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Promising changes ahead

Source: Middle East Insurance Review | Jun 2018

The sluggish economy in Tunisia has hampered the growth of the insurance sector, but a new insurance law in the pipeline is expected to result in bigger and stronger insurers, improved corporate governance and a better business environment overall.  
By Osama Noor
Tunisia’s economic growth, following the revolution, has been lacklustre, hindering tangible developments in the country and leading to several socio-economic challenges. Its GDP growth reached 2% last year, up from the 1.2% in 2015 and 2016.
   Other economic indicators are not encouraging. Tunisia’s trade deficit has risen to around 70% while its currency lost almost 30% of its value in less than two years. “Such indicators draw a grim picture of the country’s economic condition. The growth achieved in the past year does not support the creation of employment opportunities or enhancement of the citizens’ purchasing power,” said Mr Habib Ben Hassine, CEO of Maghrebia Assurance Group.
   Nevertheless, for the insurance sector, 2017 was satisfactory as GWP saw a double-digit growth rate. Preliminary results issued by the regulator showed that the market grew by around 12% with GWP reaching TND2.1bn ($835m) against TND1.86bn in 2016 (Table 1). The profitability of the sector is expected to have improved as well.
Performance by line of business 2014-2017
Motor supporting market growth
The growth in GWP is mainly attributed to the hike in the prices of new vehicles caused by the devaluation of the Tunisian dinar. This was reflected in the motor premiums which account for the lion’s share of 45% of the market business.
   In 2017, motor insurance grew by 12.7% to TND941m from TND834m in the previous year. Most of the growth was driven by the complementary branch of the business. “The notable increase in motor prices had amplified the motor complementary premiums, and this was reflected on the overall market growth and profitability,” said Mr Ben Hassine. He observed that complementary business is usually profitable unlike motor third party liability (MTPL) where loss ratio can reach 200%.
   Preliminary results show that motor claims paid have dropped by 5.7% to TND535m in 2017, the lowest in the past four years – an encouraging indicator for the profitability of this line and the sector as a whole. Motor claims paid accounted for around 55% of total gross claims paid.
   “As improvement in market GWP came mainly from motor business, the insurance sector has not seen any real improvement in terms of business expansion. There were no new projects launched last year, so it was challenging to achieve real growth,” said Mr Ben Hassine. This is evident in the 3.3% growth rate in the overall number of policies issued, the lowest since 2014.
Competition heats up 
Fire insurance controls 15% of the market operations, making it the third-largest line of business. Price competition is very intense in the fire branch despite some major claims in 2017, said Mr Ben Hassine.
   Insurers used to have an agreement which states that for properties with sum assured exceeding TND4m, companies make a higher bid than the rate offered by the company which is already insuring the property. This agreement was made under the umbrella of the Tunisian Federation of Insurance Companies (FTUSA) to control prices, but was terminated in 2017 – which had a negative effect on fire prices – along with another similar agreement concerning medical insurance. 
Life boosted by bancassurance
Life insurance has been the fastest-growing line with 15.5% growth rate in 2017 as its premiums reached TND435m, accounting for around 21% of the market GWP and retaining its position as the second-largest line of business after motor. This line has witnessed notable development thanks to the growing interest from banks. “There has been enormous cooperation between insurance companies and their banking parent entities,” said Mr Ben Hassine. “In the past two years, the cooperation has developed to an extent where banks are improving their marketing strategies and creating new products, especially in investment contracts.”
   There are at least seven insurers in Tunisia that are affiliated with banks. Their GWP growth rates in 2016, particularly for life business, have been much higher than the market average. One such company is Attijari Assurance, an offshoot of a Moroccan insurer which is linked to a banking operation. Established in 2013, the company managed to become one of the leading life insurers in Tunisia very quickly in terms of size of income. It had control over 14% of the market life premiums or around TND53m in 2016.
Key indicators 2014-2017
Challenges for growth 
The biggest challenge the sector faces in growing its size is the deterioration of purchasing power as the inflation rate has increased to an unprecedented 7.8%, said Mrs Dalila Bader, CEO of Salim Assurance. As a consequence, “insurance is at the bottom of the citizens’ priority list”. 
   Imposing new compulsory lines is not necessarily the best way to overcome this challenge and expand insurers’ operations, she added. “What matters most is finding the means to enforce the implementation of compulsory covers. For example, decennial liability insurance, which is compulsory for contractors, can be enforced by linking it with the licensing for building procedures.”
   Fraud is another big challenge facing insurers in Tunisia. A study conducted two years ago estimated the size of fraudulent claims, mostly concentrated in motor insurance, to be around TND150m annually, which is equivalent to about 10% of the market’s GWP. 
   In order to manage fraud, Tunisia’s regulator CGA is preparing to implement the points system so that it would reward record-free clients and blacklist those committing motor fraud. “We need data to achieve this project. Presently, CGA is in the process of assembling a big databank for the market. This should help companies write efficiently, as well as resolve the fraud issue,” said Mr Ben Hassine.
New law in the making 
Mr Ben Hassine, who is also the vice chairman of FTUSA, said there are ongoing discussions between the industry and regulator to revise the insurance law. 
   “There is a huge effort to improve corporate governance and best practices for companies by strengthening compliance procedures, improving risk management standards and adopting actuarial underwriting. All this will result in having stronger companies and a better business environment, as well as more professional board members,” he said.
   One change the new law is looking at is increasing the minimum capital requirements (currently at TND10m), which should lead to market consolidation. “It is time to create large entities capable of playing stronger roles in serving the economy and limit the price competition,” said Mr Ben Hassine.
   The market now has 21 direct insurers, more than it can accomodate, said Mr Mohamed Dkhili, president and CEO of Groupe des Assurances de Tunisie (GAT). The new law is expected to raise the capital requirement to TND50m, but he believes the figure should be increased to TND100m to ensure that the market has strong players capable of serving their clients efficiently while achieving profits.
   Market consolidation is an old issue which has not been resolved due to various reasons, said Mr Makrem Ben Sassi, CEO of Zitouna Takaful. “The market should not have more than 10 operators in order to create insurance heavyweights capable of expanding after building a solid foundation in the local market.” 
   As the future is in digitalisation, big players are more capable of investing in this field, said Mr Ben Hassine. “Small players cannot develop in this area. In the future, distribution channels are going to change due to the nature of targeted clients. Consumers will not buy in the same traditional way. Hence, there is a need to change the strategies.”
   As part of the solution for players to expand and ease the pressure from the market within the country, Mrs Souhaila Chabchoub, president of Cotunace Co, believes Tunisian insurers are qualified enough to expand to other countries. “In Africa, there are various opportunities. The CIMA Zone is demanding operators to increase their capital, and this could be a good chance for insurers to enter as strategic partners.” The CIMA Zone comprises 14 countries working under a homogenous regulatory framework. Only one Tunisian insurer, Comar Assurance, has branched out to the Ivory Coast in 2016.
The way ahead
Despite the gloomy economic outlook, the insurance sector has shown some encouraging results over the past couple of years. The impending implementation of the new insurance law is expected to make a big difference, pushing players to upgrade their financial standards to meet the new requirements. This major development could put an end to market fragmentation. Overall, in spite of the challenges, the Tunisian insurance industry continues to grow and outlook remains positive. M 
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