The Egyptian insurance market is one of the oldest in the region. it has shown a welcome degree of resilience in recent years. Despite of its long history, the market remains at a relatively nascent stage of growth, compared to those in more advanced economies.
Hence, the contribution of insurance in the total growth domestic product (GDP) is still very limited. For that purpose, Daily News Egypt interviewed Adel Mounir, the secretary general of the Federation of Afro Asian Insurers and Reinsurers (FAIR), to learn more about the reasons beyond this limited contribution.
The interview also touched on the opportunities of growth in Egypt and the Middle East, in addition to important issues that nowadays affect insurance in Egypt, including the establishment of an Egyptian reinsurance company, the transcript for which is below, lightly edited for clarity:
In your opinion, why is the contribution of insurance in the GDP still very limited at 1.1%?
The GDP itself, as a productive factor in the country, is very limited, when compared to the Egypt’s population size.
Additionally, there is a lack of insurance awareness, which is, in my opinion a result of the fact that all industry bodies have not paid efforts to raise public awareness about the benefits of insurance to citizens, before corporations, and institutions.
Hence, we could say that the most important driver for increasing the limited contribution of insurance to the GDP is the spread of insurance awareness among Egyptians.
I think that when the strategy and projects of the Financial Regulatory Authority (FRA) are completed, the contribution of insurance in the GDP may rise to reach about 2.5-3%, in the next five years.
You mentioned that the FRA has projects that will increase the contribution of insurance in the GDP, can you tell us what are these projects?
The FRA is currently working in developing law number 10, which was issued in 1981. It is a comprehensive law for all individual laws that affect insurance, such as compulsory insurance, private funds, takaful insurance, micro, and medical insurance.
Thus, all of the aforementioned types of insurance will remain under the umbrella of one law, which is the comprehensive law number 10 of 1981, and this will lead to having a strong insurance platform.
In terms of the FRA’s projects, there are several projects, such as insurance on students, who represent 18 or 20 million in Egypt, in addition to insuring governmental buildings.
All these will double the premiums, and of course the contribution of the insurance to the GDP.
In your opinion, what was the effect of the pound floatation on the insurance industry in Egypt?
We should mention that the decision of the pound floatation was an important decision in improving the economy in Egypt. The decision had a semi-temporary effect on the insurance sector, as the values of insured items increased, while the insurance amounts were very small, when compared to the value of insured items, so people during that period should have re-evaluated their insurance amounts.
The Insurance Federation of Egypt (IFE), in cooperation with the FRA, and insurance companies played an important role, to ensure people were aware about this point, other people quickly re-evaluated their insurance amounts, while others waited until the renewal date of their premiums came, In all cases, this re-evaluation attained a high growth rate in premium values in Egypt for two consecutive fiscal years (FY), as each year there was about a 30% increase.
How can you evaluate growth opportunities in the Middle East, and what chance does Egypt have .in these opportunities?
There are great opportunities in the six Gulf countries, as they developed a medical insurance law through their insurance companies and not through their ministries of health. I mean to say that they have huge growth opportunities, which cannot be compared with Egypt, due to the compulsory insurance.
Having said that, the compulsory insurance on Gulf countries is represented in vehicles and medical insurance, as they make up 70% of their insurance.
Meanwhile, our health insurance law is now out of the international insurance statistics, while if we put it in the international insurance statistics, we might be ranked as the first, or second country.
But we could compare Egypt with Morocco, Algeria, and Tunisia. We are in second place after Morocco, and this is also because Morocco’s insurance statistics include compulsory insurance, while in Egypt, medical insurance is not included, in addition to that private funds are also not included, bearing in mind that private funds is a type of life insurance with a separate law, and represent half of the life insurance in Egypt.
For example, if we estimate that the premiums of life insurance in Egypt are worth EGP 8bn, we will find that we have other EGP 8bn in insurance of private funds.
In brief, the size of the market is remarkable, and the growth potential is enormous.
Having said that, in Egypt the life insurance grows faster than non-life insurance, also life takaful insurance grows more than that of the commercial takaful insurance.
The normal growth rates achieved every year is about 10% in non-life insurance, and 15% in life insurance, but I think if companies introduced new insurance products, used good marketing methods, paid more attention to customers and benefited from technology, these growth rates could be doubled.
How can you evaluate insurance progress in Egypt?
Measuring insurance progress is by increasing life insurance in countries, and Egypt is increasing life insurance from time to time, and it was 30% in the past, while non-life insurance was 70%.
I expect that it will soon reach 45%, compared to 55% of non-life insurance.
I forecast that within three years, life insurance in Egypt will increase to reach 60%, in comparison with only 40% of non-life insurance.
We heard news of you thinking of establishing an Egyptian reinsurance company, what is your opinion?
According to our studies, we found that the establishment of the company requires a capital of $200m, and company must be present in more than one country to obtain a credit rating.
Then, the matter was presented to the Egyptian market, which paid only about 20% of the value of the capital, and foreign partners refused to participate in the capital of this company.
