Eighteen months after the first private insurance firm entered the Syrian market the sector continues to chalk up prodigious growth. Syria’s insurance sector grew by 25% in the first half of this year with premiums totalling $85 million. Total industry premiums now weigh in at around $160 million. More than 40 applications have been received by the Syrian Insurance Supervisory Commission (SISC) and 15 licenses granted, including three Islamic insurance companies which are expected to launch early next year. “Business has been excellent,” United Insurance Company directing general manager Muhammad al-Sabi said. “We’ve recorded unexpected figures and it looks promising for the near future.”
The industry’s growth is all the more impressive, says Syrian Arab Insurance directing general manager Bassel Abboud, given that intense private sector competition has seen premiums fall by between 30-40%. “If prices were kept stable you would see an overall market increase of around 50%.”
The most under-insured in the region
In the short term, the healthy figures are likely to remain as Syria remains one of the most under-insured nations in the region. Syrians spend $7 per capita on insurance, compared with $30 for the rest of the world and $150 in Lebanon (the rate long boosted by the influx of premiums from Syria). Those in the industry are expecting Syria’s spending on insurance to rise to $10 by the end of 2009, even with the heavy price discounting.
“It is widely expected in the industry that the liberalization of the market will bring it in line with other Arab countries over the next five years, implying a potential market of $500 million,” a recent analysis by the Syria Report concluded. “The SIC’s share of $132.2 million combined with an estimated $70 million of repatriated income leaves approximately $300 million of implied market growth over the next five years.” The SISC is more bullish still, predicting the market will reach $800 million by the end of 2010.
Before Syria’s insurance sector was nationalized in 1961, there were 77 private companies operating in Syria: 26 British, 16 French and the remainder made up of 10 different nationalities. Following nationalization, a single state-run insurance provider was created, the Syrian Insurance Company (SIC), which monopolized the market for the next 45 years.
As part of Syria’s ongoing economic reform process in May 2005 the government passed Decree No. 43, which allows for the establishment of private insurance firms. Unlike the banking sector, there are no limitations on foreign ownership. Companies organizing public offerings in Syria for more than 50% of their capital, however, attract a tax rate of 15%, instead of 30% of other firms. An ownership cap of 40% was placed on any single legal entity, while individuals are not able to own more than 5% of the shares.
The majority of the new players are backed by stakeholders from Lebanon, Saudi Arabia and the Gulf who have combined with Syrian investors to benefit from the tax advantages accruing to companies which are majority Syrian-owned.
While the state-owned SIC continues to attract the largest market share, pulling in $52 million in the first half of this year, the array of newcomers are making serious inroads. From a monopolistic position, the SIC’s market share fell to 94% by the end of 2006. In the first six months of this year the rate dropped to 59.37% and it is estimated the former goliath presently holds little more than half of the market.
More worrying for the state-owned firm is its premiums portfolio which fell 19.4% year-on-year, from $68 million in the first half of 2006 to $55 million in the first half of this year, despite a growing insurance market. In a competitive market, the company is being strangled by heavy bureaucracy, rigid management and pricing practices, little marketing know-how, poorly trained staff and sub-par service. To counter the decline, Syrian authorities granted it greater managerial autonomy in August.
The introduction of private firms has also seen a range of essential products hit the market, including travel, health and sophisticated forms of financial insurance. Their provision has done away with a legal black hole that hung over the industry, brought about by the absence of essential insurance products and a legal environment that forbid any Syrian citizen or organization from contracting insurance in a foreign company. The most common example of this legal grey zone was the failure of the SIC to provide travel insurance, despite the fact that it is an essential visa requirement for numerous countries, including the EU. Although Syrian authorities previously turned a blind eye to individuals and companies taking out insurance abroad, Syrians were previously forced into a technical breech of the law to comply with modern visa requirements.
Insurance money coming back
The provision of these products is seeing a flood of money return to the county. An estimated 300,000 Syrians travel to the EU each year alone, implying an $11.8 million premium value. Likewise, analyses by the Syria Report and the Syrian European Business Center, estimates that between 4,000- 5,000 company health insurance policies were in place in Lebanon at the start of 2006 worth $30 million.
Across the industry, the Ministry of Finance has estimated that around 60% of income for 2006 was repatriated funds, indicating that the push to bring Syrian insurance money back to the country is working, along with the take up of new insurance products.
As in most developing countries, motor insurance continues to represent the bulk of insurance premiums. Third party and all risk motor insurance represents around 65% of the market, marine and transport 15%, engineering 15% with all other products accounting for the remaining 5%.
While motor insurance will remain the largest component of the market for years to come, new sectors such as engineering and health are promising more lucrative profits in the future. The imminent introduction of corporate governance laws, start of the stock market and issuance of government bonds will lead to the development of insurance investment portfolios, improving the sector’s ability to deliver products particularly in the health and life fields.
And it seems interest in these products is being piqued. A SISC survey of 2000 people found that 52% of respondents consider health insurance the most important, followed by life (33%) and motor (12%). “Medical insurance will take time to grow in Syria,” Abboud said. “But we have noticed a steady increase in enquiries about it. The fact that people are asking is a positive indication.”
Low income and a lack of awareness about insurance present the greatest obstacles to growth. The SISC survey found that close to 60% of Syrians said their financial situation prevented them from taking out insurance. Increased competition is seeing prices fall, however, and some firms are expressing tentative interest in developing low income products.
sisc polling shows that 20% of syrians regard commercial insurance as forbidden under islam
Religious beliefs also play a role, with some Muslims regarding insurance as contrary to Islamic law and akin to gambling given that there is no guarantee of financial return. An insurance company’s investment activities, which may involve the charging of interest, also lead to the view that insurance is haram. How widespread and firmly held these beliefs are remains debatable, but SISC polling shows that 20% of Syrians regard commercial insurance as forbidden under Islam.
Aiming to tap into this market, a number of Islamic compliant insurance companies are about to set up shop in Syria. Offering takaful insurance, these firms operate on the principle that policy holders should cooperate amongst themselves for the common good. Policy holders ‘donate’ their subscription to those that are in need or are asked to make ‘donations’ from the money they have contributed to the organization when another member is in need. The organization spreads the liabilities and aims to eliminate uncertainty by acquiring a large number of subscriptions.
The number firms entering the market is also causing some players concern. While the industry has recorded impressive growth since it was opened up, the market remains small and the flood of repatriated funds will eventually dry up. The heavy capital requirements to enter the market and price discounting are throwing out the industry’s usual capital to premium ratios.
“If you look at the capital requirements you have around $315 million which is a lot of money for a market which only produces $140-160 million in premiums,” Abboud said. “As an international industry average, solvent insurance companies run on a 3:1 or 2:1 premium to capital ratio. So you would expect to see at least $600 million in premiums with good, solvent markets. Some companies will not have much business and may have to operate as investment vehicles which is not the purpose of the market.”
