Considering the consistency with which the Lebanese insurance market has contributed to GDP — 3 percent has been the magic number for many years — it would have been remarkable to achieve considerable growth in 2013 against the stream of an economy that has been under a lot of pressure.
The year 2012 and the first nine months of 2013 were not disappointing, according to the research of insurance sector results by the Association of Insurance Companies in Lebanon (ACAL). Gross premiums exceeded $1 billion in the first nine months of 2013, up 10 percent from the same period in 2012 when total gross premiums for the year reached $1.3 billion.
But the association’s report for the third quarter of 2013 also shows only a 2 percent increase in the number of issued policies for the year. This is a small improvement on zero growth in the number of contracts achieved in the first half of 2013, shown in ACAL’s previous quarterly report. Overall however, the low growth rate in policy issuance is a concern.
New business is scarce and sales efforts have been concentrated in keeping clients and convincing them not to shrink their coverage blankets in a time of pressure, says Issam Hitti, the president of the Lebanese Insurance Brokers Syndicate (LIBS). “The insurance sector and the brokerage sector overall is focusing on the renewal business because we know very well that looking for new business is like wasting time,” he says. “Trying to get business away from a colleague is not new business. With the renewal business we have to take care of the decrease in the purchasing power of our clients so we have to negotiate with them as if we were selling them new business.”
insuring the ailing
The concern over insurers maintaining stable client numbers is also on the mind of Walid Hallassou, general manager of GlobeMed Lebanon, a third-party administrator (TPA) company that is the market leader in the management of health insurance payments on behalf of insurance companies.
As health insurance policy holders have faced rising premium costs and rate jumps as clients age, Hallassou is concerned that private insurance will have to be innovative in scaling and customizing policy options to the needs of financially squeezed clientele. “We are really counting on the creativity of the private sector insurers to maintain the rate of 10 percent of clients who rely on private sector insurance. This number has not been growing but we are scared that it is going to decrease,” says Hallassou.
Health or medical insurance is the first line of general insurance business in terms of total premiums. It overtook motor insurance as the top revenue generator in 2011 and in 2012 accounted for $362.2 million or 27.5 percent of total premiums, behind life insurance with 29.3 percent of the market share. In preliminary figures for 2013 until September, medical insurance contributed $322 million or 30 percent of total sector premiums, representing a year-on-year revenue growth of 12 percent. However, the cost of medical claims to insurers rose by 18 percent in the same period in addition to which medical claims represented more than $4 out of every $10 that insurers payed out.
“We are all aware that the increase [in total sector premiums] has been most of all in the medical insurance line and this is not due to new business but due to the increase of premiums [in addition] to the increase of hospitalization costs,” says Hitti.
In order to lower the cost increases of healthcare and the resultant burden on the insured and the insurers in the long term, GlobeMed initiated a program focused on disease management, wellness and prevention in the fourth quarter of 2013 with plans to expand in 2014. According to Hallassou, cost reduction via conventional measures has its limits and the way forward is a shift into prevention even though bottom line-focused investors in healthcare do not easily see the benefits.
“We need to start helping people screen and understand their diseases better, and understand how they can live with their diseases in a manner that does not [lead to] complications. We have collaborations with clinics in Lebanon that are going to be the platform for the launch of such programs. In the short term, these programs have an impact on customer service more than on the financials but in the end it will be both,” Hallassou says.
Motor insurance constitutes the second biggest sub-sector in the insurance market. It represents slightly less than a quarter of premiums in 2012 and the first nine months of 2013 and well over a quarter of settled claims. Part of the problem is the structural malaise of the compulsory third-party liability (TPL) scheme which over the past decade has been beset with implementation problems, including a lack in exchange of data on accidents among insurers and persistent underselling of TPL policies by some providers at prices that made it impossible to properly satisfy claims.
on the road again
The damage caused to the reputation of the insurance sector from settlement disputes and media programs reporting on cases has caused a major headache for the insurance association in 2013. But an even larger headache would be the expansion of the compulsory TPL to cover material damages, where the frequency of claims and the risk of fraud are much higher than under the current system which only covers bodily injuries.
