Lebanon’s insurers soldier on but struggle to hold onto their market without government assistance.
Ignored by the government and plagued by a lack of transparency and an oversaturated market, the country’s insurance industry is struggling to develop in step with the Lebanese economy.
“We’ve been waiting for changes in the law for many years,” said Farid Chedid, managing director of Chedid Re.
Though most executives say the industry is healthy and growing, no reliable performance figures exist for 2008 or 2009. Therefore, the overall effect of the financial crisis on the industry remains unknown.
Abraham Matossian, president of the Association des Compagnies d’Assurance au Liban (ACAL, Lebanon’s insurance association), said the crisis had very little impact.
“The crisis did not affect us directly,” he said. “We may see an indirect impact from the crisis due to the fact that the mega players — those with whom we have operation deals on the reinsurance level — lost money. And it is known that these people, when they lose money, add up this money along with their costs and try to recover it within a year or two depending on the amount. So that bit will affect us, but very remotely, very slightly.”
However, since the Insurance Control Commission (ICC), which is a part of the Ministry of Economy, does not release the figures it collects from the country’s insurance companies in a timely manner, there is no way to see concrete evidence of how the industry has been affected. Individual companies are obliged to publish their own figures once per year, but the laxity of the requirement gives the figures little value.
“The companies have to publish their balance sheet once a year after their audits, which doesn’t mean a lot because these are financials — they don’t indicate a market trend or how the business has been doing,” said Matossian.
Outside the official lines, Al Bayan magazine publishes figures every February for the previous year, but the accuracy of these numbers is also debatable. Al Bayan collects their data for non-life premiums through an exclusivity agreement with the municipalities. Insurance companies are required to pay a 6 percent tax on each policy they issue, and so the paper extrapolates the value of those premiums based on the tax collected.
But this method does not account for canceled policies or policies that are not subject to the same tax, an example being the coverage of diplomats. Neither does it break down non-life insurance into categories of coverage such as car, fire and civil liabilities.
Furthermore, when it comes to the life section of Al Bayan’s report, the chairmen and chief executive officers of Lebanon’s insurance companies are simply asked to send their company’s total premiums for the previous year by email.
“So I can write anything,” said Fateh Bekdache, general manager of Arope Insurance.
Swiss Re, an international reinsurer, also publishes figures from the market but, according to Thomas Schellen, publishing editor at Zawya Dow Jones, these figures are based on the latest ministry releases factoring the average growth from the previous years. The event of the global financial crisis further challenges the accuracy of these figures.
The lack of current information not only affects the ability to examine industry trends, but also the regional reputation of Lebanon’s insurance industry as a whole.
“Unfortunately, whenever we have the big Arab conference for insurance, Lebanon is the only market which doesn’t have an annual report,” said Bekdache.
The ACAL have made it clear that they would like the most recent numbers released, but with little result.
“We’re asking [the ICC] everyday,” said Matossian.
Insurance industry: net profits ($millions)
Insurance industry: relevant ratios (2007)
Insurance industry: shareholders’ equity ($millions)
Stale numbers, moderate growth
In mid-November, the ICC did release figures for 2007, which showed moderate growth in assets compared to 2006, but a dip in profits.
The industry’s consolidated assets grew from $1.6 billion in 2006 to $1.9 billion at the end of 2007. Written premiums showed a 17 percent spike, increasing from $662 million in 2006 to $776.3 million in 2007. Non-life premiums accounted for 64.8 percent of the 2007 total assets.
The figures show profits dropping from $51.2 million in 2006 to $47.2 million in 2007. This was broken down to $36 million in profits for life insurance, $6.1 million for fire insurance and for compulsory car insurance, $4.7 million.
The ratio of claims to gross premiums was negative 54 percent, with the most claims in the unit-linked categories and non-compulsory motor category. However, these figures only represent the industry during the period leading up to the financial crisis.
