Interview: Lassâad Zarrouk
What are Tunisian insurers facing when it comes to complying with the Solvency II directive?
LASSÂAD ZARROUK: The insurance regulatory code requires insurance firms to comply with Solvency I, and most companies respect this regulation. Globally, the sector is solvent, so capital levels are not the concern. The new constraints of Solvency II are more qualitative than quantitative, requiring changes in terms of company information systems, as well as governance, transparency and customer data systems.
If companies are not prepared for new regulations, or if the new regulations enact new requirements that companies are unprepared for, it means that there is an issue. This is not a major problem in Tunisia, but local insurances companies will have to comply with international standards if they want to develop segments with high growth potential, like life insurance. Over time, this means the sector will increase automation and efficiency, with just-in-time products and services, for example, which in turn allow insurers to be more responsive to customers, with better quality services and higher profitability.
Which products can help bolster insurance penetration rates in Tunisia?
ZARROUK: First of all, the sector needs to make a concerted effort to innovate and develop products that respond to the needs of local consumers.
Life insurance, for example, which is a savings-type of insurance, represents huge potential for the sector and for the Tunisian economy. If we look at the portfolio structure of insurance companies in developed countries, around 70% of their overall activity is life insurance, which gives us an idea of the potential in Tunisia. However, today in Tunisia, life insurance represents only 15% of overall activity, with a portfolio dominated by non-life insurance.
The second branch with high growth potential is the household insurance segment, with products like health insurance, mutual insurance and accident insurance. Another potential high-growth segment, which is not well developed, is in the small and medium enterprises (SMEs) sector. SMEs represent more than 90% of the Tunisian economic fabric, but among them insurance coverage is only around 10%. Accidents and bankruptcies are commonplace for SMEs, and insurance would help limit this vulnerability.
Is demand for security risk insurance changing?
ZARROUK: The insurance market, in the broadest sense, is a global market where everything can be insured. Security risks are generally not covered on local markets but are certainly redeemable on the international scene. Indeed, it is not difficult to find an insurer for security risks on the global market.
In Tunisia, however, the problem is less in relation to coverage and more in relation to consumer awareness. Hotels are now facing challenging times, and thus, it is not their priority to spend money on insurance. Furthermore, the government must play a key role in developing this awareness.
Which challenges do Tunisian insurance companies face in expanding internationally?
ZARROUK: Firstly, the branding and perception of Tunisian insurance products must change. Tunisian companies are struggling to sell in the domestic market, thus it is difficult to convince international customers to buy from them. Quality and reliability must be improved before thinking about expansion.
Secondly, Tunisian insurance companies are very small. The market counts 22 companies for 11m inhabitants, which is far too fragmented and limits the ability of any one company to develop sufficient capacity to expand internationally. The market must be consolidated, and a first step to do that would be for companies to go public, because once on the stock market it is much easier for companies to merge.
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