Insurance customers rely on impartial authority to ensure that their insurance policy will be honored when they have to file a claim. For insurance companies, the supervision by a trusted public entity provides a shield of corporate credibility and a safeguard of companies’ financial solidity. Supervision, however, needs to be tailored expertly to meet both ethics and reality and even then dialog on regulations and requirements between insurance industry and insurance supervisor is often tough and thorny. To better understand the local state of insurance, Executive sat down with Walid Genadry, head of the Insurance Control Commission at the Lebanese Ministry of Trade and Economy.
E When you outlined the concept behind proposed legislation for Lebanese insurance in 2004 you were not only convinced of the urgency of this matter but also enthusiastic about the law’s spirit and optimistic about a rapid adoption of what is still a draft law today. What happened?
I had less experience then [laughs]. Actually, there was reason to be optimistic, if things had gone like they would normally go in a normal country.
E Under Lebanese circumstances, your optimism was a little bit…
…too high. But it was a reasonably good period at that time, before things took another turn. It is a shame because I see all the other countries in the region putting regulations in place.
E But how important is regulation vis-à-vis having best practices? Lebanon, for example, has no actuarial association but we have more local actuarial competency in Lebanon than in most countries in the region. Is new regulation necessary where good practices already exist?
Without regulation, it is not easy to have good practice. It becomes dependent entirely on who decides to have good practice. We would like everyone to implement good practices on their own and then we wouldn’t need a supervisor. This is not, unfortunately, how things usually go. On some issues, regulation is necessary. The issue is to determine which regulation you want through a law, which can be passed as a decree and which is best done through decision-making of the supervisory authority. That applies to most subjects, such as solvency and also actuarial issues.
In terms of actuaries, yes we have more actuaries than others but we definitely don’t have enough, particularly since I am increasingly convinced of the necessity that some actuarial work needs to be done on non-life insurance.
E Why do you see this actuarial work on non-life insurance lines as a growing need?
When I look at medical insurance, it is more risky in Lebanon than in France, or in Europe overall, because the government over there is the insurer of last resort. Under the French system, for example, it is quota-share by default and excess of loss without limit for anything serious, which means that the insurers have a very limited risk. We don’t [have this limited risk for medical insurers] and I would imagine that we need some actuarial work on this.
E Has motor risk also been calculated with actuarial input?
Motor risk also, [but] I tend to be a bit less worried about motor. It is really high frequency and the nature of the accidents are almost always the same. Medical remains less controllable and you don’t know what types of diseases are being built in society. Today they are talking about cancer being not a genetic or a viral disease necessarily but a lifestyle one and we still don’t know what is hidden there. We are only realizing that cases of cancer are increasing significantly and we could not have forecasted this easily. That is why medical in my opinion is of concern.
E Insurance balance sheets and risk calculations are widely seen as very difficult to understand even by accounting experts. From a regulator’s perspective, do the legislators sufficiently understand the needs for insurance regulations and how to legislate those terms?
This is not an easy business. People of course understand what insurance is and why it is needed, such as to avoid going bankrupt from being hit by a catastrophe. But when it comes to the mechanics of the insurance business and what a regulator ought to do, I would say that almost all of our legislators don’t understand that. This is a challenge because when you don’t understand you can be an easy target for inappropriate lobbying. You can get scared or influenced easily and with arguments that are seemingly logical. Unless you know how it really works and hear another point of view, it is very difficult not to be convinced that such arguments are right when they are not. But we cannot change these things easily. We have to maximize whatever we can to introduce the proper legislation.
E You have been criticized quite harshly at some points during the past seven years when the insurance law was being questioned repeatedly by the industry, and you have alluded in your speech to the fact that the supervisor, while never perfect, is regularly blamed when he does not deserve it. How do you view that criticism of your role?
I realized one thing at a point during these years: This was a change management process. In the beginning I never saw it that way. It took a discussion with a friend who had nothing to do with insurance but who happened to know a lot of insurers to clarify this to me, because he heard what insurers were saying. That woke me up and I realized that in fact I was organizing change management. Here was a sector that was active for decades without any supervision. There was some disposition in the law but it amounted to virtually nothing.
Then someone comes in and says we are starting to reorganize this issue. It is very difficult. Some people may feel threatened… There can be several processes within normality and we ended up in one process that, while not the most desirable was still a normal path: Confrontation. It could have been tough dialog but nonetheless dialog trying to convince [me], by showing data, where things failed or telling me where I am not seeing it clearly. But I think somewhere we were all growing; on both sides the visibility at times was not 100 percent.
A simple question: Do we want to bring in [the regulatory framework called] Solvency II in our region? This is for big sophisticated companies and complex insurance sectors whereas in the Middle East so far to a very high degree we have simple insurance. I think Solvency II as a framework is a beautiful thing but then we have to adapt and simplify it.
E Solvency II has been criticized in Europe as being extremely complicated…
We cannot afford that. We need something that is understandable for the insurers and is feasible.
E Would you say that there was a negative impact on Lebanese insurance companies from the fact that the law didn’t come into existence in 2004/2005?
Of course. The difference is between real loss and opportunities lost. Our human nature gives a very high weight to real loss, which could be $10. If you lose $1 million as opportunity cost, you may say ‘I am not sure if that would have ever come’. What we have here is a huge missed opportunity to grow the sector properly, to consolidate it properly and to show the region that we have serious companies that are well regulated.
The supervisor’s reputation of strength — and some companies realize that — is great publicity for the sector. This reputation is essential to the business of insurance companies. I wouldn’t say it’s free publicity because there is a cost to supervision, but it is publicity that you [as a company] don’t need to promote yourself. If you have a supervisor that has a reputation of being professional and capable of doing what he has to do, one who cannot be fought off easily, then you as an insurance company are seen as a very serious insurer.