The numbers for overall premiums growth, penetration and density in the Lebanese insurance market in 2017 may not bring huge surprises. In 2016 the sector delivered 3 percent nominal growth in gross premiums, from $1.52 billion in 2015 to $1.56 billion, according to the latest quarterly report of the Association of Insurance Companies of Lebanon (ACAL). The compounded annual growth rate (CAGR) of written gross premiums for the period 2009 – 2015 was 7.6 percent, according to the latest figures published by the Insurance Control Commission in its annual report for 2015.
The 7.6 percent CAGR of written gross premiums was eclipsed by the CAGR of claims at 15.6 percent, but in line with the 7.1 percent CAGR of the sector’s net income after tax. It also is notable that year-on-year growth for gross written premiums in 2015 was better than in 2014, at 7.8 percent versus 4.3 percent, but that the last three years have witnessed significantly lower annual growth rates than the years 2007-2011. Total premiums were $727.52 million in 2007, roughly half their level in 2015. Total net profit for the sector according to the ICC stood at $93,150 in 2015.
The overall underwriting activity of Lebanese insurers is segmented into three main business lines – life insurance, medical insurance and motor insurance. The percentage split has been grosso modo stable for years, with about 30 percent in life, 30 percent in medical, and 22 – 25 percent in motor insurance. The next business line by volume is fire insurance, which according to ACAL accounted for 6.9 percent of the total market in 2016.
All other non-life specialties contribute less than 3.5, and often less than 1 percent, to the total premiums pie – incluing coverage for workers’ compensation, engineering, contractors’ all risk, cargo, travel and transportation, public liability, and credit insurance, as well as policies against perils such as political risk, hostage and ransom, terrorism, riot and civil unrest, loss of a company’s key person, directors and officers liability, and so forth.
Policies and awareness of coverage for incidents that will define the corporate risk landscape and insurance contracts of future decades, like cyber insurance, seem to still linger beyond the horizon of most companies. It seems one can insure (almost) everything in Lebanon (ironically, the ICC lists no local companies as licensed for the agriculture branch, one of six licensing categories under the regulatory portfolio), but the demand here is focused on mandatory coverage, not on the risks that might have the greatest impact on an economic entity or the whole country.
The challenges in this situation, where insurance is understood as being vital for the Lebanese economy and society, while awareness of its importance is still focused on basic coverage, were highlighted in the International Monetary Fund’s (IMF) latest evaluation of insurance in context of the national financial sector. The evaluation was published earlier this year under the IMF’s Financial Stability Assessment Program (FSAP) and notes that the Lebanese insurance sector is confronted with “structural challenges” to its development.
The FSAP, research for which was completed last autumn, points to the obvious fact that the total assets in the insurance sector at $4.3 billion, or 8.6 percent of GDP, are “small compared to the banking sector,” (with $150 billion in deposits equaling 280 percent of GDP). It continues, “There might be scope for market expansion and deepening [of insurance], which would help corporates and households better manage risk exposures, support investment, contribute to financial inclusion, and expand contractual savings that could contribute to capital market development.”
The FSAP document describes Lebanon’s Insurance Control Commission positively but notes critically of the insurance sector, “There is a large number of unspecialized companies, including many small, family owned and managed companies, resulting in intense price competition. Many of these firms have made limited investments in risk management and pricing techniques, and the ICC considers some do not have adequate professional capacity, resulting in operational risks and mispricing.”
With regards to the overall financial system of Lebanon, the FSAP sees sovereign and credit concentration risks as potential vulnerabilities in the nation’s banking sector, based on solvency stress tests and sensitivity analysis. It further asserts that neither the capital markets nor the secondary debt markets are well developed. “Capital markets are small and contribute little to the financing of the economy, and expansion prospects for the insurance sector are hindered by a relatively weak regulatory and institutional framework,” concludes the document’s executive summary.
