The conquest of poverty is a core target of the World Bank. Even as it often is viewed—or maligned—as an instrument of capitalism and capitalist interests, the World Bank’s focus on poverty alleviation and on achieving the United Nations’ sustainable development goals means that the multilateral institution has a strong role to play wherever countries struggle with poverty. In Lebanon, efforts to overcome poverty are hampered already by a dearth of information regarding how much poverty actually exists, when measuring deprivation along two lines of extreme and upper poverty—which, for Lebanon, were defined respectively as living on less than $2.4 a day, and having a budget of $4 a day. The World Bank is engaged in a number of programs in Lebanon that are aimed at improving the fortunes of the poor and the poorest of the poor.

The issue of poverty in Lebanon is not extraordinarily grim, in the sense that the country on the whole is in the upper-middle-income bracket, but Lebanon, unlike many other countries, has not embarked on a poverty alleviation program based on systematic surveys on poverty and household incomes and expenditures. Such surveys, which Lebanon appears to shun for reasons of political interest groups and denial of some demographic realities, function as a base upon which a targeted strategy—including such elements as health education, social safety nets and social protection, as well as job creation and employment—can be designed and rolled out.

“It is no secret that Lebanon does not have a poverty alleviation strategy at large that is agreed upon by the government as is done in other countries,” says Haneen Sayed, World Bank program leader for human development, poverty, jobs, gender, and fragility in a region comprising Jordan, Lebanon, Iran, Iraq, and Syria. While Lebanon has not made efforts to collect concise population data and design such a strategy, Sayed notes that over the past 10 years there has been increased support for the poor. She cites the development of a National Poverty Targeting Program (NPTP), which was first announced in October 2011.

The extent of poverty

Sayed tells Executive that the available data on poverty in Lebanon can provide a certain sense of the extent and severity of the poverty that exists in the country, but that past initiatives to survey poverty—in 1997, and again in 2004 under a joint project of the United Nations Development Programme (UNDP) and the Central Administration for Statistics (CAS), and then in 2011/12 by the World Bank and CAS—cannot be compared due to the different methodologies employed.

Based on what one can derive from these and other non-comparable surveys conducted by international charities and aid organizations, Sayed explains that there appears to have been a shift in the geographic distribution of poverty across Lebanese regions, and specifically a reversal of situations in north and south Lebanon. “Although this is not from specific analysis and assessment but only a quick look at data, what happened is that probably a lot of private money went into the south, in the form of remittances that were much higher than [the remittances] that reached the north. One characteristic of poverty in Lebanon is, therefore, that today it has main areas of concentration in Akkar and the Bekaa, with significant pockets of poverty elsewhere, such as in Mount Lebanon,” she says. “Another characteristic is that poverty would have increased since the Syrian crisis as we have documented through projections, not surveys. This increase is due not just to the influx of refugees, but due to the impact of the crisis at large, on trade, [foreign direct investments], and general security in the country,” she says.

According to Sayed, the shifting geographies and increasing intensities of poverty are coalescing factors that make all the more pertinent current efforts at poverty alleviation—including, but not limited to, Lebanon’s NPTP, the pilot phase of which has been completed and the scaling up of which has been indicated by the government in Beirut. What differentiates the NPTP according to Sayed—other than it being the only real poverty alleviation program pursued by the Lebanese state—is its method, which does not stipulate geographic location or membership in certain predefined social groups (e.g. being a widow) as a qualifier. “The main feature of [the NPTP] is that it uses poverty as the only criteria for eligibility, based on a method called proxy means testing [PMT] that assesses household by household. Under the NPTP, households below the extreme poverty line are eligible for assistance, and it is a big achievement for Lebanon to have adopted this methodology and developed a database on this basis,” says Sayed.   

In a broad view of existing measures that provide the Lebanese poor with benefits, Sayed highlights the essentially free provision of primary and secondary education and the financing of medical services under the Ministry of Public Health’s budget. She emphasizes that deficiencies exist in the areas of redistributive taxation, pensions, and employment; World Bank studies indicate that the Lebanese economy does not create many highly productive jobs but rather low-scale and seasonal jobs.

