Orange scheme crashes

It ain’t broken, but the economy underlying one of the Lebanese motor insurance industry’s specialities has vanished. While the Orange Card system for cross-border liability insurance protection of Arab motorists is functionally fine, commercially speaking, Lebanese administrators tell Executive that business has fallen precipitously – premiums have roughly halved and sales are almost non-existent.

Data from the Association des Compagnies d’Assurances (ACAL), which administers the Orange Card system on the Lebanese end, reveal a massive drop in premiums between the first and second half of last year. Between July and December 2011, premiums slowed to $889,000, down from $1.53 million in the first half of 2011. In the first half of 2012, insurance premiums issued in Lebanon under the Orange Card system amounted to merely $947,000, down almost half when compared with $1.85 million in the first six months in 2010.

In a way this is not surprising but more a clarification of reality. The Orange Card is a short-term liability policy that all Lebanese private and commercial vehicles need to have in order to travel from here to Syria, Jordan, Iraq, and other Arab countries. The slowdown in premiums reflects in frightening crispness how travel between Lebanon and other Arab countries has been impacted by the situation in Syria. 

“If you want to travel through two or three Arab countries, you buy a small booklet where the pages are stamped in accordance with which countries you pass through. If you go from Lebanon, you buy from Lebanon a stamp for Syria and Jordan. If you travel from Qatar, you buy it there,” explains Fateh Bekdache, the head of Lebanon’s National Bureau for Compulsory Motor Insurance (and general manager of insurance company Arope).

If an insured vehicle is involved in a claims case in an Arab country, either the country’s national insurance association or a designated insurance company handles the settlement. The involved parties then balance the claims accounts between each other, Bekdache adds.

Stalled sales

In 2012, sales of Orange Card booklets to Lebanese insurance companies amounted to a paltry 2,151 cards in the first six months of the year; in April and May not a single card was sold. Given that 40 to 60 percent of cards sold to insurance companies lead to issuance of a cross-border policy, the number of issued policies hardly exceeded 1,000 in the first half of this year, according to Jamil Harb, secretary general of ACAL.

Before the unrest in Syria started unfolding last year, sales of Orange Cards were in the tens of thousands. In 2010, sales reached 60,750 cards in the full year and insurers reported issuance of some 30,000 policies.

The much larger drop in the number of cards sold, relative to the contraction in premiums from the issued policies, suggests that cross-border travel of passenger cars and private motorists has dwindled to the absolute essential.

Under the Orange Card fee structure, private motorists can purchase cards with durations from one month to one year, while commercial vehicles – taxis, buses, and trucks — can purchase cards lasting from three months to one year. Commercial vehicles not only pay two to three times higher premium rates than private vehicles, they will also tend to be active year-round and avail themselves of the discounts for longer lasting policies. The discounts offered for the longer-duration cards are significant, a taxi operator will have to pay $40 per month on a three-month validity but only $23.30 per month when buying for the full year. Similar discounts apply to buses and trucks.

The Orange Card scheme, which is under the authority of the Cairo-based General Arab Insurance Federation, doesn’t publish system-wide performance figures but the Lebanese data shows that people here have stopped relying on road travel for their summer vacations or shopping trips across the border.

For ACAL it means that the revenues from card sales, which are its main source of income, are so low that the association is for the first time in a situation where it is not breaking even. “We have to come up with new ways to finance the work of ACAL,” says Harb.

For the national economy, the numbers scream of the suffering tourism and trade activities between Lebanon and Arab countries.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.