The Egyptian insurance market is one of the oldest in the region. it has shown a welcome degree of resilience in recent years. Despite 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 gross domestic product (GDP) is still very limited.
Moreover, In 2016 Egypt was ranked 65 among the global insurance market, between Bulgaria and Uruguay, in non-life insurance: in the MENA region Egypt ranked 7th after Iran, the UAE, Saudi Arabia, Qatar, Morocco, and Algeria, according to “Insure Egypt.”
Daily News Egypt sat down for an interview with Alaa El-Zoheiry, Chairperson of Insurance Federation of Egypt (IFE), the managing director of Arab Misr Insurance Group (GIG)), to learn more about the challenges that face the Egyptian insurance market, and the plans of the IFE in the next period. The interview also touched the effect of the comprehensive new health care law on the insurance market in Egypt, and what are the last updates in that file, in terms of the role of the insurance companies in that law. The transcript for which is below, lightly edited for clarity:
The interview also touched the effect of the comprehensive new health care law on the insurance market in Egypt, and what are the last updates in that file, in terms of the role of the insurance companies in that law.
You have been working in insurance industry for more than 30 years ago, how can you evaluate progress of this industry throughought that long period?
The Egyptian insurance industry started about 120 years ago, at the beginning of the Egyptian insurance industry, there were many mandates for the British and French companies.
In 1900, the first Egyptian insurance company was established.
After this stage, Egypt witnessed the presence of foreign insurance companies through the establishment of branches and agencies.
Following the nationalization, the British and French companies that were established through the mandates left the Egyptian market.
After that the Egyptian market witnessed the presence of three Egyptian insurance companies for a period of 75 years.
Then the law allowed the entry of the private sector companies in the Egyptian insurance market with some limitations that the company’s capital should not include foreign capital.
Then some amendments were made to the law, allowing the presence of foreign capital with the condition that if foreign capital in the company exceeds 10%, they should seek approval from the prime minister.
Then finally, the law allowed them to own 100% of the company, after that the Egyptian insurance market witnessed the entry of many firms.
Is Egyptian insurance market attractive? How much does insurance market account from total GDP?
The Egyptian market is considered as an attractive market, as there are 100 million people in Egypt, whom are translated to high purchasing power, which means many insurance services, that are translated for insurance companies into achieving more premiums.
Meanwhile, in the current period, Egypt’s insurance market represents around 1.1% of the total GDP, which is a very small proportion, but we expect it to increase further.
Furthermore, the total value of the Egyptian insurance market’s premiums in the fiscal year (FY) 2017 reached EGP 24bn, which is not keeping pace anymore with the number of the people in Egypt.
Hence, the Egyptian citizen spends from $8 to $12 on insurance annually, which is very limited spending.
In your opinion, what are main reasons for this limited contribution of insurance in Egypt’s GDP?
Firstly, the lack of insurance awareness and lower incomes become an important factor that affects negatively the volume of premiums in Egypt.
What is role of IFE in facing aforementioned problems?
We are working in facing both problems now. Concerning incomes, we are trying to offer insurance products that are cheaper and suitable for the low-income people, such as micro insurance.
In terms of lack of awareness, the IFE holds numerous seminars and conferences to increase people’s awareness, in addition to sending awareness bulletins weekly to all the people that are interested in the insurance industry in Egypt whether they are working in the field or not.
These bulletins include in depth information about the insurance industry, technical concepts about insurance, etc.
Moreover, the IFE will launch an awareness campaign on many TV Channels next September. The campaign is funded completely by the Federation and it aims to spread awareness about the concept of insurance.
Is there any coordination between IFE, FRA to activate governance on insurance’s corporates?
Governance is part of the Egyptian law, as it stipulates that insurance companies should have an internal audit committee composed of non-executive directors of the company to control the company’s executive operations and the company’s performance, and then finally present the results to the board of directors on a report.
The Egyptian Insurance Federation and the Financial Regulatory Authority (FRA) are working together on corporate governance.
Notably, the law did not state anything about the risk management committees, but there are some companies that set up risk management committees, that are responsible for determining the risks in the company, in addition to expecting the risks that could happen.
