News Middle East14 Nov 2019

Egypt:Efforts afoot to plug the protection gap

| 14 Nov 2019

Bridging the protection gap is gaining more importance and insurers are cooperating with regulators to find the best means to address this issue, said speakers at the 2nd Sharm El-Sheikh Insurance Rendezvous in Egypt.

The protection gap is one of the most pressing issues facing societies, as it leads to a severe lack of societal resilience in many developing and emerging countries, pointed out Mr Alaa El-Zoheiry, chairman of the Insurance Federation of Egypt (IFE), opening the 2nd Sharm Rendezvous in Egypt earlier this week. “The widening protection gap is a global issue that cannot be solved overnight or by one individual company or group,” he said.

Citing Swiss Re’s sigma report, he noted that there are three main areas of risk for households: natural catastrophes, mortality exposure and healthcare spending. There is a record-high $1.2tn composite protection gap for the three areas. “It is timely to discuss this escalating problem, which is one of the main major challenges facing our insurance industry.”

Mr Basel El-Heni, chairman and managing director of state owned Misr Insurance Holding Co, said that the government in Egypt pays - serious attention to the insurance sector and this has been growing recently.

Delivering a speech on behalf of Minister of Public Business Sector Hisham Tawfik, Mr El-Heni noted that the state of the insurance market in Egypt does not match expectations, especially with the penetration rate standing at 0.8%, which is a weak percentage when compared even with neighbouring markets, such as Saudi Arabia where the penetration rate is1.5%. “The gap is huge…. We need to find a way to increase this rate.”

Dr Mohamed Omran, chairman of the Financial Regulatory Authority (FRA), said that despite the weak penetration rate, there has been progress in the Egyptian market, thanks to the introduction of a number of regulations. One of the regulatory initiatives is obliging microinsurance borrowers to insure their loans, which has created a new market segment with around 3m clients, he said.

Setting up an insurance fund for school and tertiary students is another initiative that would open the door for insurers in the future to offer coverage for almost 23m people.

He added that there are great expectations for growth in the insurance sector especially with the healthy economic indicators which have been registered in the past couple of years. “However, the big challenge is in external shocks. Therefore, there is a dire need to adopt hedging strategies to alleviate the effects of potential crises. The government has taken steps to strengthen the safety network (but) companies need to take action.”

Dr Mohamed Maait, Minister of Finance in Egypt noted that with a 6.2% economic growth rate targeted this year, the future augurs well for the insurance industry. He added that Egypt's new tax law is going to be restructured and there is an opportunity to look into improving it to help the sector grow, pointing out that his ministry will push in that direction. “The government is willing to offer huge support to the sector and is open to new suggestions,” he said.

Different investment strategies needed

Dr Omran noted that private pension funds and insurance companies’ savings are estimated to be around EGP2tn ($123.9bn) but most of the funds are invested in almost risk free investment avenues. He called for forging more aggressive investment strategies to mobilise long-term investments. “Investment policies in private funds and insurance companies should be reviewed. A minimum ratio should be set for investing in long-term investments.”

The importance of the insurance sector to the government goes beyond the protection which the insurance industry provides, said Mr El-Heni. He said that the funds accumulated by insurers and private funds offer the government a great opportunity to expand investments in the country.

New insurance law to see the light of day

Dr Omran said that the new insurance law has been finalised and is set to be implemented in 2020 after going through 14 months of deliberations with all stakeholders. The new law consists of 221 articles, some of which have been brought from the civil law in order to create an all-inclusive insurance law. “It is the first time that the insurance law in Egypt will cover brokers, private pension funds, TPAs and others which used to operate beyond the control of the FRA.”

He noted that the law will allow the FRA to introduce new compulsory products after getting approval from the Cabinet. “Currently there are 11 compulsory insurance products. Introducing new products has been kept as a regulation and not a law item to give the FRA more freedom to act.”

Organised by the IFE with the theme “Profitability in insurance industry: mind the gap”, the three-day Sharm Rendezvous 2019, which ended yesterday, attracted more than 800 participants from 30 countries, representing 250 domestic and international companies.

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