Given the overall state of the financial environment, insurers in Lebanon are facing an economic path that looks mildly challenging, but at the same time slightly promising – more promising the more the economy and regional stability recovers, and the more the Lebanese state overcomes its inefficiencies and inequities. That notwithstanding, to borrow from George Orwell, some insurers appear a bit more equal than others when it comes to thinking about the future and initiating promising new trajectories.
Some insurers appear
a bit more equal than others when it comes to thinking about the future
While it is true that some insurers have outperformed the overall sector in 2016, this is not a narrative that will advance the Lebanese insurance industry on a path to new life. The real story is that some of these outperformers are the very companies that have declared themselves adherents to practices and principles which in the past were not common practice in the sector.
The first of these is a commitment to transparency and governance. Nothing currently obliges insurance companies in this country to practice either. And no Lebanese insurance company is listed in the stock market, so even if the Beirut Stock Exchange had much stronger governance requirements, this would not matter for insurers.
In this desert of transparency, void of culture and incentives for governance, it is encouraging to encounter a full and proper board structure in a sizeable Beirut-based group like Chedid Capital Holding, whose bread and butter is insurance, and find that it is indeed possible for such a group to perform well in the current economic environment. According to group chairman Farid Chedid, organic top line growth in the past year was over 30 percent (including the acquisition of Sharjah-based brokerage Al Manara, “we reached growth of over 40 percent in the top line,” he says).
Even more impressive is that the boards of units in the group are not opaque or stuffed with names of only one family, but entail credible Lebanese and foreign names among their independent, non-executive directors. There are other examples of liberated financial thinking in the management strata of local insurance companies, such as an orientation toward competition over quality, solvency and sustainable long-term profitability.
This contrasts with the lack of a regional or national culture in Middle Eastern insurance sectors, with very poor habits when it comes to annual report writing, communication and general transparency toward analysts and the public. Sector practices have for many years given an uninspiring impression of a field characterized by politicking, narrow interests, undemocratic debate, and horse-trading or influence peddling.
The second uncommon valor is modern positioning vis-a-vis the customer and an emphasis on employee welfare. In December of last year, Lebanon’s largest insurance company by consolidated premiums undertook its inaugural customer loyalty survey, conducted by a multinational market research company. The survey was focused on customer experiences in life insurance, but there are plans to conduct a second survey on non-life insurance, Allianz SNA’s chief market management officer Raed Labaki tells Executive.
It is not only Lebanese units of large foreign insurers but also hometown players
that are betting on customer centricity
“It was an external survey to compare the satisfaction of our customers in life insurance with our main peers and with the rest of the life insurance market. We were happy to find that we were the loyalty leaders compared with the average of the market but, most importantly for us, [the survey] helped us to identify our strengths and our weaknesses, both [our customers’] delights and pain points,” he says. According to him, the company will now consult with experts in the global group and develop a customer experience action plan to improve on the pain points that were identified. “Our aim now is to maintain this loyalty leader position,” he enthuses, adding that the group’s lead over the market in terms of loyalty was in double-digit percentages for each measured touch point.
Inspiringly, it is not only the Lebanese units of large foreign insurers but also hometown players that are betting on customer centricity as their new angle. “We decided to become not just customer focused but customer obsessed. Every single client counts enormously for us, because it is an opportunity to make the client our brand ambassador and show people that we value them. This is how we are going to grow our business,” says Anthony Khawam, the company’s 29-year-old deputy CEO and a third generation member of the family that controls Securite Assurance.
Securite Assurance, which in the past was notable for writing a large part of its portfolio in simple compulsory third-party liability covers against bodily injury in motor insurance, has been shifting out of this market and into more complex businesses, targeting growth of its medical and no-fault motor business as a first step, with plans to focus on developing its term life insurance business.
Next to the emphasis on customer experience and, for distribution of policies, on serving its broker community with high commissions and new digital tools, a third pillar in Khawam’s thinking is employee centricity. “People – this is the most important thing in the company, not the service but the employee, because giving great service and having a great brand is nothing [compared with] having a great culture,” he says.