What is role of IFE in facing danger of activating universal healthcare law? What is effect of this law on insurance portfolio for medical care?
According to the stages of the law’s activation, it will start in Port Said, taking around 10 years to put into effect in Cairo and Alexandria. Of course, this law will affect the health insurance market in Egypt, but to what extent and how it will affect, we could not expect this in the current period.
But we could expect that on the long term, the law will lead to decreasing the medical care premiums, on the other hand, this law is very useful for Egyptians.
It is important to mention that we sat down with the policy makers after reading the law. We discussed with them that there must be a role for the insurance companies in offering this service.
Then executive regulations came out including a role of the Insurance market within the law.
The role itself is still not clear until now, but we are holding meetings with the representatives of the Ministries of Health and Finance, to learn and understand more our role.
Notably, that the health insurance is obligatory, whereby the people will pay to the Social Insurance Authority the value of health insurance. The client who has health insurance with an insurance company and pay to the Social Insurance Authority, will be able to get better rates from the insurance company and the insurance company will be compensated for the amounts of their claims but subject to the prices of the Health insurance scheme.
Having said that, we aren’t clear yet if this will be the case or it will be handled otherwise.
In the committees of insurance industry in IFE issues’ recommendations, is there any coordination with FRA to make these recommendations become binding instructions?
All these committees include a member who represents the FRA, hence the FRA is aware of all the decisions that are issued
Sometimes, we need to take the confirmation of the FRA in some issues, for example, if we will issue new insurance products.
At other times, if we need to modify or add something to the way of implementing or dealing with a specific type of insurance, we use to coordinate with the FRA to issue the decision.
We heard news that IFE thinks to establish an Egyptian Reinsurance company, in your opinion, what are challenges that impede establishing it?
I think there are three main challenges, first of all the capital, as it should not be less than $200m or $250m, which is a huge capital, so you will need the entry of the investors and banks to share in the capital.
Notably, the break-even of the reinsurance is around five or seven years, so no one will invest in it unless he understands and prefers the reinsurance, as most banks and investors will prefer other type of investments that have faster break-even.
The second challenge relates to the credit rating of Egypt, as it should not be less than A-.
Meanwhile, there are some international insurance companies that have rules, not to deal in the reinsurance with a low credit rating, Hence there will be limitations in the work of the company.
Finally, the last challenge, the lack of trained, qualified employees that can understand well the pure reinsurance, thus in that situation we have two options, the first, is to appoint employees from outside Egypt, which will be costly, while the second one is to train employees in Egypt on pure reinsurance, that will take a lot of time.
Having said that, it is very important to mention that IFE will continue to support the idea of establishing a reinsurance company for Egypt.
In your opinion, what are effects of pound flotation on Egyptian insurance market?
The liberalisation of the exchange rate was a double-edged sword, it has a positive effect as all the clients have re-evaluated their insurance amount, which leads to a hike in the volume of the premiums.
On the other hand, the negative effect is that the spare parts of the vehicles increased as most of them are imported, also medical operations’ requirements also increased, as most of them are also imported, which led to claims of medical care, cars, etc increased.
With increase of development projects in Egypt, do you expect to increase insurance portfolio in Egyptian market?
Of course, anything new in the state either a new project, foreign investment or local investment, affects the insurance company positively. In all cases of the new project if it is completed or under construction, the insurance market is benefits.
As one of pioneers of insurance industry, what are your hopes for it?
First of all, I hope to see more expansion and growth in the Egyptian insurance market.
Second, I hope to find more awareness about insurance and more progress in the industry itself.
Currently we are working on micro-insurance, however the volume of premiums is still not keeping pace with the number of people in Egypt, so we hope to see an increase in the premiums volume.
What are plans of IFE in next period? What are targets of IFE in terms of volume of premiums in next period?
We put a four-year-plan, that focuses on developing the industry and the peoples’ skills.
In addition, we aim to increase premium volumes, and raising insurance awareness, as well as holding many seminars and conferences.
The IFE in cooperation with the FRA targets to double the volume of premiums in the Egyptian insurance market within a period of three years. Moreover, the IFE seeks with the FRA to find compulsory insurance products that suit peoples’ needs, such as the premiums of professional mistakes.