BEIRUT: Lebanese insurance is among the very few sectors that are still recording a fair growth in an economy dragged down by years of political and security complications, according to said Assaad Mirza, president of the association of Lebanese insurance companies. “Lebanon’s insurance sector is still in good shape when compared to other Lebanese industries,” Mirza said.
By the end of the first quarter of 2014, total insurance premiums represented a marginal increase of 2 percent and reached $393 million compared to the same period in 2013 while premiums are expected to grow by 7 percent in 2014.
Mirza told The Daily Star that Lebanon’s insurance market was performing well also when compared to its counterparts in neighboring countries such as Iraq, Egypt and Syria.
Lebanon ranked as the fifth country in the region and 65th globally in terms of premiums generated in 2013, according to Swiss Re’s annual survey of the global insurance market.
“We are making profits,” he said, adding that Lebanon generated total premiums of around $1.4 billion in 2013.
He explained that claims tend to go up when premiums increase. “But the most important thing is that we are still making profits,” he said.
However, despite this improvement, insurance companies believe that this sector should grow more than the current levels, noting that insurance firms could have performed better if the economic and political conditions were more stable.
“Like any other Lebanese sector, insurance is affected by the economic and political conditions in the country,” said Mirza.
“When traders minimize their imports and exports transactions, we automatically see a drop in demand on insurance premiums,” he explained.
He added: “When traders reduce their stocks as well, the value of fire policies drop because the amount insured would go down.”
According to a report issued by the association of insurance companies, the rate of premiums increase per business line in the first quarter of 2014 compared to the year before was highest in fire insurance at 12 percent, followed by medical (10 percent), public liability (6 percent), and motor (5 percent).
On the other hand, premiums contracted 10 percent in life insurance and dropped 51 percent in engineering insurance.
“We can see an increase in medical premiums by 10 percent because people cannot avoid such kinds of insurance,” he said. “When they want to save money and cut their insurance expenditures they only tend to change their first class coverage to second class,” he added.
“The value of medical premiums increases yearly as well because hospitals tariffs rise in a continuous way.”
As for the number of car premiums, they went up by 5 percent but a drop of 1 percent in the value of these premiums was recorded because people have shifted to less expensive vehicles, explained Mirza.
For a better performance of the sector in Lebanon, Mirza emphasized the importance of increasing the capital of insurance companies from $1.5 million to $10 million as advised by the Lebanese insurance law drafted In 2004 by two Canadian experts intensely familiar with insurance issues in developing countries and with Canada’s insurance law, which is supposed to rate among the world’s best.
Drafting of the law was authorized in September 2003 by Lebanon’s then-Economy Minister Marwan Hamade.
Among other things, the draft newly defines the structure and supervisory competencies of the Insurance Control Commission (ICC), calls for stricter separation of life insurance and general insurance activities as distinct corporate entities, and for increasing minimum capital requirements in several stages.
“Unfortunately, this law was not implemented because of the successive political complications that the country has gone through and which have impeded the work of the Parliament,” he said.
Mirza also called upon companies to go for mergers in order to improve their performance and increase their shares in the Lebanese insurance market. “We currently have 51 insurance companies in Lebanon but I believe that 30 companies would be enough for this country,” he said.
He also underlined the importance of mergers because re-insurers do not prefer to cover small companies. “They prefer to work on a larger scale because the administrative cost of each file is very high,” he said.
Reinsurance is the practice of insurers transferring portions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions.