Mr. Elias R Chedid, Director of Chedid Corporate Solutions LLP(UK), takes stock of the surging demand for life insurance in the region and highlights the need for innovation, especially with the changing dynamics in the global financial market.

According to Chedid Corporate Solutions estimates, in excess of $7.2bn life premiums including Family Takaful, would be written in the MENA and Central Asia countries 2008. The curve of premium growth is shifting upwards at a rate higher than ever (see chart below). But the challenge is far from over. It is worth observing why only in 2006 that we started seeing double digit growth ratios and a startling 18% premium growth in Middle East and Central Asia (MCA) in 2007. Strong contributing countries in the MENA regions (from available data) are: Morocco 53%, Egypx 38%, UAE 37% Lebanon 33%, and Kuwait 14%.

It is also worth understanding what was missing in the Life insurance sector and observing certain eye-catching growth countries in a region where companies continue to compete for market share, face pressure from regulators and changing investor sentiments.

A Brief History

Life insurance is about the future. It is about those who live not those who die. A brief historical look at the life insurance industry tells us that Life insurance emerged from the desire for own security. Early societies relied on families and tribes as a shelter to preserve an individual security. With time individuals and groups needed a wider source of protection due to societal, economic and legal changes. Insurance in its various forms thus emerged.

The earliest life insurance contract on record goes back to June 1583 on the life of William Gibbons issued by the office of insurance within the Royal Exchange. This contract also recorded the first claim that underwriters denied, considering that the policy term was 12 months and they meant lunar months not Gregorian. On this basis the policy expired prior to the insured loss of life. This case also recorded the first law suit against life insurance underwriters. The claim was eventually settled.

Life insurance gained popularity, but it needed to gain the accepxance of mathematicians to thrive.  The development of the theory of probability and actuarial science gave it the push needed.

The historical brief above intended to focus on the need for and the role of life insurance that goes back to the 16^thcentury and gave rise to today’s global market of US$2.4trn , of which MENA represents only 0.24% of it.

Better  late than never. It is important to vouch for the courageous role played by governments, more specifically in the GCC countries that paved the way for a new platform upon which life insurance business can be performed. The social resistance to life insurance in many Middle Eastern countries has been reversed by the assistance of regulatory bodies such as SAMA, DIFC, QFC. The growth of Takaful based insurance practice opened new opportunities that certain insurance companies capxured it that others considered it a handicap. Despite competition, especially in Credit life, and despite the current world economic recession cycle, insurers can surely continue to achieve growth, both top-line and bottom-line.  The challenge has now shifted towards realigning internal strategies of insurers.

Need for Change

A little bit better is not enough. Companies need to change. There is a need for re-engineering. Processes that were first put in place tens of years ago do not necessarily assist life companies compete in today’s business environment. The need for re-engineering requires the courage to face reality and simply take the inevitable worst case scenario that eventually leads to the required success. Re-engineering may require acute measures such as reviewing both company and employee performance.

The procedure aims at transforming innovative ideas into reality, starting from process design at the senior level of the organization, for the simple reason “lead by example”. Innovative ideas may hit the product level. This leads us to focus on innovative life insurance products and the role of one of its innovators, the actuary. Combined with legal constraints, innovation becomes necessary. Examples of this innovation include innovative payout opxion. We often see death benefit proceeds and deferred annuities that are cashed-out in lump sum payouts. There is the opportunity to fill the gaps and develop attractive payout opxions.

One product gap in the Seniors market. Inter-generational wealth transfer can be a huge opportunity in life insurance. As consultants, we always consider the unique needs of each product within the variety of customer needs.  Companies need to create a balance between market forces, the need for market share today and their financial position tomorrow.

The role of mathematical theories can not be ignored in order to improve risk retention and strategize for growth. Insurers can opximize the services of an actuary. Actuaries provide decision makers with information that forms the basis of strategic decision making, in addition in providing practical solutions to problems involving the possible consequences of future uncertain events. 

Innovative products meeting consumer needs require appropriate distribution networks. Distribution is the chain built by people in the organization in order to put the life offer in its most attractive form to the prospect. Life insurance is sold not bought. This chain can be individuals, organizations or electronic media. The selection of the distribution model is affected by the target market and may also affect the market. Adjusting the distribution model is necessary to remain competitive in the market place. One company’s innovation may become tomorrow’s top sales model. 

In the Middle East we have seen a handful of companies providing exemplary roles in life insurance be it ordinary or group lines, those have affected the shape of the markets and the country premiums they operate in. Table 1 lists countries that recorded strong growth over a period of 5 years.

Table 1: Middle East – Countries that have Recorded Strong Growth (2003-2007)
(USD $ million)	2003	2004	2005	2006	2007
Algeria	15	24	29	39	44
Bahrain	42	49	43	65	85*
Egypt	181	211	300	373	516
Jordan	28	30	32	36	41
Kuwait	60	85	95	116	132
Lebanon	110	181	202	209	278
Morocco	361	323	368	469	716
Oman	38	41	31	68	75
Qatar	13	16	21	26	29
Saudi Arabia	12	14	17	58	66
United Arab Emirates	225	284	328	450	617

*estimated

Source: compilation by CCS of Sigma and ARIG reports

The changing global financial market directly affects investment strategies of insurers, investors and consumes. The life insurance sector is not immune to this impact. Major insurers operating in the MENA region have fallen into its domino effect. A year from now we may witness new rules introduced by both market forces and regulators. It may not be a surprise to see certain regional players growing internationally, while other international players ceasing operations. Consumers may reserve interest in certain type of life products but may be much more interested in others. While there may be caution about engaging in a long term unit linked product, the attention may shift towards simple term ones, with little or no exposure at all to investment baskets. What is evident for all now is to get hold to basics.