Ammar Yacoub failed to see the point of insurance — why regularly spend cash on something you might never use? So when money got tight in early 2008, he needed to cut expenses and decided not to renew his family’s health insurance, due to expire on May 1. Then, 11 days before the family’s coverage ran out, Yacoub’s son, Mamoun, was diagnosed with leukemia. Fortunately, Yacoub was able to renew the family policy, and their insurance has since covered most of the $35,000 their son’s treatment has cost to date.
“Without coverage, I would have had to sell my house or take a loan,” said Yacoub. “I realize now that insurance, especially health insurance, is a necessity, not a luxury.”
Yacoub, however, is a minority in this country: most Syrians come in contact with insurance only when they buy a car and discover that it needs to be covered for third-party damage; the need to insure is simply not engrained in the Syrian psyche.
Add to that low income levels and misunderstandings surrounding insurance — ask any cabby in Damascus about the usefulness of third-party car insurance and he’ll complain that every incident has to go to court anyway — and insurance companies’ marketing departments have their work cut out for them.
Firas el-Azem, general manager of Al Aqeelah Takaful Insurance, thinks awareness will naturally follow growth of the insurance market, not the other way around.
“The best marketing you can get is word of mouth: when people see claims being paid out, they will realize the benefits,” said Azem.
And growth of the insurance market goes hand in hand with expansion of the banking sector.
“When banks start issuing more mortgages, which I think will happen in the coming years, they will demand their clients get life insurance, for example. Likewise, banks are a major reason for the growth in comprehensive car insurance: when they issue a car loan, they ask for damages to be insured,” Azem added.
Quick out of the blocks
Despite its youth and relatively low penetration, the Syrian insurance industry has been racking up double-digit growth figures since the market was opened to private companies in mid-2006. However, 2009 growth was not as spectacular as it had been over the past few years: total premiums reached $229.1 million in the first nine months of 2009, a 15 percent rise relative to the same period a year earlier. This compares to an overall growth rate of 37 percent for 2008, with the 13 companies — 12 private and one public — ending last year with a combined premium income of $275.4 million.
“The slowdown is partly due to the fact that fierce competition between companies is still driving premiums down,” said Eiad Zahraa, general manager of the Syrian Insurance Supervisory Commission (SISC). “The effects of the global financial crisis have also played a role, but to a limited degree. Insurance companies in Syria rely more on premium income than investment as a source of revenue, which means they have remained relatively protected from the global financial crisis.”
A tough year
Nevertheless, the global financial crisis has damaged such areas as the housing market, commodity prices and car sales, causing a decline in the growth of engineering, marine cargo and comprehensive car insurance; 2009 is clearly turning out to be a tougher year for local insurers.
Premium income for four companies actually shrunk when comparing the first nine months of 2009 with the same period a year earlier. Most notable of these is the National Insurance Company (NIC), which barely managed to maintain top position in the private market when its premiums fell by 42 percent, to $30.8 million over the first three quarters of 2009. The Syrian Kuwaiti Insurance Company (SKIC) was most unfortunate, with its premiums and market share dropping by more than 50 percent, to $7.7 million over the same period.
Three years after Syria’s insurance market was liberalized, the state-owned Syrian Insurance Company (SIC) remains the biggest player in the market. Although its share has shrunk considerably since the market opened up, dropping from around 61 percent at the end of 2007 to 43 percent at the end of last year, third quarter 2009 data shows the SIC is fighting back: in the first nine months of 2009, it managed to net nearly half of all premiums. Trust Syria Insurance Company (Trust) has maintained its position as the fastest growing firm: after more than quadrupling its premium income between 2007 and 2008, it added another $11.3 million to its premium base over the first three quarters of 2009 — an 80 percent increase. But like many Syrian companies, Trust’s premium income is derived mainly from the unpredictable compulsory motor insurance.
Compulsory motor cover accounted for 42 percent of all premiums in the first nine months of last year. Taken together with the comprehensive variety, motor insurance generated 63 percent of total industry premiums.
Fire was third, with 15 percent of all premiums, followed by transport at 9 percent and health at 4 percent. Health insurance is still growing rapidly at 38 percent over the first three quarters of last year, surpassed only by personal insurance, which rose by 70 percent but still has a tiny market share of just 0.29 percent.
Greater industry control
In order to remedy the lack of diversification and better regulate the industry, the Syrian government has taken a number of measures, such as standardizing rates and limiting commissions in marine cargo insurance, and organizing the compulsory motor insurance sector. In November 2007, the Ministry of Finance moved to limit insurers’ exposure to compulsory car cover, stipulating it could only make up 45 percent of all premium revenue for any single company. The decision aims to increase the financial stability of companies because motor insurance is an unpredictable industry with a risk of unlimited liabilities. After an initial grace period, the government swapped the carrot for a stick when it banned four companies — NIC, Trust, Arab Orient Insurance Company (AOIC) and SKIC — from selling compulsory motor insurance during the entire second quarter of 2009. Although this temporarily limited their sales in this department, third quarter 2009 figures show each of the companies to be well above the norm again.
Compulsory motor cover has also been an area of fierce competition. According to industry sources, insurance companies have been known to pay commissions to civil servants at the Ministry of Transportation in order to direct car owners to their firms. The practice has seen the government intervene and last August the Syrian Insurance Federation set up a pool, allocating car owners seeking insurance through the Ministry of Transportation to firms on a set rotating basis, although individuals can still choose to bypass the ministry and go to a specific company. The system has been expanded to include most of Syria’s large cities, and the rest of the country is soon to follow.
Banque Bemo Saudi Fransi has been awarded the contract to collect premiums from car owners and distribute them to individual insurers. All but one firm, Syrian Arab Insurance, will take part in the pool. In an interview with Executive, the company said their long-term strategy focuses on achieving greater diversity in their premium income, rather than short-term cash flow through compulsory insurance. Syrian Arab will continue to sell compulsory motor insurance directly through their head office.
Raising the bar
Another important development will be the opening of the Syrian Insurance Academy. Although the academy is yet to be built, Sulaiman al-Hassan, chairman of the Syrian Insurance Federation, said classes will start early 2010 in a temporary location. The insurance academy will grow into a pan-Arab institute where students from all over the Arab world will come to learn the trade.
“We’re expecting hundreds of students and we will welcome private students as well as insurance companies’ employees,” said Hassan.
Syria’s insurance industry is still taking shape. The sector is facing several challenges, among them low income levels and a lack of diversity, but with a per capita insurance rate of $13.50 in 2008 — compared to a regional average of $55 and a global average of $555 — huge opportunities remain untapped.