“There are many reasons why poverty in Lebanon is the way it is, having to do on one level with the structure of the economy, and on another level with the structure of social policies that the government has or has not adopted over the years,” Sayed says. “On the structural side of the economy, the correlation between employment and poverty is strong. The story about the Lebanese economy is in this regard that the loss of a breadwinner’s job can cause a whole household to fall into poverty. Here, social protection and safety nets as measures to fill in gaps become part of the story. The NPTP is part of this story, but another part that is not solved is pensions.” She adds that the pensions issue is presently—not for the first time—on Parliament’s agenda.

Alleviating poverty

Once the NPTP advances from the pilot phase of implementation into being fully active, the program, in Sayed’s opinion, has the potential to contribute to the economic mobility of poor residents of Lebanon, meaning mainly Lebanese, but also, to a lesser extent, Syrian refugees. When fully functioning, the program will include a humanitarian asset transfer to eligible recipients in the form of $27 in cash/cash equivalent per household member per month. Beyond this assistance in the form of cash or e-vouchers, the poverty alleviation project will entail an employment graduation plan or, in official speak, a program for “Creating Economic Opportunities in Support of the Lebanon National Jobs Program.”

The latter program was approved by the bank’s board of directors on June 27 and allocated $400 million, which, according to a World Bank statement, comprises a $70 million grant and a $330 million soft loan. The latter carries an interest rate of 1.71 percent and is to be repaid over 22 years, inclusive of a six-year grace period. The $400 million package is moreover aligned with the CEDRE strategy, which the Lebanese government presented last April in Paris to the international community. As such, the loan deal would be implemented under the CEDRE umbrella and according to its disbursement mechanisms, meaning payouts of any loan funding would, according to the World Bank, be contingent upon the Lebanese state’s “achievement of a set of targeted results established in consultation with the government.”

Going into further details of the Creating Economic Opportunities program, Zeina Khoury, a private sector specialist at the World Bank, tells Executive that the program uses a novel integrated approach in order to tackle job creation challenges on both the supply side and the demand side. “Other programs used to target one side. The new program engulfs three components and areas where it seeks to bring results: the first is policy related, the second is focused on investments, and the third on the supply side, such as skill development,” she says.

Khoury notes that the program was designed in collaboration with nine Lebanese ministries. Its policy component will focus on the facilitation of legal frameworks such as the public-private partnership (PPP) law, which still requires implementation decrees to be adopted. It will also entail a credit infrastructure package and a trade facilitation package, in the context of the policy support component.

On the investments side, it will include elements in support of women, youth, and lagging regions, such as support for Ogero—and also newly licensed IT organizations—in rolling out fiber-based communications infrastructures. In Tripoli, it will help in the development of the Tripoli Special Economic Zone and in finding a private operator for it.

Job creation

Then there is a value chains program, in collaboration with the Ministry of Economy and Trade (MoET), with plans to identify four promising value chains in different sectors and establish a value chains committee with public and private sector stakeholders. Selected value chains will then be correlated with a fund for matching grants. This fund will be designed to co-finance firms in the targeted value chains for up to 50 percent on a grant basis, and will be overseen by the MoET and loan guarantee institution Kafalat. A corresponding skill building and training program will be implemented in cooperation with the Ministry of Labor that will also entail a wage subsidy component for new entrants to the labor market, and will include provisions for the establishment of an entrepreneurship fund.   

The Creating Economic Opportunities program, once in full swing, is clearly designed to impact Lebanon across many sectors of economic importance, and to help the poor in the realms of self-employment and employment. On top of that, its design offers a glimpse into what working on a World Bank “program for results” under the CEDRE umbrella will mean in practical terms for Lebanon. “Under a program for results, we give money only when disbursement-linked indicators (DLIs) are achieved,” Khoury explains. “We agree with the government of Lebanon on specific results that are jointly designed by the bank and the government. Each of these is priced, so, for example, in the case of PPP, where we want to support PPP implementation, we said that whenever an implementation decree is adopted, we will disburse an amount of money, and once you have completed five feasibility studies under the PPP, we [will] pay you another chunk. Once there are two projects signed with the private sector, as PPP, there will be a payment. There are a list of DLIs, and we will pay upon those. This is how the whole program is designed.”

