Calculated Risk

What needs to be done to enhance the regulatory environment in Lebanon?

The regulatory framework is obsolete and is not doing the industry or the economy any favors. The law was issued in the sixties. There was some adaptation throughout the years, but nothing much. However, what we have seen is that the regulator has tried to adapt and has tried to use whatever rules and whatever rights he has to enforce certain changes, certain requirements, to try to improve the market condition, financial stability and the financial condition of the insurance companies. This is very challenging. When the Syrian market was opened to the private sector, the average capitalization required for insurance companies was $17 million, compared to Lebanon’s current $2 million. Minimum capitalization in Saudi Arabia is in excess of $25 million, in the UAE minimum capitalization is also in excess of $20-22 million, and they aim to increase it. This small capital requirement in Lebanon is the tip of the iceberg. We have so many other requirements that are not adapted. For a Lebanese market that is $1.5 billion in terms of premium income, one of the highest expenditures per capita and one of the highest penetration ratios of the GDP, which is one of the highest in the region. The Lebanese market and Lebanese companies are more or less self-regulated and they are doing an extremely good job without proper regulation. To be so advanced in terms of marketing, distribution, sales, and product development while there are no proper rules and regulation is testament to the capability of the Lebanese insurance industry to be entrepreneurial, resilient, and strong.

Do you foresee any relevant changes in the regulatory framework in the coming months?

Unfortunately, the insurance industry hasn’t been on the agenda for any government in Lebanon in the last ten or 15 years. The insurance industry insures and provides risk management solutions, continuity, and peace of mind for investors and families. It also enhances risk assessment and risk treatment. When you look at the duration of the liabilities that insurance companies have, it can be multiple years and it can be very long term. Therefore, the insurance industry has the capability of investing on the long term. It is an important investment tool that even the banks do not have because the investments of banks are short term and the assets have to match the duration of the liabilities. The Lebanese economy is not using this because the laws are outdated.

What is the importance of networking events such as General Arab Insurance Federation (GAIF) conference for Chedid?

GAIF is a major event for our industry. It rotates, last year it was in Sharm el Sheik in Egypt, prior to that it was in Morocco. In 2016 it will take place in Lebanon. Last time it was in Lebanon was in 2004. The event gathers all the insurance companies from the MENA region. It is also an attractive venue for international players that want to understand the market, the region, the threats and opportunities. For us it is a major event because we see all of our clients in the space of four or five days. There are in excess of 400 insurance companies in the Middle East region. If each company sends two or three attendees, plus the international insurers, you will have a gathering of around 2,000 individuals. It is a very interesting event but at the same time very challenging from a logistics and networking point of view.