Political uncertainties in Egypt have not deterred the insurance sector from growing and taking bold steps towards improving. But while the future bodes well, challenges remain.
Over the last two years, Egypt’s insurance sector has progressed on many fronts, including premiums growth, new players, regulatory updates and fresh tools for promoting insurance, especially by life providers.
A key development in the past year was AXA’s acquisition of a major player, Commercial International Life (CIL) and a licence to set up a general insurance operation, which confirmed the sector’s attractiveness. The Egyptian Financial Services Authority (EFSA) has also approved the licence of another general provider, United Insurance Co, with Lebanon’s Al Mashrek Insurance & Reinsurance controlling 65% of shares. In 2014, EFSA granted preliminary approval to Egyptian Emirates for Life Insurance Takaful, Salama’s family takaful arm, to set up in the country.
Presently, the market has 32 providers – two state-owned, 16 property and liability, 12 life, one credit and one cooperative player.
Room for more players
New entrants, especially those from abroad, are adding value to the market in terms of new products, sales techniques, claims systems, training modules and service, noted Mr Alaa El Zoheiry, Managing Director, Arab Misr Insurance Group (AMIG), gig. However, newcomers should not just acquire market share without providing at least two or three of these elements, he said.
There is more room in the life market, especially since bancassurance has resumed, “but new players still need to add value”, he stressed. “All of them should present a feasibility study, and this should be reviewed two years from the start of operations, to see if the company is going the right way.”
Iskan Insurance Co is one of the younger players which faced a different landscape after the revolution. However, Mr Hammam Badr, Managing Director, said the company is on the right track, supported by improving economic and security conditions. “In general, there is a positive investment outlook, with good implications for financial services. We achieved our expectations in the past year and are on target for this year. Iskan has benefited from providing the market with additional capacity; we are very well-established now, and the vision is clearer.”
Slow growth in non-life
EFSA’s latest figures show a 17% growth in life premiums in the first nine months of 2015 to EGP5.3 billion (US$675 million). Property premiums grew slower at 8% to EGP6 billion.
The severe competition in non-life, particularly in property, motor and engineering, is due mainly to the soft international reinsurance market, observed Mr El Zoheiry. “No one expected the soft cycle to last so long, but it did. The soft market will continue and drop in rates will be seen both internationally and locally. This will affect the rates in property and engineering, as well as in oil and gas.”
Other reasons behind the negative trend included the absence of new projects during the period, but this is likely to change because of the jump in the number of government projects, in addition to private-sector real estate projects in the pipeline, he said.
Tough competition is a major factor in the deteriorating results, especially in fire, noted Mr Badr. He recommended that insurers address areas such as household covers, as the state is working on providing a home for each family through several mega projects. He also called on players to adopt ways to deal with price-sensitive lines.
He added that oddly, some players continue to provide coverage, sometimes even with discounts, despite the loss history of some clients. “This is unprofessional. A minimum level of benchmarking is necessary. Because of such practices, some reinsurers have withdrawn from the Egyptian market. We must have the tools to analyse results and evaluate performance.” Mr Badr urged the regulator to play a stronger role in this issue for the sake of all parties, particularly policyholders.
Growing takaful contributions
Family takaful contributions reached EGP485 million between January to May 2015, representing 11% of life premiums which amounted to EGP4.4 billion for the same period. On the general side, within the first five months of 2015, contributions reached EGP425 million, 16% of the EGP2.6 billion property insurance. There are five general and three family takaful operators in the market.
Takaful plays a vital role in increasing penetration in Egypt as the majority of the population are Muslims, who may avoid insurance for religious reasons, said Mr Abd El-Raouf Kotb, Managing Director of the Egyptian Saudi Insurance House (ESIH). The company was established in 2003 and was the only takaful operator until other players entered in 2007.
He said the increase in the number of takaful operators is beneficial for clients and will help spread Islamic insurance. “We expect an increase in the number of Egyptian takaful companies in the future, in the light of developing legislation.” He pointed out that the Insurance Federation of Egypt (IFE), in cooperation with EFSA, has drafted a new insurance law that includes separate sections on takaful, microinsurance, TPA and medical insurance.
Medical gains traction
There has been a dramatic increase in medical costs, and officials agree on the need to expand the healthcare system to include more of the population. “The government has been dealing with many difficulties. Healthcare used to be lower in priority, but it will most probably receive attention before the end of the year,” said Mr Adel Shaker Wahba, Chairman of the Egyptian Insurance Brokers Association (EIBA). He expects an improvement in the level of services and stronger growth in the coming years, especially with brands such as AXA, Bupa, and MedNet ramping up their presence.
