Walid Genadry: Head of the ministry of economy & trade’s Insurance Control Commission (ICC)
E: The supervision of sector companies and implementation of a fair regulatory framework are crucial for the sector and for your mandate as head of the ICC. What are your expectations as far as further improving sector compliance with supervisory requirements in 2005 is concerned? What will be the main focus of ICC activities in the coming year? Do you have hopes that the new insurance draft law can be adopted within the next 12 months?
We must consolidate the process begun two-and-a-half years ago including the introduction of new supervisory forms that will increase the transparency of reporting. These will have to be enforced seriously this year. We must also work on the enforcement of the new reserves and corresponding investment approaches. We have to continue growing in numbers and developing our competence. We are about to conclude an agreement with the Spanish authorities on a roughly two-year ‘twinning’ process, within the framework of the EU-Lebanon agreement. We are also being helped by the French supervisory authority and a contract with the World Bank for issues related to on-site inspection. We will also continue to have support from the auditors Price Waterhouse Coopers and Ernst &Young, because we will need for a while external support to get results. Among the fronts we will continue working on together is the improvement of the new project law. Some people are worried a new law may cause the closure of many companies. This is not the objective of a law that aims at improving the sector’s financial health, market conduct and credibility. There are also favorable opinions, both local and foreign. In fact the law will put us up to international supervision standards. As to when it will be passed, it is difficult to speculate. All one can say is that work is continuing on it.
Fadi Chammas: General manager at Arabia Insurance
E: The life insurance market in Lebanon has seen good percentage growth but has yet to evolve to become more significant in both social and economic terms. Where do you see the life business going in 2005, what are the most promising product types and distribution channels? Do you believe that the industry will be able to make a concerted effort towards increasing the population’s general awareness of life insurance needs?
The life insurance market in Lebanon has seen good percentage growth but has yet to evolve, to become more significant in both social and economic terms. Arabia’s sales – in terms of total life insurance production growth – grew by 51% in 2001, compared to 2000. In 2002, they grew by 25%, in 2003 by 38.3% and in 2004 by 12.3%.
The most promising life insurance product types are: 1) educational plans that allow policyholders to secure the education of their children through periodical contributions, without having to worry about unexpected hazards; 2) unit-linked saving plans that allow policyholders to guarantee a retirement fund by contributing to renowned international funds, while securing their dependents through a variety of insurance coverage schemes; 3) term insurance (the most common), which provides a fixed death cover for a chosen period of time.
The most promising distribution channels are banks and consultants. Banks offer the greatest distribution potential for readymade products since people trust their banks and the services they offer. Consultants constitute the best distribution channel for custom-made products tailored to suit individual needs. They play the role of advisors.
Consultants are constantly trying to increase general awareness by explaining to prospective clients the positive social impact it will have on their lives. Governments also have a big role to play in improving the general perception of life insurance products by, for example, reducing tax on income used to settle life insurance premiums; joining forces with insurance companies to bolster public awareness; and drawing up more flexible laws that encourage insurance companies to give higher returns on life insurance-related investments.
Elie Ziadeh: President of the Lebanese Insurance Brokers’ Syndicate (LIBS)
E: Many experts see insurance sector consolidation as a necessity and a process that has a long way to go before it is completed. How much importance do you attribute to consolidation activities for 2005, a) among insurance companies and b) for brokerage firms? What factors could drive mergers and what incentives would help the private sector in increasing the speed of consolidation?
International insurance industry developments over the last few years have led players, including those in Lebanon, to refocus on basics. I don’t, therefore, really see a need for brokers and insurers to acquire or merge. We can stick to core business and use the existing business model to win new clients. This is how we can be successful in the long term. But there is a serious risk for small brokers because they won’t be able to compete if they don’t upgrade their technical knowledge and software etc. In such circumstances, insurance brokers need to consolidate because a broker needs a minimum income to be competitive. The market and the customers are demanding and the broker needs a certain size that allows him to maintain and expand by investing in training, technology, and market awareness. For insurance companies, I hope the consolidation and re-capitalization of the last few years will continue. Re-capitalization will allow insurers to concentrate on the core business of underwriting risk and paying claims. This will help a portion of the insurance companies to avoid acting as hidden brokers, which can be detrimental to the insured.
The fundamentals of the insurance industry are now being reinforced. Consumers are much more aware of the risks than they were before. There is a need for brokers to take a real in-depth look at finding a scientific scenario for two brokers to merge, the fundamentals of which could be confidence, global vision, and long-term thinking. The government and regulator could help by examining the capitalization requirements for two brokers to merge, what money they might need and how their re-capitalization might be supported.
Rizk Khoury: President & CEO Cumberland Insurance
E: Medical cover and hospitalization insurance is a leading activity for the Lebanese insurance industry. Do you consider the health insurance market mature in terms of the achievement of sufficient profitability, professionalism and transparency? Where do you see the greatest potential for the development of new products and other ways of expanding the market?
Medical insurance in Lebanon constitutes approximately 60% of the premium income of the whole sector. This segment of the insurance market is dominated by a few insurance companies that have established their know-how and experience in this relatively new line of business over the past 15 years. The Lebanese medical insurance market is very developed in comparison to other countries in the Middle East and even North Africa, in terms of product design, claims management, administration of managed health care schemes, and information technology. Insurance companies that administer programs efficiently achieve profitability. However, with the rising cost of healthcare around the world and the underlying economic problems Lebanon faces our margins have been squeezed. In terms of transparency and professionalism, the companies that control the market understand that unless they deal professionally with clients, health care providers and the general public they will be cast out and lose their market share.
Capitalizing on the successes achieved in the Lebanese market, focused companies can expand the local market and leap into new markets. The consumer in Lebanon realizes that medical insurance is a necessity and is willing to buy it but purchasing power varies. People are looking for the cover their money can buy. So flexibility in product design is very important if those consumers who want to buy private medical insurance but ‘think’ they can’t afford it are to be reached. The Gulf medical insurance market is growing at an unbelievable rate. It is only natural for leading Lebanese insurance companies to capitalize on their know-how, experience, and IT systems and expand into such markets.