Slow economic growth and the unstable socio-political environment continue to impede the insurance sector’s efforts to achieve higher growth rates. Nevertheless, against the odds, industry players manage to make inroads to yield positive outcomes.
In 2015, the Tunisian economy did not grow as rapidly as expected despite the smooth post-revolution political transition and relatively stable conditions seen in the preceding couple of years. The economy is estimated to have expanded by around 1% last year, against previous expectations that growth would exceed 3.5%. The performance gap is seen mainly as a result of last year’s dramatic terrorist attacks which have exerted additional pressure on prospects for investments in the country.
The insurance sector has not been immune from the ills afflicting the economy. Preliminary data show that the market’s GWPs reached TND1.65 billion (US$800 million) last year, representing a 6.2% increase over the preceding year, or almost 40% slower than the growth achieved in the previous two years, 10.2% and 9.9% in 2014 and 2013, respectively.
Near to 70% of the sector’s operations are from motor and medical insurance with contributions at 45% and 20%, respectively. “Most of this business is either compulsory or semi-compulsory,” said Mr Lasaad Zarrouk, President of the Tunisian Federation of Insurance Companies (FTUSA) and CEO & Chairman of STAR Assurance, the country’s largest insurer with a market share of around 20%. “This signifies the dire need to diversify offerings and expand the range of coverage to leverage the sector’s contribution to the economy and increase the shy, below 2%, penetration rate,” he said.
Mr Habib Ben Hassine, CEO of Maghrebia General and Maghrebia Life Assurance Companies, said that the notable decline in investments in the country over the past couple of years had affected the insurance industry. Motor and medical insurance lines grew faster and drove market growth while performance was weaker in other lines.
For example, motor in 2015 grew at 6.3%, in tandem with the overall market growth. Transport insurance saw a setback of 4%, which is attributed to slow imports and exports and lacklustre commercial activities.
Life insurance needs attentiveness
Life insurance premiums expanded at 9% last year, outpacing growth in the overall insurance market. Life premium income reached TND294 million, representing around 18% of total market turnover, higher than the 17% and 16% seen in 2014 and 2013, respectively. Some analysts believe that the increase in the life sector’s share of total market GWPs is due to slower growth in non-life operations. This indicates that there is considerable room for growth in the life business.
Maghrebia Life controls around 15% of the life market with TND42 million in premium income in 2015, up from TND40 million in the previous year. “Developing life and savings businesses is a strategic goal for us. There is no other alternative given that profitability in other lines is diminishing,” said Mr Ben Hassine.
His company is giving special attention to individual life and savings, he said, attributing this strategy to the pressure that group life insurance has been under since the Ministry of Social Affairs imposed additional levies on the business, hence deterring employers from purchasing coverage. “This is unfortunate. Life and savings deserve backing especially as they serve the society and alleviate the pressure on the government’s shoulders at the end of the day.”
Bancassurance is imperative to expanding life businesses but the lack of a captive bank for an insurer stands as a barrier to achieving more in this class of business, said Mr Ben Hassine. “This is another serious challenge. For us, we have bancassurance agreements with six banks but the generated sums and types of business, usually term credit-related, is below our targets. Banks are not as keen as insurers when it comes to promoting endowments and savings. The case is different when both the bank and insurer belong to the same group where the income pours into the same pot.” He said Maghrebia will continue to seek strategic alliances with banks to overcome this challenge.
Innovation crucial for survival
Meanwhile, Star is keen on adopting an interactive top-of-the-line digital strategy to gain greater customer satisfaction, said Mr Zarrouk. Last year, the company became the first African insurer to develop a motor accident reporting system using smartphones. Such a system increases convenience for customers who have to report motor accidents. “Clients are no longer required to come to the company to report accidents. This service has been hailed as a boon in the market and we plan to expand it.”
He added that digitalisation is embedded in Star’s new comprehensive strategy which emphasises client-centricity and aims to improve service levels, expedite compensation processes and provide clients with consultancy and advice.
Also endorsing digitalisation, Mr Ben Hassine said that harnessing technology is not a passing fad nor an unnecessary accessory anymore. He said: “The future is in technology and digitalisation. They are gradually dominating distribution means and most likely will surpass the agency model in a matter of few years.
“In Europe, direct and traditional sales channels generate turnover of only 8% of overall premiums, a statistic which should alert our insurance companies to invest in technology; otherwise they will be left behind.”
Enhancing the consumer experience
Maghrebia looks to expand its non-motor businesses through excellence in customer service. “Gaining consumer satisfaction would help us cross-sell products such as household, personal accident and life, all of which have big potential. This would require huge efforts, but we have no other alternative as targeting individual insurance is the best way to grow healthily. The size of premiums is not the main goal—we want to protect Maghrebia’s brand as well as keep up and preserve our achievements.”
He noted that insurers should address market niches and think out of the box to keep pace with the continually changing business and social environment. “Simultaneously, providing affordable services which respond to the people’s needs is imperative. The market is hungry for microinsurance offerings.”
The company pioneered “Claims Inspection Points” around 20 years ago. The Points are for assessing motor damages and settling claims on the spot. “We have four Points to expedite the claims handling process and we plan to expand the network to include more of them this year.”
Consolidating the marketplace
Besides the country’s national reinsurer, Tunis Re, the insurance market in Tunisia consists of 21 direct insurers, at least four of which started operations after the 2011 revolution. They include three takaful operators, Zitouna, El Amana, and At-Takafulia. There is also Attijari Assurance, a bancassurance operation affiliated to the Morocco’s Wafa Assurance.
Despite the potential the Tunisian market holds, concerns have been voiced over the relatively large number of players relative to the volume of GWPs. Fragmentation usually leads to cut-throat price competition, said Mr Zarrouk, noting that providers should consider mergers for the benefit of all. Yet, as most companies are profitable, their shareholders are rejecting the mergers option.
Mr Zarrouk said: “The increase in the number of companies has resulted in increases in the cost of distributing wealth instead of expanding the wealth itself. The global trend is for markets to consolidate through M&As and this is vital in order to create a new landscape where companies can invest in improving services and upgrading the level of the industry.”
Promising signs ahead
The overall environment remains challenging but some supporting factors might brighten the horizon for the Tunisian insurance sector, said Mr Zarrouk. “In 2016, the sector is expected to achieve at least the same growth rate as that achieved last year.”
The Contra Programme, a five-year roadmap which provides plans for restructuring the sector and implementing more compulsory insurance covers, was proposed in 2014 with inputs from FTUSA, and is expected to be signed this year. “This could be a game changer. Companies will be required to exert greater efforts to meet the high standards of the Programme. Strengthening governance and transparency, coming up with new products and, most importantly, adopting service-oriented approaches to attract clients and improve the industry’s public image, are some of the main areas of focus for insurers.”
There are positive market indicators, with the base of clients and geographical scope of operations expanding, he said. “Additionally, awareness is improving, with the public seeking better services instead of lower prices. Competition has relaxed to a certain extent and financial literacy is registering better results.”
The present challenges might turn out to be beneficial for the sector, he added. “They should induce providers to shift their mindset towards servicing policyholders. Superior customer service will be the edge in competition. FTUSA has forged a new and ambitious successful strategy for the industry.”