In his opinion, every employee is a building block of Securite’s corporate culture, and the insurer has therefore contracted employee training consultants and invested in developing a human resources (HR) department led by a chief people officer. “We want to recognize people and make sure that they are rewarded financially and morally; that is the key mandate of this department,” Khawam explains. “The most difficult thing to do is change culture. We read many books and papers about culture; and changing people’s culture takes a lot of time.”
He says the family company has worked for the past three years on building an advanced service infrastructure, and is now in the middle of developing a brand infrastructure. The company took many cues, atypically for a Lebanese insurer, from consumer branding strategies in the Fast Moving Consumer Goods industry. It also is adopting a corporate lingo and communication style that is similar to management consultants.
In its overall prospects, the Lebanese insurance sector looks better in 2017 and going forward than it has for quite some years
Customer relationship management and human capital development have been established practice for years in companies that applied customer and employee retention, development strategies, and had real HR departments instead of personnel departments. But such corporate philosophies are still out of the ordinary in parts of the local economy. Having said that, managers like Arope GM Fateh Bekdache told Executive years ago of their preference for an appreciative pat-on-the-back in employee motivation, just as a handful of other insurance CEOs in Beirut have long stressed upon the importance of corporate governance in their organizations.
Even the office landscapes of some insurers are developing, with some pleasant surprises. A reporter 10 years ago might have left the premises after an interview with memories of claustrophobic dark walls, intimidating fortress-like desks, warrens of corridors and confusing office layouts.
These days, some insurance companies can be found in buildings constructed especially for them, or are engaged in building their own premises, which in the past one would more commonly see with banks (a clustering of insurance companies even seems to be happening in the Hazmieh/Jisr Bacha neighborhood). Alternatively, insurers might reside in the same buildings as a decade ago (with their uninviting lobbies and old elevators), but have invested in creating much more appealing office environments. A major example of a surprising redesign and jump into office contemporariness is the lair of Securite Assurance, where a transformation to literal office transparency is in progress this year, with the implementation of interior glass walls and new staff amenities that seem right out of a manual for achieving better work-life balance.
Another hopeful sign of soft development in the Lebanese insurance sector is the adoption of new methods, technologies and processes. It goes hand-in-hand with empowerment of the next generation of insurance leaders, in both family-owned and operated firms and in the few corporate insurers on the local scene. For example, one large bank-owned insurer recently hired its first-ever junior digital marketing officer. Another bank-owned provider told Executive it was working on a corporate website that actually deserves to be called functional and would present something other than an online billboard. Overall, while digitization is still in its exploratory stages in the country, many sector companies have committed to or have already implemented new websites and evidence suggests that insurers are increasingly thinking about how to communicate and live up to the behaviors of the digital age.
Such innovations and changes are part of normal corporate existence anywhere, but it gives hope to see that such things are becoming more visible from insurance companies in the local climate. Just as it takes many drops of rain or grains of sand to make a storm, culture change in an industry can only came to fruition when many small components interact. This observation comes with the caveat that the companies in the Lebanese insurance sector are far too numerous to undertake any exhaustive investigation of their new behaviors and the degree of their seriousness and sustainability, or to say what innovations or best practices may have already quietly been bred at companies years ago.
Equally, it is far from visible today where the Lebanese insurance industry might be 10 years from today. One thing that the numbers do tell is that the industry ridiculously still harbors many companies that have either an annual production of gross premiums below $1 million and/or capital that is below any rational consideration for a modern financial firm, and purely based on the outdated minimum requirement for $1.5 million in capital under the current law. Given the sector’s fragmentation, consolidation remains a key challenge, but there are hopeful signs reaching the public that this could take place. In its overall prospects, the Lebanese insurance sector looks better in 2017 and going forward than it has for quite some years.