Lebanon is one of the region’s insurance pioneers with 53 registered insurance companies. Yet Libano-Suisse General Manager Lucien Letayf believes that penetration levels in Lebanon fall short, with a yearly individual spending of $150, compared to an average of about $1,700 for western countries. The $500 million Lebanese insurance market is very small relative to the Saudi Arabian one worth some $6 billion.
“Penetration levels for medical insurance are estimated at some 15%, property at 5%, while third party motor, excluding compulsory insurance, varies between 30% and 35%,”said Habib Farah, deputy manager of AXA.
Arope’s general manager, Fateh Bekdash, considers Lebanon’s insurance per capita expenditure as very high when compared to other countries in the region. When insurance spending associated with energy risks are excluding from total regional figures, Lebanon’s per capita spending rates are among the highest in the Arab world,” he explained. “The region remains underinsured,” added Letayf.
Lebanese insurance companies have adopted different expansion strategies to beef up their presence. “AXA Middle East depends on AXA international, which is one of the largest international insurance providers. Our field of operation, although limited for now to Lebanon, also includes Syria, Jordan and Cyprus. Although Syria offers interesting opportunities, it is still in its nascent phase, with the insurance law promulgated only a year or so ago,” underlined Farah.
Reaching into the region
Libano-Suisse has looked beyond Lebanon’s borders and expanded in other regional countries such as Qatar, Syria, KSA and Jordan. Arope, a subsidiary of BLOM, has reached into the Syrian and Egyptian markets, while Arabia Insurance is also positioned in the region, with Lebanon only representing 6% of the company’s total turnover. The company also holds majority shares in Arabia Syria, after the country was recently opened to investors.
Most insurers interviewed by EXECUTIVE attribute the industry average growth of about 8% to international and local factors. Habib Farah identified several factors accounting for the sector’s limited growth. “On the local scene, the Lebanese political situation has significantly affected companies. We’ve nonetheless been able to achieve a satisfactory growth of 12%,” he reckoned.
On the macro-economic level, Arope’s manager identified several factors reflecting negatively on the industry such as soaring oil prices, inflation, higher costs of medical services and technology. Regardless of the challenging work environment, the company has managed to secure an 11.4% growth by March 2008, according to a study published by Al Bayan.
The situation has translated to higher non renewable figures on the local level, as many clients left the country in the wake of the 2006 war, according to Bekdash. The political context has reflected on the turnover of Lebanese companies as well as a number of new ventures, which have decreased dramatically.
“Our company has been able to attract a number of clients away from other insurers,” explained Farah. He believes high fixed costs, intense competition, and scarcity of new projects are factors heavily weighing down the insurance industry, and they are exacerbated by the unstable political situation. “In order to survive companies are either looking into other regional markets or drastically reducing prices, a measure which affects their profitability levels. Some players are even failing to abide by the legal fixed price of mandatory insurance, which is frequently commercialized at discount. Such measures are increasing companies’ exposure to risk,” he added.
Socio-economic demographics have prompted companies to develop new insurance products or focus on new segments to curtail the downward trend. LEAF, the Lebanese Education Aid Fund, was created by AXA in collaboration with the Council of Catholic Schools. This product targets parents of students of Catholic schools around Lebanon, whereby some of the profits are allocated to a special school aid fund for the less fortunate. “We were able to identify a need for which we tailor made a product,” said Farah. The company has recently issued a new property insurance product called LM7, or London market seven, which provides an extensive coverage exceeding other types of property insurance.
According to Farah, the Lebanese insurance clientele is becoming more professional, with awareness levels for insurance products rising steadily, a factor that has contributed to the growth of the sector as well as encouraged competition. “Penetration levels for third party car insurance did not reach 15% some ten years ago,” he added. With time, client profiles have also evolved. While ten to fifteen years ago, clients belonged mainly to the upper crust including business owners or self employed individuals, today insurance is more and more addressed to the masses.
Mandatory insurance
The introduction of the concept of mandatory insurance imposed by banks to loan applicants progressively modified the insurance market and created awareness among the population. People seeking a bank loan for buying a car or house are required to purchase third party and life insurance.
“The introduction of mandatory insurance associated with car loans, visa applications (to Europe), expatriate compulsory insurance for house maids, have all spurred awareness among the Lebanese public,” said Bekdash. Market players such as the CDR and Solidere have also positively affected the insurance industry by imposing property insurance on projects and rental space.
At a later stage, the emergence of bank insurance as a new market segment has modified the insurance playing field. Products became increasingly standardized, and payments made more flexible. Letayf believes that although banks are certainly playing a pivotal role in insurance, the relation between banks and insurance companies needs to be regulated in order to protect consumers and competition.
In the last few years, the market of bank insurance has taken off rapidly. Banks considered as respected economic players in Lebanon have provided insurance products with an added credibility according to Letayf. “We have witnessed a 100% growth in life insurance product from previous years, partly due to the introduction of bank insurance. It has become increasingly difficult for insurance companies to influence banks which are restricting choices of consumers,” said Letayf. Because of bank insurance, he believes brokers need to modify their market approach and focus more on larger institutional accounts.
