AT A PREMIUM

Lebanon 2015 | FINANCE | REVIEW: INSURANCE

The Lebanese insurance sector is in the process of growth as favorable demographics gradually overcome staple obstacles to premium generation.

The saturated insurance market and its customers—among a population of just 4 million—benefit from energetic competition. The volume of smaller firms can be accounted for by the low minimum capital requirements that were a legacy of the insurance law of 1999. This has now changed and consolidation is on the cards.

As Muneer Mouasher, CEO and Board Member of Arabia Insurance Company explained to TBY, “It is not only about creating the need for clients, they need to believe in and trust the sector,” which is contingent upon, “…proper regulations and laws.” His view is shared by Fateh Bekdache, Vice Chairman and General Manager of AROPE Insurance SAL, whose firm is; “…waiting for the new insurance law to see the light because it is still held in Parliament […] At the moment, the Insurance Control Commission, as part of the Ministry of Economy and Trade is taking many steps in regulating the Insurance Sector and we have invited them to closely collaborate with all players in the market on how to proceed with these regulations.”

THE PREMIUMS OF INNOVATION

While some insurers inevitably seek to underwrite on the basis of aggressive price offers, others take the longer view by extending customer service offerings and relying on digital platforms for brand promotion. Mobile penetration in Lebanon had reached 90% as of mid-2014. Indeed, standout products go far toward creating appeal for financial products, not least insurance. By way of an example, AROPE Insurance SAL recently launched its AROPE Signature Credit Card. And as Fateh Bekdache Vice Chairman and General Manager stated; “Thanks to this Project, AROPE has been nominated for two awards in 2015: Most Innovative Insurer by the MENA Insurance Review and the Innovation Award by Continuity Insurance & Risks as part of the Commercial Insurance Awards.” This goes beyond visibility, expanding financial inclusion as; “…we designed AROPE Signature Credit Card to offer our Customers and Non-Customers as well, many built-in benefits, especially when used for payments at AROPE Insurance.”

SPREADING THE WORD

Lebanese citizens continue to seek insurance coverage, despite a less-than-stable political environment at home, and perhaps because of wider regional turmoil. In terms of penetration of the more than 75-year-old Lebanese sector, by 2013 the rate had reached 3.2% of GDP up from 2.6% a decade earlier. And yet for that year, Lebanon ranked 65th globally and 5th in the MENA region in terms of insurance penetration rate compared to respective previous ranks of 48th and 2nd in 2012.

Regarding insurance density the Lebanese sector seemed to be sustaining its expansion path albeit with less vigorous trajectory. Correspondingly, each resident almost spent $341 in 2013 compared to $302 in 2012. The breakdown showed that 68% of that payment was destined for the non-life sector. Meanwhile, Lebanon's insurance density ranked 50th globally and captured the 5th place among the MENA countries for that year.

On a growth incline in 2014, total insurance premiums (life and non-life) rose by 4.5% YoY to $1.48 billion, almost threefold 2003's level of $520 million. Meanwhile, total indemnities climbed 3.3% YoY to $754.4 million, and net investment income was virtually unchanged at $125.5 million in 2014.

MITIGATING CULTURAL TRAITS

As Karim Nasrallah, General Manager of Lebanese Credit Insurer (LCI) points out; “LCI is the first private independent trade credit insurance firm in the Middle East, and the only specialized company in its field in Lebanon.” A partner of Atradius, an international giant in credit insurance; “…Our experience extends into numerous realms, however, our main focus is to insure the account receivables of firms, via our product TRADE PROTECT™. “Culturally…” Nasrallah reveals; “…very few companies pay on time, and there is a discrepancy between contractual payment terms and actual payment terms. However, this is not always a negative issue, and not all delays are bad debts. In the case of Lebanon, we have a unique experience in ensuring receivables, and from our standpoint, I would say that the risk of bad debt in Lebanon is manageable.”

SOME NUMBERS

According to Blominvest Bank research fierce competition prevailed in 2014, as many of the more than 50 companies opted for aggressive pricing policy. Other companies took a longer-term stance by selling on quality of customer service, through such devices as loyalty schemes.

Low barriers to entry and consequent overcrowding have dented the long-term prospects of the Lebanese insurance industry. Meanwhile, work continues to ensure that structural shortfalls that have frustrated underwriters snapping pencils are addressed for sustainable long-term health. Competition among fewer players once the expected wave of M&A activity occurs, widening the field for the remaining players will make for a more robust sector. Recently, the National Bureau for Compulsory Insurance (NBCI) has been working with the World Bank on establishing optimal policy pricing, coverage, and conditions for a surer-footed sector.

LIFE

According to Swiss Re data, non-life insurance accounts for over 80% of total insurance premiums written in the Middle East and Pakistan. In Lebanon, the top three insurance companies in terms of the life insurance services branch for 2014 were respectively METLIFE on $78.35 million, BANCASSURANCE on $60.56 million and ALLIANZ SNA on $58.15 million. Those three players grasped 44.4% of total life premiums in 2014 with BANCASSURANCE revealing the biggest yearly increase among them at 11.8%. Life insurance has been on the incline, while remaining overshadowed by non-life business. As of 2013 non-life insurance penetration, at 2.2%, was more than double that of the life segment. A year later and life insurance premiums had appreciated 6% to $433.4 million, while non-life premiums rose 4% YoY to $1.1 billion (70.7% of the total). According to Association of Insurance Companies in Lebanon (ACAL) data total premiums for life insurance rose by almost 6% YoY to $443.7 million as at December 2014. And by 1Q15 the life branch had seen a further 5% YtD growth, while non-life premiums had gained 7%. Claims growth for the quarter was at 21% for medical, but down 30% for life the branch.

NON-LIFE

For 2014 the sector registered 4% annual growth in the volume of non-life insurance premiums. And at $1.05 billion, premiums for the first time surpassed the $1.00 billion mark. Yet 2014's growth rate was far short of 2010's 12.3% performance. By value in non-life insurance premium generation, the top three companies were MEDGULF on $114.44 million, BANKERS on $106.59 million and AXA ME on $97.92 on million, while the top 10 firms claimed around 67% of total market value. The year's best performers YoY were LIBERTY up 43.2%, ALIG up 26.1% and CUMBERLAND up 25.2% YoY.

BANCASSURANCE

In Lebanon, local banks own many of the larger insurers, allowing them to exploit the bancassurance channel. Pierre Talhami, General Manager of Beirut Life, expressed the insurer's relationship with sister company Beirut Bank thus; “For us, Bank of Beirut comprises a captive client and its customers are our largest target market [where] physical locations and branches are our best channels of distribution [and where] insurance entities substantially benefit from branches that are supplementary Points of Sale (POS) widening geographic sales scope.”