Given the size of its population and the sophistication of its financial services sectors, the growth of Egypt’s insurance industry remains modest. The country’s insurance penetration rate – the gross value of its insurance premiums as a percentage of GDP – was only 0.73% in 2012, according to Swiss Re’s report “World Insurance in 2012.”
The average insurance penetration rate in Africa was 3.65%, although the continent’s overall performance is skewed by the South African market, which has a penetration rate of 14.16%, according to Swiss Re. KPMG’s 2013 “Financial Services in Africa” report suggests that the main factor holding back the insurance market on the continent is poverty, exacerbated by a lack of trust in local financial institutions, lack of expertise in insurance and limited incentives for international companies to become involved in some countries’ economies.
In the case of Egypt, the fundamentals for the sector include widespread poverty, which also exists in South Africa, but there is also a populous middle class with disposable income. World Bank figures for 2012 show Egypt’s per capita GDP as $3256, approximately 44% of South Africa’s $7352. However, the contrast in gross insurance premiums is much more exaggerated, with Egypt’s total of $1.82bn coming to just 3.3% of South Africa’s $54.87bn.
KPMG’s report further suggests that one of the factors that may have held back Egypt’s development as an insurance market may have been the predominance of state-owned companies operating in the sector, but it acknowledges that since restrictions on foreign ownership were lifted in 1998, there has been no shortage of international influence and expertise within Egypt’s private insurance industry.
In August 2013, the Insurance Federation of Egypt (IFE) appointed a new board and set a target for a penetration rate of 3% within four years, equivalent to an increased contribution to the national economy by 311%, according to Swiss Re’s figures. IFE’s strategy is to work with members to help them promote the benefits of insurance to a wider population, but also to represent its members in negotiations with the Egyptian Financial Supervisory Authority (EFSA) and to press for regulatory reforms to create lucrative opportunities. IFE has been engaging in ongoing dialogue with EFSA and discussions have included health insurance, increased mandatory insurance for state institutions as well as the private sector, improved access to insurance products across the country, and separate regulations for the growing takaful sector.
Although EFSA regulations stipulate that insurers in Egypt must separate their life from non-life activities, there is also a requirement that companies cannot become further specialised and must offer a broad range of cover within each category. This means that an international firm would not currently be able to enter the Egyptian market with the intention of focusing on health insurance alone. However, the possibility of changing the regulations has been discussed by both the IFE and EFSA.
According to EFSA, annual growth in Egypt’s health insurance premiums is 25%, compared to 15% growth overall. “Egypt has one of the highest out-of-pocket medical payment records and the market for health care insurance is growing,” said Mohamed Maait, deputy chairman of EFSA. Figures for the proportion of Egyptians paying for medical expenses out of pocket vary from the World Health Organisation’s (WHO) estimate of 58.2%, based on Ministry of Health and Population figures, to the US Agency for International Development’s 72%, based on family surveys.
According to the country’s Central Agency for Public Mobilisation and Statistics (CAPMAS), only 50% of Egyptian workers benefit from health coverage, while about 60% participate in social insurance. Although most public sector employees have both health and social insurance, less than 25% of private sector workers have health insurance, a figure that falls to around 1.7% for those who do not work at an established workplace.
Proposed reforms to the government’s health insurance for up to 70% of citizens have been drafted with a target set for 2016, but political approval has been delayed by changes in government. In the meantime, many of those who qualify for state insurance cover opt for private medical treatment instead. “Around 50% of people in Egypt are insured, and of them only 9% use the service, with the rest going to the private sector,” Mohamed Hamad, programme manager for health management and research at the Centre for Development Services, told OBG.
While medical insurance may be able to provide an Egyptian citizen with cover for the cost of medical bills, the country’s legislative framework gives him very little recourse for compensation in the event he has an accident on hospital property or suffers from malpractice at the hands of a member of medical staff.
The insurance industry has been campaigning for more mandatory forms of insurance to be introduced, including public liability policies for buildings operated by both the state and the private sector, and professional indemnity insurance for medical staff. In a country with at least 12m people suffering from hepatitis C, and with researchers from the National Academy of Sciences suggesting in 2010 that the majority of new infections happen as a result of medical treatment, this kind of cover could prove to be popular with customers, as well as a force for reform and improved standards.
While discussions on mandatory insurance may be ongoing and subject to legislative reform, there has been some progress on extending the appeal of insurance to a broader market in Egypt. According to CAPMAS, 26.3% of the Egyptian population was considered to be living in poverty in 2012-13, with that figure reaching 60% in the poorest governorate, Assiut. However, insurance companies are keen to reach out to those who can afford to make some kind of investment in their future, however modest, and a number of innovative solutions have emerged.
Post offices, for instance, are now allowed to offer insurance services, thereby making the industry more visible and accessible. “We have to attract more segments of the population, as well as introduce more products,” EFSA’s deputy chairman, Mohamed Maait, told OBG. “We issued post office insurance and we are going to see whether we allow electronic distribution and electronic issuing of certificates and now more distribution through brokers.”
The IFE and EFSA are both committed to creating a more dynamic, inclusive and well-regulated insurance market in Egypt. However, both institutions recognise that structural or legal reform must await governmental approval and that proposals at this level may have to wait until a new parliament is elected towards the end of 2014. Although the insurance market has remained buoyant and profitable during the country’s political upheavals and subsequent economic downturns, further growth will also have to rely on increased stability and prosperity in Egypt.
In September 2014, 2000 delegates from across the Arab world attended a four-day summit in Sharm El Sheikh, as Egypt played host to the Gulf Arab Insurance Federation’s 30th General Conference. Egypt’s insurers saw the event as an opportunity to hear from their counterparts in other countries and to demonstrate the steps they are taking to boost growth in Egypt’s insurance industry.
While serious challenges remain, insurance industry leaders recognise the gaps and progress continues to be made. EFSA’s Maait told OBG, “We think we have an opportunity to make Egypt one of the best insurance markets in the Middle East and Africa, and we will be working on this objective over the next few years. I am optimistic we will achieve our goals.”
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