Khoury says that the World Bank’s original projections for the jobs program predict that, over the course of 15 years, some 52,000 jobs will be created for Lebanese job seekers and new graduates. These estimates were made at a time before the Syrian crisis had fully unfolded and are double the number of jobs that were expected to be created organically in Lebanon. Khoury concedes that while this would help in alleviating the jobs gap in a country with high annual numbers of new job seekers—23,000 had been estimated—it would not be near enough to solve Lebanon’s current job creation problem.

According to her, the target of the jobs program is still to create 52,000 jobs for Lebanese, but intended beneficiaries today include some 3,000 Syrian refugees who are to receive training but no job placement support or wage subsidies. Their work participation is envisioned only in sectors in which Syrians are allowed to work in Lebanon and is expected to reach 225,000 labor days, equivalent to 987 temporary jobs, she says.

Another crucial detail yet to be worked out in the implementation of the jobs creation program is its formal adoption by cabinet and Parliament. Sayed and Khoury say that the implementation of the jobs program on the ground,  alongside the NPTP, is still some time away. Given that approval from the Council of Ministers and Parliament is still required, the expectation in the Beirut World Bank office seems to be that the program could become effective late in 2018 or early next year. But there are also hints that the World Bank might move the allocated $400 million to another program in Lebanon if the Lebanese side—for some reason—ends up not signing.   

So while many signs point to a well-designed and almost affordable program for job creation in Lebanon with far more than just financing engagement by the World Bank, it remains to be seen whether the program will advance Lebanon toward achieving the UN’s sustainable development goal of eradicating poverty, or at least extreme poverty. To this, the World Banks’ Sayad says, “First we have to measure it.”

Certain roads to wealth for the middle class are less traveled in some lands but well known in others. Describing life insurance as an obscure path to savings would honestly be preposterous in most developed economies. Accounting for $2.7 trillion in premiums, or about 3.5 percent of global GDP, life insurance represents well over half of the total worldwide insurance industry premiums activity (over $4.9 trillion in 2017, according to the Sigma research unit of reinsurer Swiss Re). Even when one notes that $4 out of every $5 in life insurance premiums are generated in developed economies, life insurance is actually the path most trodden to savings by millions of low-, average-, and high-income earners from San Francisco to Seoul, in Helsinki and in Adelaide.

By contrast, looking at the local demand for life insurance products, this avenue to wealth in Lebanon is underused to a shocking extent. With just over $500 million in premiums—around 1 percent in GDP—being dedicated to the three locally available life insurance varieties of term-life, savings-with-protection, and unit-linked contracts, life policies represent only around 31 percent of the insurance activity in Lebanon. This is respectable when compared with penetration rates in nearby Arab countries, but anemic in international comparison.

That insurance is a natural avenue to wealth creation in the eyes of an international insurance executive can come in no way as a surprise. But Antoine Issa, chief executive officer for the Middle East and North Africa at multinational insurer Allianz SE, offers a clear reason why. “Life insurance—and particularly life insurance coupled with savings—is a necessity in countries like Lebanon because of the lack of social security,” he tells Executive at the head office of group company Allianz SNA in Beirut.

Issa argues that having insurance contracts is a must for low- and middle-income people, but also for well-to-do professionals, such as lawyers and medical doctors, due to the near nonexistence of a social welfare system in Lebanon, and the insufficiency of the end-of-service indemnities system for funding a person’s retirement. “It is not a luxury, it is a necessity. In our opinion, the only solution to accumulate wealth for either retirement or for the education of one’s children is through life insurance,” he says.

