Interview: Othman M Bdeir

What are the most promising growth segments for the kingdom’s insurance industry?

OTHMAN BDEIR: One segment for which there are high expectations is takaful (Islamic insurance), as several trends indicate that this line of business is on the rise. The two Jordanian insurance companies that currently operate in this field are posting strong growth numbers relative to other market players. Although price plays an important role in determining consumer behaviour, many Jordanians are highly religious and prefer to deal with Islamic institutions. With more Islamist governments in the region following the Arab Spring, it is likely that consumers and governments will increasingly embrace takaful. As the takaful market grows, Jordan should develop a comprehensive legal and regulatory framework similar to Malaysia, where Islamic financial institutions benefit from a sophisticated policy regime.

Another segment with good prospects is earthquake insurance, as Jordan sits atop several fault lines and areas of seismic activity. For the sector to thrive, regulators in Jordan must make coverage compulsory, which is something that is currently under consideration.

Despite Jordanians’ limited purchasing power following the global economic downturn and the Arab Spring, the life insurance sector can grow. To capitalise on this line of business we need to effectively market life insurance as a vital form of protection for families.

How can greater oversight and consolidation strengthen the Jordanian insurance industry?

BDEIR: There are 28 insurance providers in Jordan, even though the market is relatively small and the population is roughly 6m. By contrast, in the much larger economies of Japan and South Korea, there are only seven and 16 insurance companies, respectively.

To overcome market fragmentation, the insurance commission has significantly increased the startup capital needed to acquire a licence and start an insurance business. We must also give operators stronger financial incentives to merge, including tax exemptions. A major obstacle to consolidation is the family ownership structure in Jordan.

For the market to remain healthy and to help insurers develop the capacity to target major markets overseas, like Saudi Arabia and Iraq, we need to look beyond the interests of families and focus on overall business expansion, for the good of the industry and national economy. Without consolidation, it is likely at least half of the companies in the market will fail in the next 5-10 years. At the moment only a handful of providers are registering annual profits.

What legal and regulatory reforms are needed to promote growth in the sector?

BDEIR: Insurers need a more efficient policy regime that provides a legal foundation for growing sectors, such as earthquake insurance. More importantly, we need the government to remove the price ceilings that were established for third-party motor liability. The Jordan Insurance Federation has been petitioning the government for reform in this area for years, and we are optimistic that these caps will be adjusted by early 2012. Of course, this policy is designed to protect consumers in Jordan, who are now dealing with rising food and energy prices. However, forcing insurers to accept losses is not the solution, because there cannot be a healthy economy or an attractive investment environment without a strong and stable insurance system.

How does the insurance industry work to support, attract and retain quality human capital ?

BDEIR: To strengthen human capital, the Insurance Federation is planning to establish a training centre for potential industry employees. The details of the plan are still under consideration.

In general, the insurance industry provides attractive, long-term job opportunities to Jordanians. However, local providers cannot match the remuneration packages that are offered in the GCC, and overcoming brain drain therefore remains an industry challenge.