Lebanon’s insurance companies struggle to survive in a volatile market

A car accident on Aug. 10, 2017 on the Zahrani-Tyre highway. (The Daily Star/Mohamad Azakir)

BEIRUT: Lebanon’s insurance companies may witness a 20 percent drop in insurance premiums and volume if these firms start charging their customers in fresh US dollars or according to black market rates, former president of the Insurance Association Elie Torbey said Monday.

“Up till now, the insurance companies are accepting banker’s checks from their clients but I don’t think this trend will last too long if the economic recession and devaluation of the pound continues at this rate. If the GDP drops by 20 percent then it’s natural that the insurance portfolio of all the insurance firms will fall by the same amount,” Torbey told The Daily Star.

He warned that if hospitals and car mechanics insisted on charging in fresh dollars or at black market rates then the insurance companies will be obliged to do the same.

“If in the future the car insurance policy is $5,000 or more per year, many people will be forced to ditch these policies because they won’t be able to afford them,” Torbey explained.

To cope with these factors, most insurance firms have increased the value of the insured cars in a bid to increase the premiums and cut losses.

For example, if a car is valued at $10,000, the insurance will price it at $15,000 or even $20,000 and to charge the customer based on this valuation.

Torbey stressed that if the situation in Lebanon remained unchanged with no chance to form a Cabinet and implement reforms, then some insurance firms may consider merger and acquisition in the future.

“But you need real incentives from the state to proceed with the mergers between the insurance companies,” he added.

On paper, however, the gross written premiums of 46 licensed insurance companies in Lebanon reached $486.1 million in the first quarter of 2021, constituting an increase of 13.7 percent from $427.6 million in the same quarter of 2020, according to the Insurance Control Commission.

Medical insurance premiums totaled $220.5 million in the first quarter of 2021 and accounted for 45.4 percent of the sector's aggregate premiums.

Life insurance premiums followed with $103.8 million (21.4 percent), then motor premiums with $93 million (19 percent), and property & casualty with $68.8 million (14 percent).

Further, motor insurance premiums grew by 31.2 percent and medical insurance premiums rose by 25.2 percent annually in the first quarter of 2021, while life insurance premiums declined by 6.5 percent and property & casualty insurance premiums regressed by 1 percent in the covered quarter.

Gross claims settled by insurance companies stood at $248.1 million in the first quarter of 2021 and decreased by 4.3 percent from $259.2 million in the same quarter of 2020.

Gross claims paid for the medical segment amounted to $87.5 million and accounted for 35.3 percent of total claims settled by the insurance sector in the covered quarter.

Claims disbursed for the life insurance category followed at $76 million (30.6 percent), then the property & casualty segment at $48.5 million (19.6 percent), and the motor segment at $36.3 million (14.6 percent).

Also, property & casualty claims surged by 89.4 percent in the first quarter of 2021, while life insurance claims declined by 15.6 percent, medical claims decreased by 14.8 percent, and motor claims fell by 11.7 percent annually.

In parallel, the sector's acquisition expenses reached $72.1 million and administrative costs totaled $51.4 million in the first quarter of 2021.

Also, the insurance sector registered a net investment income of $22.3 million in the covered quarter, constituting a drop of 32 percent from $32.8 million in the first quarter of 2020.

In addition, the ratio of gross claims settled to gross written premiums stood at 51 percent in the covered quarter, down from 61 percent in the same quarter of 2020.

Further, the ratio of expenditures for acquisition and administration to gross written premiums reached 25 percent relative to 26 percent in the first quarter of 2020; and the ratio of net investment income to gross written premiums stood at 4 percent in the covered quarter compared to 8 percent in the same quarter of 2020.

Nassib Ghobril, chief economist at Byblos Bank Group, said “similar to most sectors in the Lebanese economy, the insurance sector faces multiple challenges. First, it is operating with zero visibility, given the lack of any sense of urgency by political parties to address the multiple crises the country is facing, as reflected by the absence of a government for more than 10 months. Second, the government’s decision to default on its Eurobonds obligations in March 2020 and the lack of any follow-up with bondholders has affected insurers, given that many insurance companies hold Lebanese Eurobonds and the impact of the default on the risk appetite of global reinsurers for the Lebanese market.

Third, the sector is struggling with the decline in the purchasing power of citizens and its impact on their decision to renew their insurance policies.

Fourth, the sector is operating in a contracting economy for a third consecutive year, which has reduced drastically demand for insurance policies across categories.

Fifth, insurers are facing the challenge of pricing policies, given the multiple exchange rates in the country.”





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