Medical insurance has a promising future in Egypt in view of the huge population, increasing costs of medication, inadequate public healthcare service system and the government’s tendency to improve services by giving the private sector a larger role, observed Mr El Zoheiry. However, companies should be cautious and not get too eager to compete without scrutinising business accounts, he said, warning that the business is “promising but dangerous”.
Mr El Zoheiry called for the direct provision of services to the client by the Health Ministry and TPAs to be eliminated, saying this would be the way to correct medical insurance as these organisations, in most cases, lack proper reinsurance support which could affect claims settlements. Instead, TPAs should operate only through insurance companies as service providers.
Brokers seek stronger role
Brokers in Egypt control around 75% of the general business, said Mr Wahba. They are also eager to enhance operational processes by adopting modern tools such as e-broking. “Brokers are also keen to take part in the bancassurance channel by serving as providers,” he added.
Corporate brokers can boost the industry’s image by improving their services, he said. With the majority of their business coming from the corporate sector, “brokers should go the extra mile and target individuals to expand awareness and exploit the potential there”.
A big challenge for brokers is applying the standard contract – one of the recommendations of the first Regional Insurance Brokers Congress (RIBC) – to organise the relationship with insurers. Mr Wahba also called for improvements in the legal system to expedite court decisions.
Presently, there are only two multinational brokers in Egypt, Willis and Marsh. At the end of June 2015, there were 50 registered insurance and reinsurance brokerages, compared to 44 in the same period last year.
The need for data
With price competition and the lack of statistics being major challenges, the IFE plans to launch a database by collecting data from insurers, said Mr Badr. “Around 15 years ago, banks established a company specialising in checking on clients who apply for loans, and insurers should do something similar. For example, warehouse insurance in Egypt, and MENA in general, is showing poor results. With sufficient data, insurers would have the tools to take remedial measures by increasing prices and enforcing stringent terms, thereby providing the right services.”
The lack of data makes it challenging to create a clearer vision for certain lines, said Mr Badr. “Credit insurance, for example, has been suspended since nationalisation in the early 1960s, which makes it difficult to get historical data to come up with the right prices. Even the present market portfolio is neither large nor homogeneous enough to simulate the insured population. The case is quite the opposite for motor, which has the volume and history.”
Regulations in the pipeline
In 2013, EFSA formed a committee which included the IFE Chairman, academic professors, legislators, EIBA representatives and other insurance professionals to come up with draft resolutions which would form the basis of a new insurance act. Among the important suggestions for the act include increasing minimum capital requirements for insurers and brokers; allowing medical insurance companies, a new brokers’ federation and microinsurance providers to be set up; and putting the supervision of TPAs under EFSA’s authority.
Mr Wahba, representing EIBA on the committee, expects the insurance market to witness major developments in 2016 after parliamentary elections are held by the end of this year.
The new law or the modifications of some items should help the market grow more, especially in microinsurance and medical insurance, said Mr El Zoheiry.
He added that EFSA’s support for the market and the ongoing open dialogue will also help solve longstanding issues. “Although we have not seen the full details of the new law or the modifications, what we have heard so far is promising and could make a difference in some lines of business and products, especially in the area of introducing new sales techniques, including, but not limited to the selling via the internet.”
Optimism prevails
Iskan plans to continue upgrading its status and revise its strategies and expectations in light of market changes, said Mr Badr. “A key goal is to improve our team’s professional standards and focus on nurturing young talent who are tech-savvy. In Egypt, and MENA in general, operators need to think out of the box and seek new ways of responding to the needs of the masses.”
Brokers are seeing progress through their clients, with many projects which were previously on hold resuming in the past few months, said Mr Wahba. “The market went through an idle stage but now, things are picking up.”
For AMIG, gig, GWP increased by 17% to EGP432 million, and saw almost EGP74 million in net profits by 30 June 2015. The company recently opened branches in Suez and Ismailia following the opening of the new Suez Canal.
“We are also very active in rolling out new products – we have received regulatory approval for products such as an export guarantee cover, IATA insurance, agricultural insurance, and inbound tourists insurance, with more to come. We are the only rated insurance company in Egypt, with a ‘BBB’ rating by A.M. Best,” said Mr El Zoheiry.
Encouraging outlook
Outcomes in the past two years, despite the challenging conditions, suggest that players have only scratched the surface, and there is still plenty of room for the industry to deepen its penetration. With the regulator keen on improving market standards, players adopting new ways of developing, and consumer awareness picking up, the overall outlook appears encouraging.