To secure a larger piece of the pie, each company has relied on a different marketing approach. While AXA’s client base is mainly constituted of corporations, which amount to some 60% of its total portfolio, Arope has focused its attention on the retail insurance segment, although it features, in addition to its individual clients, medium to small size enterprises. At Libano-Suisse, retail insurance makes up to 60% of the company’s total client base. Arabia’s customers are mainly institutional, while up to 50% of their retail insurance clients stem from their wide brokerage network.
Most companies agree that motor and medical insurance coverage are driving the industry. “On the other hand, life insurance is one of the most profitable types of insurance,“ underscored Farah.
New trends have emerged on the international insurance scene, triggering the development of innovative and sometimes unusual products. “We have recently launched insurance products offering coverage against sabotage and terrorism risks as well as in case of event cancellation, involving war and terrorism attacks,” Bekdash pointed out.
Other products that have become increasingly popular abroad are ones covering losses associated to credit card fraud or embezzlement, which are adapted to modern life requirements. Travel insurance is another type of insurance that has become more popular and “credit insurance is another interesting segment,” reckoned Farah.
Insurance managers interviewed by EXECUTIVE underlined that although Takaful (Islamic insurance) presented promising opportunities, it required careful analysis and preparation. But, as Bekdash said, “There is a definite need for Takaful.”
Nabih Baaklini, COO of Arabia Insurance, explained that generally speaking Lebanon’s market is quite westernized in terms of insurance products, although certain lines of risks are still untapped; mainly those covering engineering liability, medical malpractice or risks associated with the responsibility of directors and officers.
“In Lebanon the high competition has improved drastically the standards and quality of products offered,” underlined Letayf. Products that are more complex require higher awareness levels, in the general manager’s opinion. “You will have a sense of the market when you take the insurance legislative frameworks, where only third party bodily damage is considered as mandatory, while third party material damage is excluded,” he pointed out.
New trends appearing on the market involve outsourcing. “Outsourcing remains an interesting tool at the hand of insurance companies, one that can be mainly utilized in areas such as IT and HR. Outsourcing claim management can also be beneficial to companies. It was introduced a few years ago, unfortunately the concept failed due to obvious conflicts of interests,” said Baaklini.
Mednet has positioned itself as one of the primary outsourcing companies in the medical claim segment in Lebanon. “Given the excellent results our partnership with Mednet has brought and allowed us to drastically reduce our expenses, we are also considering outsourcing our car claims,” said Farah. AXA’s manager believes some of the bankruptcy cases witnessed in the 1990s were mainly due to the costs associated with cumbersome operations, such as medical claims.
Letayf agreed that outsourcing is a general principle that is commonly accepted. “We are studying outsourcing motor claims but it will ultimately depend on our regional expansion. We might eventually decide to use an in-house one motor claim center for the whole regional group, if this solution makes more business sense for us,” he said.
On the other hand, Arope has adopted a different stance on the matter as the company has chosen to manage directly its high frequency claim department. “We feel that our relation with the client ought to remain personal, as no one knows our clients better than us. We are reputed for the quality of our service, the best in town according to people,” Bekdash claimed.
Waiting challenges
Many daunting challenges await insurers in Lebanon. “On the regional level, insurance companies will have to compete with foreign firms who are increasingly eyeing the Arab markets. Compliance is also becoming another important concern for insurance companies,“ Baaklini claimed.
Other challenges perceived by Arabia Insurance’s manager reside in the areas of H.R., where issues such as attracting and retaining talent and the ability to make profit on the underwriting are becoming more prominent. Most companies are also confronted with the issue of low penetration levels, which can be partly improved by an active collaboration between insurers and governments and the use of mandatory insurance. “Other factors slowing the development of the industry are low income levels mainly in countries such as Lebanon and Syria, although the situation has definitely improved in Jordan in recent years,” said Baaklini.
In the area of life insurance, managers acknowledge financial performance was far from hitting its peak in 2007, due to the overall economic situation. “The subprime crisis bore an indirect effect on the Lebanese industry, although insurance companies were not as badly hit by the crisis as banks, as their investments extend over a longer time,” explained Farah. By law, Lebanese insurance companies have to invest at least 50% of their life insurance portfolio in Lebanon. “We follow the ratings set by a board of directors, which focus essentially on triple A products and certain economic sectors,” emphasized Bekdash.
The regulatory framework remains at the heart of insurers’ preoccupations. “The legislative environment needs to be further defined, mergers should be encouraged as well. There are some 53 operational insurance companies in Lebanon, a figure that is extremely high for a country this size,” said Letayf.
Insurers agree that third party mandatory insurance should extend to property, as well as car insurance for material damages. “Most companies in Lebanon are awaiting the new insurance law, which is supposed to reorganize and redefine the new industry framework, but remains for the moment under discussion. The new legislation will certainly set the tone for the overall insurance industry and might encourage mergers and acquisitions, which have become a necessity in the current environment,” explained Baaklini.
Many insurance specialists believe that although mergers have been discussed repeatedly, it remains a distant dream, one of the barriers to mergers and acquisitions residing in the structure of the insurance industry where many companies are often family owned.
