CAIRO: Egypt’s new pensions and insurance law, which raises the insurable percentage of the net salary, is causing public contention and raising the ire of industry insiders.
The old law stipulated that a maximum percentage for both basic and additional components of an employee’s salary be paid, while the amended version requires a percentage of the net salary and removes the maximum requirement ceiling, stirring concern from current business owners, potential investors as well as insurance industry insiders worried that the extra money will deter citizens from seeking other kinds of insurance.
“The new pensions and insurance law which will be in effect by 2012 will no doubt have negative effects on the insurance industry on the long run.” Abdel Raouf Kotb, chairman of the Insurance Federation of Egypt, said at a discussion Thursday where officials and representatives of the private sector sounded out about the new law and how to avert negative consequences.
Adel Hammad, chairman and managing director of Misr Insurance Company, said that the law was studied in technical councils committees which were presented to parliament only after the law was passed. He stressed that the law was passed too quickly, and hoped that insurance companies would have a key role in coming up with the executive regulations and any future laws involving the insurance industry.
Mohamed Moeet, advisor to the minister of investment for insurance, defended the law in his opening speech, saying that it was in the interests of Egyptian citizens. For most Egyptians, he said, it is more equitable than the old law, which places the maximum allowed insurable salary at LE 1,750.
“This ceiling began to show its effects in the last few years, because there is a big difference between what someone makes the day before retirement and the day after,” he said.
“If I am retiring and working today with a salary of LE 2,000, I want to be able to take home LE 1,500 if I retire tomorrow, but the old law says I can only earn a maximum of LE 800. This is unacceptable because I am effectively lowering a person’s quality of life,” he added.
Now that the maximum has been lifted, Moeet said, the government can insure the entire sum of a citizen’s salary. This is due to reforms in the management and investment of pension funds, which he says have been poorly managed for years.
Moeet added that the law was directed towards helping the rising middle class. While the old law stipulated that a person pay 11-14 percent of their basic salary, the new law amends this to 10 percent of the net salary.
According to Moeet, government calculations showed that this would lower insurance costs for most citizens with salaries in the range of LE 3,000, which was the larger portion of the population, while ensuring that they receive up to 75 percent of their salaries on the day of retirement.
“I understand there is a worry about government insuring the full income crowding out private sector insurance companies in the long run, but all of you must acknowledge that we are solving a huge problem when those who retire in our country, retire poor and are forced stand in the bread lines,” he concluded.
From the insiders
Although those attending acknowledged the motives behind the new law, the speech was met with skepticism and the discussion was sidetracked by technical questions from private sector insurance executives in attendance regarding the government’s calculations and the law’s intended effects.
To bring the discussion back on track, Kotb, the moderator, asked a representative from one of the insurance companies to outline their concerns.
Raymond Cham, chairman and managing director of Allianze Insurance Co Egypt, one of Egypt’s largest insurance companies, said that the law would affect investors and businessmen as much as it would crowd out the private insurance industry.
It’s about the role of the state in the issue of social insurance, Cham said, agreeing with Moeet’s view that the current law is unjust but disagreeing about how this was addressed.
“We think it is the state’s responsibility to ensure social equality but this should not be at the expense of a whole industry. The new international trend is to minimize the public sector in the national economy,” Cham said.
“We consider the new law to be giving more weight to the public sector and to the state’s role in the economy. The new law does not give space for the private sector to develop itself in the arena of insurance, life insurance in particular,” he added.
To make his point clear, Cham asked if a person had to pay 10 percent of their salary to the Ministry of Finance for the pension insurance, will they also pay for a personal insurance program?
“We still haven’t considered insurance on properties, personal insurance, car insurance, house insurance. Personally, regardless of how big my income is, [I] wouldn’t pay more than 10 percent of my income for insurance,” he said.
Cham also pointed out that for businesses, which after the new law will be required to allocate 20 percent of the salaries of employees to pensions, would not pay a penny more for insurance, stressing that for the private insurance sector, neither businesses nor employees would pay more out of their salaries for private life insurance and pension schemes.
Cham also raised concerns about potential investors. If a group of investors want to invest $10 million in Egypt and find that they have to pay 15-20 percent in social insurance, pensions and health insurance — as well as asking employees to pay 9 or 10 percent, which adds up to about 30 percent of total salaries — would they still want to invest?
“Even if they did, will they think about paying for insurance additional to the 30 percent that they already have to pay?” he asked.
“Here we see what the effects this law will have on the future of the insurance sector in the medium and long term. This is our concern as the private sector insurance industry and as businessmen regardless of whether we work in insurance or not,” Cham concluded.
Moeet was bombarded by questions and accusations that the government wanted to monopolize the sector. After a comment from an insurance company representative, who said that all private sector involvement in the industry will be crowded out within 10 years of the law’s enactment, attendees were assured that their comments would be taken into consideration.
“I want to remind everyone that we are talking about long term effects and that we still have the executive regulations and that the law could still be amended or changed in the future,” said Moeet, listing other laws that were modified within two years of parliamentary approval.
“We promise not to repeat what happened with the law for the executive regulations, and I assure you it will be presented to the Insurance Federation for technical analysis this time before it is passed,” he added.