Lack of financial education is the main reason for low life insurance penetration in Lebanon, according to Salim Yared, a veteran insurance broker in the Lebanese market and chairman of broking company Sloop—“especially if you are talking about the middle-income segment of the population. This is the segment most in need of having a life insurance policy. But there is not enough education that would teach people about the need for a life policy, which is very important for the head of a family to have, in case [his or her] death or sudden sickness leaves their family with no money or income.”

When compared with developed countries, where insurance is much more culturally entrenched in private households, many people in Lebanon are not sufficiently aware of either the protection or the savings offered by life insurance, Yared adds. In his view, even before they reach university age, young people in Lebanon should learn about insurance “as a means to take care of their own future and of their own wealth.”

The numbers talk

In terms of contract numbers, the subdivision between protection (term-life) and savings contracts in Lebanon’s life insurance market is heavily skewed toward the former, which offer protection against the financial repercussions that result from the insured event, such as an unexpected death. Typical forms of savings contracts entail monthly contributions that accrue with interest over the contract’s duration and upon the contract’s maturing are paid out as either lump sum or annuity. Annual returns are in the form of dividends paid on the basis of returns, which the insurer achieves by managing its long-term investment portfolio, or linked to the performance specific investment assets or funds. The preference for the less costly protection-only variety appears to reach a height such that up to 80 percent of life insurance contracts are bought as term-life. However, in terms of value, savings contracts account for about 60 percent of total premiums in any given quarter, according to the quarterly reports of insurance association ACAL.

There are scant indications of spectacular growth of life insurance in either absolute terms or in relation to general insurance as the share of life business in the Lebanese insurance market. According to ACAL reports, this growth has throughout this decade been hovering at around 30 percent. The two other large slices of the total market are health and motor insurance, with the pie being completed by numerous smaller and specialized lines in general insurance, from fire and cargo to construction and liability.

The Lebanese insurance sector has, for the last 20 years, been unsuccessful in closing the huge distance between the amounts of total gross premiums it collects (about LL2.3 trillion—$1.53 billion—in 2017, according to the annual report of the Insurance Control Commission) and the immense banking sector that can quantify its deposits in multiples of GDP. However, Issa and Yared both note that that life insurance savings contracts can compete with bank savings quite nicely in dimensions that are especially important to middle-class households. 

Yared explains that brokers do not strongly engage in arranging unit-linked life insurance contracts that involve large investment amounts, even as some banks do offer big-ticket unit-linked insurance contracts—commonly involving single large premiums—to help wealthy customers channel part of their deposits into policies that combine a life insurance element with indexed investment components and minimum-guaranteed components.

According to Yared, the advantages of such high-value policies include no inheritance tax on either their life component or their investment component in case of the insured’s death. Such transactions, however, require precise information on all involved fees and costs, which are not disclosed to the market. “As insurance brokers we are not very involved in this [big-ticket business]. There is no transparency in the field that allows full computation of large-ticket unit-linked contracts that you can propose to your client,” Yared says.

On the other side, the principle of life insurance investment contracts also works for members of the middle class who do not have large investible amounts that they could lock with a bank in a time deposit in exchange for a high interest rate. “Life insurance can compete with deposit offers from banks if one looks close enough. In my opinion, you should index your policy to a bouquet of [investment] components, such as having a minimum guarantee, a mutual fund, and some other investment,” he advises. “Then, if one component does not produce enough return, the other will give palliation. In the end, when you go with an indexed policy and achieve your return on the investment, you will see a higher rate [of return] than you would have obtained by putting your funds in a bank.”

As Issa explains it, the competitive edge of life insurance versus bank deposits lies in the combination of the long-term time horizon of insurance, the diversity of investment plans, the possibility to enter into a contract beginning with small monthly contributions, an approach of disciplined saving, and the protection provided by the life insurance benefits that are integral to every life insurance investment contract. While Allianz specializes in insurance risk, the group is also one of the largest asset managers worldwide and an expert in investments. “However, our core activity is the regular type of savings, and mainly addressed to the population who want to save a small part of their income,” he says, pointing to statistics that show regular investments, with the same amount or same amount adjusted for inflation, as producing the strongest yields. “The best investment ever is when you regularly invest every month into the same instruments or approximately the same instruments,” Issa says.

