Beware the blind spot

Dearth of data leaves health of the insurance industry obscured

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Lebanon has long represented to Middle Eastern insurance operators what Eton stands for in relation to Anglo-Saxon education – it is one of the oldest insurance sectors in the region, has produced a substantial portion of the leading individuals in the industry and prides itself on containing some of the highest skill concentrations. And yet it has not seen the growth of which some of the Middle East’s other markets are boasting.  

Nominally — that is, based on assumptions that premiums growth for 2010 was similar to that estimated for 2009 — the total value of insurance premiums in Lebanon likely hit the $1 billion mark at some point in 2010.

Data from international reinsurance firm Swiss Re has pinned a “best in region” button on the lapel of Lebanon’s insurance penetration, calculated as the percentage of gross domestic product invested in insurance. Lebanon was judged to have the highest share of insurance-to-GDP in the Middle East and North Africa (MENA) in 2009, at 3.1 percent.

Lebanon has been a consistent regional leader in the MENA in terms of insurance penetration. Another area where the country’s insurance sector has been very consistent has, unfortunately, been its agonizing slowness in delivering numbers. Approaching the end of 2010, leaders in the national insurance industry were unable to give numbers for any of the current year’s three completed quarters; the industry is still waiting for concrete, audited numbers from the previous year.

The weaknesses in reporting sector figures has been around for decades and involves company failings as well as astounding tardiness by the insurance oversight entity, the Insurance Control Commission. 

The dearth of official numbers notwithstanding, the available informal indicators from the insurance companies say the growth of the sector in 2010, similar to the first 10 years of the century, has not been as strong as industry leaders had hoped. 

The positive element in the outlook for the Lebanese insurance sector lies in the good prospects for overall economic growth in the national economy. As the year 2010 has been setting a pace of better-than-predicted expansion — the latest forecasts by the International Monetary Fund say real GDP growth could exceed 8 percent in 2010 — insurance growth will likely follow.

But outside the perennial favorite investment target of real estate, investment and corporate growth strategies in Lebanon are highly sensitive to political tremors, and 2010 has been particularly volatile due to controversies surrounding the United Nations’ Special Tribunal for Lebanon’s investigation into the 2005 assassination of former Prime Minister Rafiq Hariri.

The politically-caused wait-and-see behavior of the corporate community has presumably impacted insurance spending in 2010, in addition to the long-standing fact that companies in Lebanon treat insurance as an inescapable protection tool to spend only the absolute minimum on. The practice of using insurance for corporate risk management has simply not taken root yet, leaving motor and health as the strongest lines in Lebanon’s non-life insurance premiums.

In the consumer sector, spending on car purchases has been quite good; retail lending has also increased in 2010. Both factors have positive implications for insurance premiums growth, but it also must be assumed that new motor policies have in some cases been underpriced under a variety of competitive offers by insurance sellers. 

To help the sector improve its bottom line, Lebanese insurance association ACAL has focused its efforts recently on curbing damaging practices in auto insurance and on enhancing the collective bargaining power of insurers in negotiations with hospitals and medical doctors, as a means to curb cost increases in the medical sector.

In other 2010 insurance news, one unsound operator, American Underwriters Group, was shut down by the ministry of economy and trade; but the removal of one firm is does little to consolidate a market where over 50 insurance companies serve a population of about four million. Perhaps the most notable takeover in the insurance game this year was the acquisition of Compagnie Libanaise D’Assurances by Zurich Middle East, a member of the Swiss Zurich Financial Group.

Thomas Schellen

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