Bear in mind that the Insurance Holding Company was the one who wanted to manage the new reinsurance company, so foreign investors were not eager to enter into a partnership with the government.
But, in my opinion, if the IFE takes the initiative to establish this company, and follow-up with the local insurance market that consists of 36 companies, this company could be established.
Is it possible to revive the old Egyptian Reinsurance Company again?
No, it is impossible as now after it’s a merger with Misr Insurance Company, and all its documents, premiums, and even the customers, are mixed with Misr Insurance, and cannot be easily separated.
Is the idea of merging Al-Sharq Insurance Company, the National Insurance Company, the Egyptian Reinsurance Company with the Misr Insurance Company, would benefit the insurance industry in Egypt?
The idea of integration exists all over the world. There are small companies that are asking for docking with large companies, because it is difficult for small companies to compete in the market with bigger companies.
And mergers lead to increases in the share price of the small company, as they merge with the shares of the large company, and this was the thought at the time of insurance companies’ merger, where there were two companies, Misr and Al-Sharq, competing for the insurance portfolio, and the competition was based on lower insurance prices.
Notably, the owner of both companies is the same, which is the Egyptian government represented by the Ministry of Finance, so the government prefers to merge companies together, with the aim of increasing net profits, and maintaining the insurance portfolio.
Concerning the merging of the Egyptian Reinsurance Company, the government only considered the economic return, and did not consider the social return, or the economic power of Egypt in the case of that company’s existence, as its existence was breaking the global monopoly for reinsurance, and provides an Egyptian cover for insurance companies in the country.
It helps in achieving balance when negotiating with reinsurers companies on prices.
IF we go back to 1956, during the “tripartite aggression” against Egypt, and the withdrawal of both England to cover the reinsurance on Egyptian ships, which led to an economic blockade, and the ships were unable to navigate. Without the intervention of Russia, at the time to cover the reinsurance, the ships would not have been allowed to navigate. Thus, this event led to the Egyptian government conclusion about the importance of the existence of an Egyptian reinsurance company.
What is FAIR’s plan in the next period?
The FAIR is a regional union, that has 270 members from 53 countries globally, and it provides them with networking opportunities, and we conducted reinsurance conventions, to increase reinsurance deals between countries in Africa and Asia, and this is considered an important economic target.
Moreover, the idea of these conventions is similar to the idea of the Egyptian reinsurance company, but on a broader African and Asian context.
Notably, the FAIR conducted four conventions which achieved premiums worth $125m.
Also, the FAIR is currently working on developing a health insurance and medical care worldwide reference, thus it is expected to launch a congress named FAIR health insurance and health management congress for the first time in July 2019.
It will be first of its kind in the Middle East, and it is expected to be attended by about 120, 150 either medical companies, companies that offer medical services, and by medical insurance companies worldwide.
The union will also establish an academy for training and education, in which a certificate will be given by the FAIR to the trainees who graduate from the training courses, and this certificate will be a recognised in the countries of Africa, and Asia.
These training courses will be held in Egypt, or online, for African, and Asian countries. The academy will search for the specialisations required by the countries, to offer training courses in them.
Having said that, this academy will be an important shift in insurance in the Asian and African countries, and will promote the insurance industry globally.
Considering new development governmental projects, do you expect an increase in the insurance portfolio in Egypt?
Of course, because development projects lead to increasing the income, and thus increase the amount spent on insurance along with increase insurance awareness.
In that context, I hope that insurance becomes essential in the lives of people, and not additional thing, or a luxury.
In addition, new development projects will need insurance, and new insurance types have been introduced, such as home insurance, and commercial credit insurance.
Notably, I think that the new generation become more aware about the benefits of insurance and its importance, so I think this will lead to increasing the insurance portfolio in Egypt.
By what percentage do you expect an increase in the insurance portfolio?
Now, Egyptian people spend about $15 or $20 on insurance, I think within five years the Egyptian citizen could increase his spending on insurance to reach about $40 or $50.
I also forecast, that the contribution of the insurance to the GDP could increase to reach 2.5% within a period of three to five years, instead of 1.1% nowadays.
How can you evaluate the Egyptian insurance market in Africa and Middle East?
Egypt is ranked the third in Africa after South Africa and Morocco, and Egypt is followed by Nigeria.
Meanwhile in the Middle East we were ranked fourth before the pound floatation, then after it we were downgraded to become fifth, among the Middle East in the insurance industry.
What will be FAIR`s role in the Sharm El Sheikh Rendezvous for Insurance and Reinsurance that will kick off on 28 October?
We have a cooperation protocol only for helping, but we are not involved in organising the Rendezvous. Meanwhile, we support the IFE and Arab Union for Insurance. We hope for a successful conference because it is considered a very good promotion opportunity for the Egyptian insurance industry. I expect that the Rendezvous will be attended by about 400 or 500 company, 50% of which are international companies.
What are your hopes for the Egyptian insurance industry?
In terms of insurance, I hope to see insurance contributing to the GDP by about 3 or 4%, and to see Egypt as a leading country in the insurance market.