This expansion — stipulated in a new Lebanese traffic law ratified this year — is impending. However, caretaker Minister of Economy and Trade Nicolas Nahas and Walid Genadry, head of the Insurance Control Commission (ICC) reassured ACAL and insurance companies at a top-level meeting in November that the mandatory cover of material damages will only be implemented after all kinks in the compulsory system have been ironed out.
A third concern in motor insurance is stuttering premium growth in 2012 and the first nine months of 2013, combined with anemic development in the issuing of policies, which fell a reported 7 percent for the first three quarters of 2013 from merely 1 percent growth in the same period in 2012.
The underperformance of motor policy sales and lower policy values results from a sluggish economy that could feed the insurance sector with further difficulties in 2014 if overall GDP growth remains feeble for another year.
Regional political crises and the Syrian conflict in particular detrimentally impacted the motor insurance sector in 2012. The effects grew more intense and varied in 2013.
The rising numbers of vehicles that enter Lebanon from Syria and circulate in the country, often without insurance cover, leads to more accidents involving uninsured parties. While the impact on claims have been manageable in 2013, the situation puts operational and financial stresses on the system in which local insurance companies handle cases involving foreign vehicles or those lacking the compulsory cover. ACAL Secretary General Jamil Harb has sought the collaboration of the ministry of interior to set up control points where the inflow of cars can be checked for proper TPL coverage.
The impact of the Syrian crisis differs when it comes to medical insurance. According to GlobeMed’s Hallassou, the volume of regular claims has increased significantly in 2013, contributing to a 15 to 20 percent business increase in managed services for the year. This growth stems from the fact that Syrian patients can use their domestic health insurance cards issued by the company’s Syrian unit in Lebanon, with the bill being settled by their insurance provider in Syria.
signs of the times
A second impact and exponential growth factor for claims handling lies in a recent contract under which GlobeMed was assigned by the UNHCR, the UN refugee agency, to manage the health care provision to registered Syrian refugees in Lebanese care facilities, based on payments for these services by the UN and international donor countries. With currently more than 800,000 registered refugees, the management of these treatment needs represents both a good business and a humanitarian support opportunity for the company, says Hallassou.
In other insurance lines where one would easily expect demand increases because of regional security issues — such as terrorism, riot, or kidnap and ransom insurance — local intermediaries did not register a noticeable uptrend. However LIBS’ Hitti points out that demand for such insurance would usually be concentrated with international corporations and organizations which do not buy their covers here.
Elsewhere, basic fire insurance packages for companies are among the best-performing products in terms of demand growth, with a 12 percent year-on-year increase of premiums to $81.5 million in the first three quarters of 2013. This growth was helped by a decree from the Ministry of Industry by which industrial establishments are required to present a fire policy for receiving or renewing their operating licenses.
In other areas, especially in the need for professional liability insurance — ranging from hospitality ventures to real estate agents — the absence of government-mandated liability insurance means that the Lebanese economy and its stakeholders have to contend with unregulated risk factors and face a lack of incentives to increase professionalism. Civil liability insurance policies contributed less than 1 percent to national premiums in 2012, for example. Due to the government’s inaction in the legislating of mandatory liability covers, LIBS has taken the initiative to design a cover for insurance brokers which will be introduced from the start of next year for its members, says Hitti.
This is of course also a reminder that Lebanon’s draft law for a new and better insurance system has been languishing for nearly 10 years. The draft law, brimming with articles intended to advance the quality of regulation, supervision, solvency, provision and efficacy of insurance in Lebanon, has been left to gather dust in parliamentary limbo.
In order to move the law forward, insurers and the ICC urgently need to develop a joint perspective and lobby with parliament and the minister of economy and trade in the next cabinet.