He notes that Allianz SNA designs many policies in partnership with banks for distribution through the bancassurance channel and says the firm does not compete with the banks. But he is confident of Allianz’s performance even under these circumstance of non-competition, where the insurance company sometimes, for many reasons, cannot beat the short-term interest rate offered in the banking sector.  “In the long run, when the client compares what we are serving [in interest] and what the bank is serving on small amounts, we are usually performing better,” he says. “For example, for the past ten years, Allianz SNA in Lebanon have never distributed less than 5 percent on the US dollar. And we are talking here about small investments of $200-$300 per month. It is the beauty of life insurance that we favor first of all small savings over big tickets and that we invest in the long run—so on the time horizon of 10 or 15 years we can achieve more than a bank’s deposit account.”

A rough road ahead, nonetheless

Apart from low awareness in the population when compared with developed countries, and misperceptions of insurance as luxury, life insurance as a savings option in Lebanon is faced with numerous other challenges. The first lies in a—fundamentally sound—pattern of people’s prioritizing of their expenditures. “People start buying with what they need the most, which means they start buying insurance with a health contract, which is becoming more and more expensive,” Yared says. According to him, the next insurance that people will think to buy in order of priority is a protection-with-savings cover under a university education savings plan for their children. Together, the health and education saving contracts will account for the main part of their insurance portfolio—and only if there is any disposable money left over will they will buy insurance for their own life.

“But as we know, the middle class does not have enough money and disposable income. So at this point they tend to buy term-life policies more than investment policies. Because term-life is more affordable [than an investment policy], it is the first precaution that people take to protect their family. This is how the market is going. However, [the pattern] should be the other way around, because people can find the money to fund an investment life policy and in this way will get more money for their retirement,” Yared explains.

Further barriers to creating a savings culture of life insurance portfolios in Lebanon might involve popular mentalities leaning toward show-off behavior and ostentatious consumption, religiously motivated reservations against insurance of “life” among the Muslim sections of the population, and the absence of state support for the development of insurance and savings cultures.

On the part of the financial sector, obstacles to an insurance culture in Lebanon might be rooted in past non-transparent behavior by insurance companies (especially during the time of the civil war, which ended over 25 years ago), and—in more recent years—in widespread consumer experiences where retail loan customers were routinely asked by banks to back up their loan contracts by committing to term-life insurance that would indemnify the bank in the event of their disability or death before the loan’s maturity. These contracts, which were in many cases issued by captive insurance companies owned by the lending banks and drove handy profits to the companies, would be perceived as an added cost burden by loan takers, but offer them no rewards whatsoever beyond the duration of the loan.   

For an observer, this practice of banks seems, at worst, likely to turn a large group of middle-class loan customers against buying life insurance contracts that they must perceive as providing them with only weak theoretical security and certainly no savings. In the best case, it looks to be a missed opportunity. “This policy is to the benefit of the bank but nobody thought about telling [loan takers], ‘If you buy a policy to the benefit of the bank for a loan period of four or five years, you[‘d be] better [to] buy it for 30 years and keep it [running] after you have finished paying back the loan,’” Yared says.

According to him, it would be perfectly possible to transfer a term-life insurance contract after a loan customer has finished paying his or her loan, thus making the customer the beneficiary. This would only require that bank loan officers, who are not insurance experts, be trained to follow up on life insurance contracts and be generally more literate in the art of insurance. One could even imagine expanding the term-life contract to a savings contract, considering that having serviced the loan could provide the customers with more disposable income, which they could allocate to savings. Yared notes, “Instead of selling the loan client life insurance to secure the credit, they could sell them an investment plan. The bank will be getting a profit from this and the loan client can keep [the investment policy] going once the credit is finished. It is to everybody’s profit, but nobody is doing it.”

