The insurance industry in Lebanon is priding itself on a good year in 2011, with measurable partial results documented faster than ever before. Issues that inhibit the sector’s growth, however, do not get resolved; they merely get reiterated.
The total gross written premiums of insurance companies in Lebanon reached 14 percent year-on-year growth in the first three quarters of 2011, to $904.4 million. According to a ranking source with knowledge of the insurance industry, this nine-month rate of growth stated in the third Quarterly Report of the Lebanese insurance association is more credible than an earlier figure of 17 percent which the second Quarterly Report gave for the first six months in 2011. However, the 14 percent claim will need to be corroborated by further analysis, the source said. “We have not reached 17 percent full-year growth in more than five years in the local market and 2011 is not supposed to be a bumper year for insurance in Lebanon.”
Even if reconfirmed by future analysis of sector data, being “gross written” means that the industry’s nine-month turnover figure does not account for the portions of premiums which primary insurance providers cede to the reinsurance companies as backup cover for the risks they accept; this safeguarding practice is the international standard in the insurance industry but while generating commission income for the primary insurers, the ceding of premiums constricts the potential for direct profits.
Written results technically also do not account for how much of these premiums insurers have yet to earn through the lifespan of the policies, which is commonly 12 months but often not aligned with a calendar year. On top of that, the sector’s reported growth rate of 14 percent is nominal and does not reflect the impact of inflation and some specific cost drivers on the insurers’ earnings. The cost increases of medical treatment that already dented the bottom lines of Lebanese insurers in 2010 have been reflected in the 2011 policy price hikes, which industry leaders said represent an important chunk of the industry’s overall premiums growth.
According to the Quarterly Report, medical insurance is the top generator of premiums in Lebanon at 29.8 percent of the total, ahead of motor insurance with 27.4 percent and life insurance with 25.1 percent. When reviewing the nine-month growth curve of medical insurance, sector companies have reported 14 percent growth in medical premiums, the same as the rate of total premiums growth.
However, the increase in policy numbers was minimal. Medical insurance contracts issued for expatriate laborers — which are low-value contracts with almost 42 percent in acquisition and administration cost for the insurer — have shot up by more than 26 percent. Yet these contracts consistently constitute low single digit percentages of total medical premiums and the growth of policy numbers in the higher-valued coverage of customers with individual and group policies was only 2 percent.
Life insurance and life insurance-linked savings contracts in Lebanon have a long-term record of vulnerability to consumer responses to the national economic situation and pressures on their personal incomes. Although life insurance investments by the Lebanese, at 0.7 percent of total gross domestic product (GDP) in 2010 according to research publication Sigma by Swiss Re, are far ahead of the shares of GDP one sees in most Arab countries, they are still farther below the world average 4 percent allocation to life insurance in global GDP.
Also in non-life insurance, the Lebanese market is situated generally ahead of the Arab averages for insurance share in GDP. It performs respectably when compared with economies in regions such as Latin America and Eastern Europe but the country remains underinsured when measured against global and developed market averages.
Market data in Lebanon for the past 10 years or so do not support the assumption that domestic take up of insurance or savings contracts with insurance will shoot into the skies — lest there were a sustainable economic miracle of the type that the country dreamt of in the first half of the 1990s when initiating reconstruction and development after the end of the Lebanese civil conflict and in, unfortunately vain, hopes of regional peace dividends.
Putting any epochal regional economic wonders aside, and noting that the more realistic regional prospects at the end of 2011 point with alarming firmness in the opposite direction for the Lebanese economy, there are other factors that in theory can benefit the growth of insurance in Lebanon. Pitifully, these are issues of legislation and political decision making. After 1968, when a 1955 sector law was replaced with new legislation, revisions of the country’s insurance laws have been batted backwards and forwards but with no real consequence.
This habit, to all stakeholders’ professed regrets, has held true over the past five years. The pernicious state of deadlock between the nation’s waring political gangs, who are hardly concerned with trifle insurance matters, means that 2012 is no more likely to celebrate a new national insurance law than 2011 was.
On a positive note to the current constellation, leading representatives of the political and supervisory camp as well as the sector players in insurance companies and brokerages attest to a much improved relationship between the two sides after high-level stakeholder meetings at the Ministry of Economy and Trade in November 2011.
The issues waiting for solutions with the ministry are not a new insurance law but no-less-important practical matters, including the creation of incentives for employers and individuals that would stimulate growth in life insurance and the resulting social safety network improvements, fairer conditions for marine insurers who are railroaded by the international competition because of cumbersome Lebanese tax requirements and better enforcement of the mandatory motor insurance and enforcement of traffic safety.
In the current positive climate between industry and ministry, progress on these matters would be genial for the growth of insurance in Lebanon. This however, will depend in the first instance on how long the current cabinet will be around.