Interview - EFSA: Building on the sector's resilience
Source: Middle East Insurance Review | Sep 2012
Insurers proved their trustworthiness during the unrest, but the market must innovate more to reach its full potential, says Dr Adel Mounir, Deputy Chairman, Egyptian Financial Supervisory Authority (EFSA).
Though losses were around US$200 million, the unrest has not negatively impacted insurance sector, said Dr Mounir. “On the contrary, it was probably the only sector which grew in the last couple of years. It is during such challenging times that industries must prove their credibility or fall short of expectations.”
GWP for the past financial year, ending June 2011, reached EGP10 billion ($1.64 billion), growing 9.6% over the preceding year with projections for this year to register a similar growth rate. “However, the market size remains below its real potential. GWP presently represents only 30% of what can be generated, taking into account the market capitalisation and the untapped areas of growth.”
The latest events have increased the awareness of the importance of insurance, as shown by the rising demand for strikes, riots and civil commotion (SRCC) covers as well as life & savings and medical products, particularly among the middle class. “This is a healthy change as life insurance clients are mostly high-income earners.”
Microinsurance has been expanding as well, with new players entering the field. Around two million citizens benefit from microinsurance services, a step towards segmentation, but there is a long road ahead for players to capture new market niches. “Innovation by segmentation is pivotal, especially at this stage. Insurers should tailor special products to satisfy various social segments’ requirements, taking into consideration their income levels.”
The market is still attractive as two players, Lebanese and Saudi-Bahraini, have applied to establish new insurance setups in Egypt, revealed Dr Mounir. “The applications are under study. EFSA believes there is room for new entrants given the great market potential and EFSA’s ‘easy entry, easy exit’ strategy in line with free market policies.”
New rules of the game
Liberalising the market around 10 years ago has created a healthy competition between the two sectors, increasing the private sector’s market share but without undermining the two state-owned players’ status, observed Dr Mounir. In 2010-2011, private players grew faster than state-owned insurers and controlled over 50% of the market for the first time in the industry’s history.
“State-owned operators have responded vigorously to the competition,” he commented. “Having less market share does not mean that their activity has declined but rather, it has increased at a slower rate compared to the private sector. Moreover, state-owned players have responded by providing new products and expediting claims settlements procedures, thereby improving their reputation.”
However, there is unutilised capacity with state-owned operators controlling around 60% of market capitalisation, he said. “The state-owned sector has the capacity to absorb businesses as much as three times the current size. But generally, they are making progress.”
Unlike other markets such as Syria, state-owned players in Egypt are treated equally and do not receive special privileges. “EFSA is not biased towards any party. Protecting any player would affect the quality of service. Even modest protection would hinder the sector from reaching its potential and fully utilising its resources.”
He pointed out that having five international players and some sophisticated Arab insurers in Egypt have prompted both state-owned and local players to swiftly improve their offerings and enhance their service standards.
Life preserves momentum
In 2010-2011, life premiums grew faster than non-life premiums, 10.5% against 8.5%, respectively. The life business is witnessing strong competition, but foreign players continue to take the lead, noted Dr Mounir. “Life requires higher levels of innovation compared to non-life. Local providers in the Arab world generally need to upgrade their offerings to cope with today’s needs. They should enhance financial planning and offer products that take into account other indicators such as mortgage and leasing factors. There are international standards in life insurance which local players should meet in order to succeed.”
Tax incentives are not expected to be introduced in the foreseeable future. “However, EFSA considers it a vital means to expand the social safety network. We plan to push for the creation of an encouraging taxation system to help savings and investments products grow.”
Reactivating the bancassurance channel is expected to promote individual lines, including life & saving products. The Central Bank has promised to reopen the door for bancassurance transactions with new conditions introduced this year. Licensing and supervision responsibilities will continue to be shared between EFSA and the Central Bank.
Takaful is steadily growing, with market share expanding by 1% over the last financial year to account for around 5% of the market GWP. “Takaful is emerging as a major force with seven operators backed by solid capitalisation and wide experience in the life and non-life businesses,” said Dr Mounir.
Takaful is providing value add to the market, but it is not expected to fully replace conventional insurance in the next few years, he added. “Some speculate that with the recent political changes, there will be a radical shift towards Islamic finance. I disagree with this theory as there are well-established market trends which will be considered. Moreover, the Egyptian market is familiar with takaful as an Islamic insurer has been around for 10 years.”
Creating a healthy environment
New laws have been put on hold due to the present political circumstances and are expected to be further delayed even after the new constitution has been drafted, said Dr Mounir. Laws waiting to be passed include the codes of practice for brokers and agents, organising TPA providers and pension laws. “But EFSA is continuously introducing new instructions in respond to the market developments,” he added.
EFSA has created a platform for players to operate soundly, but they need to find better means of growing by introducing new products which respond to market developments, he said. “The insurance sector is the iron dome which shelters the society and economy. EFSA will work hand in hand with all parties in this sector to remain solid and expand,” he concluded.