Promoting insurance

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In the spring weeks leading up to the 2004 GAIF conference, Lebanese insurers engaged in a flurry of new product releases. Each of three fancy launch events presented results of collaboration between local insurers and partner firms, from a leading multinational insurer and an international finance firm, to well-known domestic players in banking and trade. AXA Middle East, the Beirut-based affiliate of insurance multinational AXA and the fifth-largest sector company here, used the opportunity to unveil Viva, a new life insurance plan. Buyers of the plan can benefit from participating in fixed-income and equity-based funds managed by the asset arm of the AXA group. The insurers celebrated by inviting friends over for lunch – over 250 of them.

UFA Insurance, a provider ranked in the upper third of the market, teamed up with payment card company, Visa International, and Lebanese financial institution Fransabank, in co-branding a credit card that offers buyers of insurance policies extended payment facilities and discounts on policies. The combination of credit card and insurance branding marked the first product of this kind in the Middle East, according to a regional Visa Card executive. After introducing the new card with brief fanfare, the occasion called for obligatory management photos, and a buffet with quality snacks.

Horizon Insurance, a smaller operator and niche specialist in motor insurance, entered a partnership with First National Bank (FNB) and the Lebanese distributor for Hyundai cars. The launch of the company’s latest product, TriPlan, was recently celebrated at the InterContinental Phoenicial hotel. The plan presents as a rather complicated arrangement aimed at wooing customers with steep discounts on the purchase price of a new Hyundai car and a cash bonus in financing it with FNB, after they commit to purchasing a full comprehensive motor insurance with Horizon.

The Lebanese market, long regarded as under-insured, can no doubt do with as many innovative approaches as possible. Life and retirement products are still direly needed in greater variety and more effective distribution. But while assorted product creations and accompanying launches well demonstrate the combination of inventiveness and savoir vivre – the hallmark of Lebanon’s enticing business environment – all marketing strategies are fundamentally aimed at bypassing the prolonged economic stagnation that has consequently infiltrated the insurance market.

In 2003, the country’s only annual survey of insurance industry results – published by a sector magazine on the basis of unchecked company figures – offered a picture of encouraging double-digit sector growth for both general and life insurance for the first time in several years. But industry members questioned strongly whether last year’s sector performance was worth a celebration.

“In 2003, the insurance industry achieved only very slight improvements. As a result of the stagnating economy, plus political disturbances, the situation does not allow for the possibility to improve the premium volume,” said Abraham Matossian, president of Lebanon’s insurance association ACAL. Insurance leaders in the country’s still highly crowded field of providers regarded 2003 improvements in life premiums as continued genuine progress. They were widely concerned, however, over the role of motor insurance in last year’s premium income growth in general insurance. Lebanon began to enforce mandatory third-party liability (TPL) insurance for motor vehicles in 2003 – but the low minimum premiums decreed by the government and substantial upward changes in claims judgments made many experts and insurers fear that the motor business could flood the sector with losses in the near future. These concerns were accentuated even more on account of widely reported undercutting of the already low premiums by a number of unsavory providers, who have generated much negative publicity on the sector. Overall, most industry insiders and analysts consider the sector to suffer from excessive competition and still in great need of consolidation by mergers or company closures. The troubles are not to suggest that Lebanon’s insurance industry was void of progress over the past few years. The sector made impressive steps forward in increasing professional capabilities. The introduction of mandatory motor insurance in itself was highly positive. Bancassurance developed well, opening new paths to spread insurance awareness. Many companies refined their technical skills and streamlined their operations. The organized insurance brokers undertook substantial efforts to shape up the unfavorable image caused by shady practices of unqualified operators in war and immediate post-conflict years. In the matter of regulatory frameworks, the 1999 revision of the country’s old insurance law mandated higher capital requirements and more prudent financial practices. The country’s insurance control commission at the ministry of economy and trade stepped up their role.

This spring, the commission received the results of the first-ever field audits of insurance companies, carried out last year by international auditing firms contracted by the ministry. With these findings, the supervisory authorities expect to gain an unprecedented full and timely assessment of the industry’s state. The regulators at the ministry now hope that a just written entire new proposal for a national insurance law would be adopted and propel the insurance sector to another, much advanced state.

Insurance law upgraded

Canadian experts draft a new insurance law for Lebanon, championed by the World Bank

Lebanon’s insurance regime underwent measurable upgrades in the course of phasing in revisions of the dated insurance law augmented by flanking ministerial decrees between 1999 and 2003. But the revised old law was a makeshift solution that could not address all needs of a 21st century society. The new Lebanese insurance draft law is a piece of work supported by World Bank funding and authored by two Canadian experts intensely familiar with insurance issues in developing countries and with Canada’s insurance law, which is supposed to rate among the world’s best. Drafting of the law was authorized in September 2003 by Lebanon’s minister of economy and trade, Marwan Hamade, who last month hailed completion of the effort as a milestone. “The proposed legal framework draws on cutting-edge concepts from developed countries but does so in a form that recognizes the size of the industry and the nature of the Lebanese insurance environment,” Hamade said during a press conference on April 16. Among other things, the draft newly defines the structure and supervisory competencies of the Insurance Control Commission (ICC), calls for stricter separation of life insurance and general insurance activities as distinct corporate entities, and for increasing minimum capital requirements in several stages. At $3.5 million, the heightened capital requirements would be still far lower than those of comparable countries in the Middle East, said proponents of the new law, who described it as a document capturing the essence of advanced insurance legislation in a condensed and highly practical form on only 70 pages.

In the austere ICC offices at the ministry of economy and trade, the release of the draft created near euphoric vibes. ICC head Walid Genadry had the document and a synthesis distributed to all Lebanese insurance companies before the end of April, in hopes that stakeholders would rapidly register their comments, suggestions and modification requests. First comments from major insurance industry representatives were cautiously positive, but not without undercurrents. “We can only congratulate the head of the Insurance Control Commission on the good job they were performing last year,” said Elie Ziadeh, president of the Lebanese Insurance Brokers’ Syndicate. “However, we fear that at the ICC they do not understand the need to work with the people in the industry. We have the impression that they think they have an important project, work hard, and move forward with it. That is not enough. They should work with us.”

“The draft needs to be studied very carefully. It will be our challenge to look at the new law in a spirit of cooperation, give our recommendations and comments in a scientific approach and seek changes that we believe could improve the law,” said Fady Shammas, general manager of Arabia Insurance and recently elected new member on the board of insurance association ACAL. Other board members of the association voiced similar comments. When agreeing to sponsor the drafting of the law, the World Bank made it a specific aim for the project to create a law that would not only aid Lebanon but serve as a model for a large number of developing countries in all parts of the world. And the World Bank was so convinced of the quality of their final product that their experts already started presenting the document as a model insurance law in other countries. There can be no arguing against the point that being known as a country where a world-class exemplary insurance law was implemented first would serve Lebanon extremely well in heightening its reputation to becoming an international reference. Becoming that reference, however, would need a reasonably fast adaptation of the draft – and fast action on insurance legislation is not a matter of record in a country where implementation of a law on mandatory motor insurance broke all records for procrastination. But it may be that the past does not have to repeat itself. “It is our duty to assist in the progress of the new law. I call upon all colleagues that this law should be entering into effect in 2005,” said Shammas. “There is no reason why it shouldn‘t. Eight months would be enough.”

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.