Insurance industry set for more reforms

Amira Salah-Ahmed
9 Min Read

CAIRO: Bancassurance, microfinance and the role of the Egyptian Financial Supervisory Authority (EFSA) in regulating non-banking financial services were key topics at a Cairo conference Tuesday.

Ziad Bahaa-Eldin, chairman of the EFSA, said, “Giving new life to bancassurance is currently being discussed within the Central Bank of Egypt in a way that avoids the same pitfalls that led to a slow down in these activities in Egypt.”

Bancassurance is where an insurance company uses a bank’s network of branches as channels to sell its products, but one concern raised at the conference was the need for mutual benefit for both entities.

In the past five years, Egypt’s insurance sector on the whole has seen a number of reforms to its regulatory framework that have opened up the market, enabling companies to introduce new products and services.

The second annual Euromoney Egypt Insurance Conference, titled “Enabling Egypt’s Citizens to Secure their Future: Developing the Insurance Sector,” brought together officials and industry insiders to discuss how the sector has developed as well as the next wave of planned reforms.

There are now 29 insurance and reinsurance companies operating in Egypt, up from just 21 the previous year, with gross premiums totaling LE 8.2 billion in 2008/09, up from LE 7.6 billion the year before and LE 4.8 billion in 2004/05.

Insurance sector revenues currently contribute to around 1.5 percent of GDP, and the goal is to raise that number to 3 percent.

Minister of Investment Mahmoud Mohieldin gave a speech on behalf of Prime Minister Ahmed Nazif, saying, “We are here to find solutions and use international experience in our efforts to develop Egypt’s insurance sector.”

The first phase of reforms, Mohieldin explained, focused on creating an efficient regulatory framework and defining the supervisory role of the EFSA, formed in July 2009.


Phasing in

The first phase, he explained, aimed at building financial institutions, strengthening their structure and ensuring that they fall under strict supervision.

A vigorous restructuring process first tackled state-held insurance companies, which led to the establishment of the Insurance Holding Company. Public insurance companies were then merged, coinciding with the formation of the Misr Real Estate Asset Management Company.

The next focus was on solidifying the legislative structure of the insurance sector, implementing risk-based supervision and rules of financial adequacy. Membership in the Insurance Federation of Egypt was made compulsory in order to create a more viable platform and network of companies and associations operating in the market.

Companies also became more specialized, mainly achieved by separating life insurance activities from property insurance. Enhancing the role of brokerages and training qualified high caliber staff to fill these positions topped the list of priorities as the sector saw more reforms.

Financially, the minimum issued capital was raised to LE 60 million for insurance companies, the cost of transactions was reduced and the pricing mechanisms modified. Accounting standards were raised to comply with international levels.


Coming up

The second wave of reforms planned for the insurance sector began in 2009 and will continue through 2012. Chief among these developments will be catering to the needs and supporting the work of small and medium enterprises (SMEs) by providing micro-insurance products and services, said Mohieldin.

In the works is legislation that will regulate micro-insurance and another that will enable the issuance of private and optional pension funds as well as a law that governs medical care companies and creates a policyholder’s protection fund.

Mohieldin also said that encouraging new entrants into the market will go hand-in-hand with promoting investment in Upper and Lower Egypt, adding that new companies will not be approved unless they have plans to expand into these areas.

He also encouraged insurance companies to diversify their investments and foray into different types of bonds, long-term investments and deposits.


Regulatory roles

Moving forward will entail building human resources skill and training caliber in brokerage and actuary services.

On Monday, the Ministry of Finance entered into an agreement with the EFSA to provide training and capacity building to enhance actuary expertise in Egypt, said Bahaa-Eldin.

Speaking on the first panel, titled “The Egyptian Insurance Market: Legislative and Institutional Development,” Bahaa-Eldin explained that while new companies are more than welcome on the market, the key is to strike a balance between competitiveness and the number of companies operating in the sector.

He also said that the groundwork for a mediation and dispute settlement center is currently being laid out.

On the same panel, Abdel Raouf Kotb, chairman of the Insurance Federation of Egypt, said that making membership to the federation mandatory helps the entity in carrying out its goal to ensure stability in the sector, and adds value to member insurance companies.

As one of the main partners in major government projects, insurance companies are heavily invested in infrastructure development, namely in transportation and nuclear energy.

The federation works to meet the needs of the market, Kotb said, and one area currently lacking is coverage for natural disasters, specifically earthquakes and floods. “We need to create a fund to cover the kinds of natural disasters Egypt is most prone to,” he explained, “because their costs put a strain on the overall economy.”

Mohamed Abdallah, chairman of Insurance Holding Company, had an optimistic outlook for the growth of the insurance sector, saying that the sheer size of the population was a promising factor.

Pricing mechanisms need to be modified, he said, and taxes must be implemented in a way that does not deter investments.


Going micro

In a panel on insurance and microfinance, Adel Mounir, deputy chairman of EFSA, said that in the wake of the financial crisis, the global scope of demand for microfinance services has become clear; 2 billion people live on less than $1 a day, 1.84 have been identified as lacking sufficient access to financial services.

In Egypt, there are 12 primary NGOs responsible for microcredit and several banks are also involved. The microfinance law currently in the works is expected to extend these services to a wider segment of the populations.

The Dutch government recently agreed to finance a feasibility study to determine whether private insurance companies would be appropriate vehicles to finance microenterprises.

Sadek Hassan, chairman of the National Life insurance Company, said that 7.5 to 8 million people are expected to benefit from the effect of the new legislation on microfinance.

Concerns raised by the audience include the difficulty of convincing low-income populations that insurance services are useful.

Azmey Mostafa, consultant to the general secretary of the Social Fund for Development, said, “Necessity is the mother of invention; telecommunication technologies will assist in providing access to financial services.

“In Egypt there are on average three mobile phones per family, a level of penetration that will allow the implementation of mobile money transfer services [authorized by Act No. 10 of 2009].”

In the strive to streamline financial transactions, Ahmed Darwish, minister of state for administrative development, spoke of creating a central database to make citizens’ interaction with ministries more efficient and confidential.

After steps taken to ensure all citizens have a national ID, Darwish said that the next step was using the national ID cards to access all kinds of financial services through respective institutions.

Egypt is 42 out of 192 countries in making government services available online, he said. However, he added, “Egyptians consider confidentiality of primary importance.”

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