Loopholes and shady business
The current law governing the insurance industry was drafted in 1973, and according to industry leaders, the law does not properly control or protect the industry. Another law was passed in 1999, raising capital requirements of insurance companies from $200,000 to $1.5 million, but despite its enactment, the original law remains more or less unchanged.
This law lacks what is perhaps the most important feature in legislation supporting an insurance industry: the requirement for compulsory coverage.
Since insurance penetration in Lebanon is relatively low by international standards, at 3.4 percent of GDP — though executives are quick to point out that Lebanon’s insurance penetration is the highest in the region — compulsory insurance is commonly seen as the best way to encourage growth and stability in the industry.
In Lebanon, the only personal compulsory coverage is motor insurance and this need only cover bodily injury. Even this mandatory coverage has not led to a great rise in penetration because of the many loopholes and back alleys that riddle the Lebanese bureaucracy.
“[Regulation] is somewhat enforced but there are always ways to get around the rules in Lebanon,” said Schellen.
On top of a lack of compulsory coverage, competition between Lebanon’s 54 licensed insurance firms has lead to a “dumping” of cheap products, in turn damaging the market as a whole.
Since bodily injury motor insurance is the only compulsory insurance, some companies may choose to “dump” a product on the market, cutting the cost by more than 50 percent off normal practice. Anti-dumping laws, as they exist in other markets, put a minimum on prices for insurance products to rid the market of this practice.
Chedid said that insurance companies need more protection when attempting to collect on a policy.
“The process to collect money from clients is extremely difficult,” he explained. “The process is very tedious, so you are constantly at the mercy of the goodwill of the client. If the client doesn’t want to pay you, you will have to struggle to recover.”
“This shouldn’t be the case,” he added. “This is a major burden because the insurance industry relies on the generation of cash flow from clients to generate investment income. If you can’t get your cash flow instantaneously or within a short period of time then you’ve lost half the income.”
These legal shortfalls and the lack of legal support have forced the industry to persevere on manpower alone, said Chedid.
“In Lebanon the insurance industry is only relying on the creativity of its service-oriented individuals and companies. All the rest is luck,” he said.
A new law
In 2004, the ACAL submitted a new bill, compiled with the help of a Canadian delegation, to update the existing one. But the law remains in the long line of bills waiting to go to committee in Parliament. And even with the new government moving in, there is not much optimism that change will come soon.
“It has never been a priority for the government,” said Bekdache. “[In] Paris III, one of the important requirements is a new insurance law. We’ve been fighting with the government for more than 15 years to decide on a good insurance law, but so far we’ve had little success.”
The association has compiled a dossier of issues to discuss with ministries in the new government, and they are trying to remain optimistic.
“We expect a lot — whether we will succeed or not has yet to be seen,” said Matossian. “If we want the insurance industry in Lebanon to be in line with its counterparts in Europe, several ministries have to be involved.”
Left behind
The challenges facing Lebanon’s insurance industry may also endanger the place of Lebanese insurance in the regional market, especially since Lebanon exports much of the manpower and expertise that constitutes the insurance industry in the region.
“The industry grew in 2009, without a doubt,” said Chedid. “But when we compare ourselves with the rest of the region, which grew rapidly for over the five years before 2009, our growth was very slow and even reached zero percent in 2006.”
“The Lebanese insurance industry should be growing at a faster pace than the regional insurance industry,” he added.
But Schellen said some companies are choosing to move their headquarters out of Lebanon, into countries with more supportive regulations and showing a clear investment in the industry’s future.
“Companies are moving into countries like Syria and Jordan,” he explained. “Companies used to have their headquarters here, used to design their policies here, train their people here and have a market with a basic knowledge of insurance here.”
“As insurance is starting to come up in the Gulf, the rationale for being here [in Lebanon] is not as strong anymore,” he added.
Bekdache agreed that without changes in regulation and industry oversight, Lebanon may lose its place as a regional insurance leader.
In terms of Lebanon’s regional competitors, he said, “They will need time but they will surpass us.”
