Underpricing constitutes a dangerous threat to insurers despite it being treated as a short-term competitive tool, according to Mr Hassen Khelifati, CEO of Alliance Assurances and First Vice President of the Algerian Union of Insurance and Reinsurance Companies.
Algerian insurance companies have engaged in a price war for years. To attract customers, they offer rates so low that the premiums no longer cover the risks they are supposed to insure, he pointed out in an article he wrote for a local newspaper.
Underpricing drives down the quality of services offered to policyholders. To compensate for insufficient premiums, companies reduce their operating costs, limit their investments in human resources, and hinder the development of new products. "Competition through low prices stifles innovation, impoverishes the quality of services, and reduces product diversification," said Mr Khelifati.
Minimum premium rates
He called on the authorities to implement mandatory minimum premium rates for each branch of insurance, calculated based on actuarial studies and developed in consultation with market participants. "Escaping the trap of underpricing is not only a necessity for insurers, it is also a prerequisite for building a stronger and more credible insurance sector," he said.
Industry players have been voicing proposals to improve the market as Algerian authorities are working on amending the insurance law.