Taking the long view

Regulatory projects and plans of Lebanon’s Insurance Control Commission

The task of improving the Lebanese insurance sector through regulatory instruments, financial supervision and increasing governance has been pursued by the Insurance Control Commission (ICC) at the Ministry of Economy and Trade (MoET) for the past 15 years, with growing vigor and ever-increasing activity. To obtain an update on the ICC’s views and projects, Executive conferred with Nadine Habbal, the acting ICC commissioner. (Due to special circumstances, this interview was conducted via email).

E   Can you update our readers on the rolling out of third-party liability coverage against material damages in motor insurance? Has a standard contract template for coverage of material damages and bodily injury under one policy been approved?

The ICC is launching a project [this month] to organize a framework for [Motor Third-Party Liability Insurance], including bodily injury and material damage coverage. The project will be conducted with the support of a team of experts from the World Bank who will commence their endeavours by meeting a number of key stakeholders in the market. Over the course of this project, the ICC will consider a number of options related to the possible organization of this [insurance]. Major considerations will be the analysis of definitions and limitations of various coverage, the exclusions, claims management and recovery processes, and the implementation of a centralized risk database to enhance the underwriting capabilities of insurance companies. In this initiative, the ICC will build on the experience it gained regarding market practices from its recent on-site visits with insurance companies and brokers.

E   How about the design of a standard policy for medical insurance, with mandated minimum prices and minimum benefits?

The ICC is continuing its investigation into market and international practices with regards to medical insurance, and will consider action in due course. In this respect, the ICC has dual objectives in mind; while it intends to shield policyholders from potentially harmful practices, it is also seriously considering ways to help insurance companies combat the unfair and illegal competition coming from cooperative funds who are not allowed to market medical insurance products to the public. A recent warning was sent to these funds, the impact of which is expected to unfold in the coming period.

E   Are there new developments from a regulatory perspective in relation to insurance pools for earthquake risk, oil and gas risks, or any other pools?

The ICC is in the process of updating its analysis on the risk of earthquakes in Lebanon. The analysis focuses primarily on how a major earthquake could impact the financial condition of insurance companies operating in the sector. Along the same lines, the risk management practices implemented to mitigate this risk are [being] scrutinized. The analysis has another tier covering uninsured households; this is an area where major losses can be incurred without any existing hedge.

The analysis focuses primarily on how a major earthquake could impact the financial condition of the insurance companies operating in the sector

E   In their latest Financial Sector Assessment Program (FSAP, released this January), the World Bank and International Monetary Fund mentioned consolidation as a measure that could help create larger pools of resources in the Lebanese insurance sector and attract international groups. What is the ICC’s response to this assessment and to industry requests for central bank support for insurance M&As through soft loans and other incentives? Do you regard the recently approved acquisition of Lebanese insurer Al Ittihad al Watani by NASCO as a positive sign for the industry’s desire to consolidate?

In order to enhance the utilization of capital and the quality of the services rendered to policyholders, and to reduce the destructive competition on prices, the ICC is working on incentives to encourage companies to merge in a healthy context. Soft loans sponsored by the central bank would be an ideal scenario, provided the money is invested to build capacity in needed areas such as risk management, pricing, and governance. The acquisition of Al-Ittihad-Al-Watani by NASCO Holding is certainly a step in the right direction. A number of companies in the market may not be sustainable in the long run with the present setup; they must realize it, and seek alternatives to ensure they will remain in business in the coming years.

E   The FSAP opined that the insurance sector faces “structural challenges” to its development and voiced several recommendations. The assessment called modernization of the insurance law a “precondition for strengthening the ICC’s effectiveness.” The FSAP also proposed replacement of the National Insurance Board with a consultative process and effectively suggested legal changes to secure operational independence for the ICC and update the scope of its activities. Do you agree with these perspectives and proposals?

The facts speak for themselves. In the last 18 months, the ICC introduced the first controls and financial returns on brokers, conducted on-site inspections at car registration sites and financial services institutions across Lebanon, took action against unlicensed entities selling insurance products, started a process to review insurance products in the market, opened communication channels with the Association of Insurance Companies of Lebanon (ACAL) and Lebanese Insurance Brokers Syndicate (LIBS) and actively involved them in its process to design regulatory reforms, and much more.

Notwithstanding legal modernization, the regulator needs to assert its role with tangible and useful action; the fact is that the strongest legislation would remain useless if it were not translated into action that left a positive impact on the sector. On the other hand, no one would oppose a regulator determined to fulfill its mission and serve the best interests of policyholders and shareholders, even if its actions were not explicitly stipulated in the law. Replacing the National Insurance Board with a consultative process is a possible solution that mitigates the risk of political deadlock, but it is not the only one.

Corporate governance remains a major concern for the ICC, and a challenging area to address given the historical context, as a large number of companies are family-owned

E   What are the ICC’s plans in relation to imposing corporate governance regulations on insurance providers, and what legal methodology do you envision for the implementation or enforcement of governance mandates on Lebanese insurance providers?

Corporate governance remains a major concern for the ICC, and a challenging area to address given the historical context, as a large number of companies are family-owned. The ICC is addressing this issue using a risk-based approach on a case-by-case basis,  and the sector is cooperating.

It should be stated that companies should not sit back and wait for the regulator to give them instructions on how they should best conduct their business. Corporate governance is not a matter of supervision but a fundamental requirement for the long-term sustainability of any business, let alone insurance. It should be stated that a number of players in the market have implemented advanced governance and extracted significant advantages from it in terms of performance and general business conduct.

E   You have revised the ICC’s logo and identity in 2016. What is your message with the new logo?

This is a step toward an ICC that will become an independent supervisory body with its own internal governance, in line with the international trend for insurance regulatory bodies. Lebanon has a long insurance history, and the potential to reach a stage where the sector plays a major role in the nation’s economy is large. The ICC’s aim is to be a primary actor in this transformation.

Thomas Schellen

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

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