mr El Garbi.
According to Mr Kamel Chibani, Executive Director of the Tunisian Federation of Insurance Companies (FTUSA), the growth and improvement in performance in the past three years is a promising sign, “but it remains well below the actual market potential and considering the role that insurance should play in a developing economy; an economy that more than ever needs stable resources to finance its recovery.”
He cited the performance of insurance sectors within the Mediterranean region, where the penetration rate stands at 4-5%. “Hence the progress of the Tunisian insurance sector remains far from its actual capabilities.”
Distribution and niche markets
For the first six months of 2016, life business also grew at a slower pace of around 10% compared to the almost 24% in the same period of the previous year, noted Mr El Garbi. “This has affected the share of the life business in the overall market’s GWP as it stood at 16% compared to 18% by the end of 2015.”
Distribution and the use of bancassurance have proven vital in expanding life businesses in the past few years. Attijari Assurances, an offshoot bancassurace operation of the Moroccan Wafa Assurances, was established in late 2012, and today controls the largest share of life premiums at TND47.6 million, or 16% of the market. The company has seen one of the largest growth rates as well, over 22.5%.
As 0.6% of the national GDP has been transferred to the state pension funds to cover its liquidity needs, according to the World Bank, insurers have a window of opportunity to step in and help fill the gap. There has been a big debate on the future of the state pension funds with the mounting deficit caused by the generous packages which are no longer suitable with today’s unemployment rates and changing demographics.
Takaful finding it tough
Meanwhile, takaful as a market niche has been growing rapidly in Tunisia, though to many observers it has lacked momentum, attributed to the fact that operators launched their businesses during a tough period following the 2011 revolution which was followed by a period of recession. The market includes three takaful operators: Zitouna, El-Amana and At-Takafulia.
In terms of top line, operators’ consolidated contributions reached TND49 million in 2015, up by almost 69% from the preceding year. Takaful contributions have accounted for around 3% of the market’s overall premium volume, an increase from 2% in 2014.
Fraud a major issue
Non-life business accounts for around 84% of market premiums with motor controlling the lion’s share of around 46%, followed by medical at 14%.
A study by the CGA and the World Bank last year found that around TND150 million, or 10% of the market GWP, is the size of fraud in the insurance sector, making it one of the biggest challenges insurers face.
Mr Said Radouche, Director of Marketing at Tunis Reinsurance Co (Tunis Re) noted that only 25% of these frauds are identified. He said that though it is globally accepted for 10-15% of non-life insurance claims to have an element of fraud, insurers can reduce the percentage of these scams to 3-5%.
He suggested forging a comprehensive market-wide plan to reduce the volume of fraud which includes insurers setting up a specialised fraud combating body and strengthening the regulations taken against fraudsters. On the company level, Mr Radouche urged underwriters to show vigilance and for companies to adopt more rigorous claims management strategies.
Amongst the measures the sector is taking to curb fraud is the plan to establish a databank for the market’s operations, particularly for motor business. The aim is also to improve the underwriting performance.
In anticipation of the intended liberalisation of motor tariff, there is a project to analyse motor business in a more scientific manner, said Mr Chibani.
“We have assigned a specialised company to form a databank for premiums and losses in order to come out with results regarding the bodily and material damages. It is alarming that material damages have recently increased to form 50% of overall losses in motor. The increase in spare parts and inflation played a major role, and prices therefore need to be revised.”
Silver linings on the horizon
The socioeconomic conditions within Tunisia have not been very stable and the neighbouring environment, namely the ongoing unrest in Libya has negatively impacted the country’s overall social and business environment. This has been taking place for a while now and Tunisia has paid a hefty price for this.
Yet, and with Tunisians creating a unity government to face the country’s pressing socio-economic and security challenges, there are great hopes for an improvement in the overall situation. Industry’s stakeholders as well are adamant about improving the arena to create a market aligned with international standards.
The government, on its side, is also showing greater understanding with regards to the sector’s demands. The Finance Ministry has announced exploring the feasibility of liberalising motor insurance. Additionally, the sector has forged a plan to increase motor TPA rates gradually until 2020 – starting by a 10% increase at the beginning of this year. All this bodes well for the industry’s future.