To woo an uneasy state 

Now, regarding the relationship between life insurance and the state: it seems intuitive that governments would love life insurance. Schemes of private sector savings through life insurance mitigate risks and the social costs of old age that would otherwise sit heavy on the public lap. Life insurance, as a historically labor-intensive sector, is a source of jobs and creates opportunities for part-timers and the self-employed. Insurance companies also are constituents of economic formality—one can hardly imagine a life insurer that operates in the informal economy. And life insurance collects huge amounts of long-term money that is looking for long-term paper to be deployed in—which just happens to be the bonds that governments love to issue. No wonder many countries provide incentives such as tax-deductible life-insurance premiums under specific conditions, as well as exempting life insurance policies from inheritance tax, as is the case in Lebanon.   

All this notwithstanding, insurers in Lebanon have for years failed in their attempts to sway the state to offer tax incentives for insurance policy owners. Citing the tax deductibility of savings via life insurance in many countries, including, Egypt in the Arab region, Issa says, “We have been lobbying for many years with the Ministry of Finance to enact incentives for life insurance. [With incentives] we can definitely progress much faster in terms of spreading life insurance and convincing the people to buy policies.”

In many developed economies, incentives helped to develop the life insurance market, which in turn facilitated the increased participation of insurers as institutional investors in long-term markets of bonds and pension funds. Given the low direct tax rates for employees in Lebanon (which in theory encourage household savings), the deficiencies of social security, and the absence of pension funds, Issa notes that Lebanon should, in principle, be an excellent market for selling pensions to companies so that they can better retain good employees and make sure that employees have savings when they retire.

“It is unfortunate that we don’t have incentives [for corporate pension programs] but that, to the contrary, if I pay a premium as an employer for my employee to have insurance, there is not only no incentive but I have to pay all the taxes and fees to the NSSF,” Issa says. “We will continue to lobby for tax incentives that support life insurance for employees, because we believe it will be good for the insurance market, definitely for the population, and also for the economy as a whole. However, even without this incentive, as I said before, saving for retirement and education in a country like Lebanon is a must.” 

In Yared’s view, key elements missing from the Lebanese market are advice on and awareness of life insurance. “These should be given by the principals working in the sector, by which I mean the Association of Insurance Companies and the Syndicate of the Insurance Brokers,” he says. “These two organizations should start creating a movement that provides advice and awareness to the people of the middle class. [This] will also help the government because people will be better protected and the state will not have to deal with so many people who are in need at age 80 or 85. In my opinion, even the government will be interested in keeping the middle class safe from sliding into financial needs.” Yared argues that more employers should follow the example of companies like his brokerage, Sloop, where all 14 employees are part of a group health plan and are invited from the moment they join to participate in a portable life insurance investment plan.

As to the future of life insurance in a digitized world with an extremely complex and uncertain globalized investment environment, increasing life expectancies, and changing life concepts of individuals and families, Issa acknowledges that insurers have to adapt and change their behavior. He says that Allianz SNA earlier in 2018 began to use a new, digitized approach, under which the company looks at customer needs more holistically. In this process, which benefits from analysis entailing big data and digital tools, the insurance company computes information provided by the client into a profile as basis for a first draft of a life insurance proposition.

Under this concept of relying on the information wealth in the insurance company’s database and using market intelligence, it seems that the insurance seller’s role would be necessarily transformed into something much more impartial—perhaps resembling a wealth advisor for the regular customer or family. In practical terms, the insurance seller or agent and the client use a digital screen to modify and further customize the client-profile-based integrated life insurance proposal that can help the client chart their future savings path and project its outcomes. Issa summarizes his perception of future life insurance: “The sales approach of some insurance companies, or sometimes banks or brokers, was in the past a bit selfish. They were seeing an uninsured customer as an opportunity for pushing the policy that the seller gets the most profit from. Or they would read the customer’s revealed preferences and sell them the product that they are most sensitive to but not advise them about their other needs. This approach is not correct. We need to have a discussion with the customer and show them all their needs. A good advisor should look at the client and listen to their needs but also assess their profile, their assets, and real needs, and then should propose a solution for addressing all the needs with one reasonable package.”