Interview: Abdel Raouf Kotb
What challenges affect micro-insurance in Egypt?
ABDEL RAOUF KOTB: Micro-insurance is an essential financial arrangement for protecting low-income people in exchange for regular premium payments proportionate to the likelihood and cost of their risks. The main challenges include technical obstacles, such as those found in underwriting and collecting premiums for life insurance, or designing products that balance pricing and scale to achieve a profit. Marketing constraints, including the lack of accurate data and low awareness among target clients, is also a challenge. The sector’s structure, with many intermediaries and third-party distributors, also tends to create high overhead costs.
What mechanisms could be implemented to further increase market penetration?
KOTB: Considering that in Egypt small and medium-sized enterprises have historically played a significant role in the process of economic development, the insurance sector has a role to play in augmenting the impact of such companies through several mechanisms. First of all, trust is being created between prospective policyholders and insurance firms. Secondly, solutions to the specific challenges that inhibit the growth of microinsurance transactions are being found. Thirdly, perception surveys to aid in understanding stakeholders are being conducted regularly. Furthermore, mass awareness programmes are being designed and implemented to reach low-income citizens, through advertising in different media outlets and participating in seminars and workshops. Moreover, partnerships between insurers and civil society organisations and charities are being encouraged that will help insurers deliver professionally managed, subsidised products.
There are also efforts to encourage cooperation among different parties toward the launch of a national strategy for micro-insurance, with special legislation for supervising it. It is important to enhance product availability and pricing, and to ensure that regulations will protect underprivileged and at-risk consumers.
What can be done to improve the performance of insurers' investment portfolios?
KOTB: Egyptian insurers are trying to focus micro-insurance in cooperation with expert institutions, benefiting from the experiences of large firms from other countries, including Singapore, South Korea, Brazil and Malaysia. A diagnostic study is urgently needed to understand the market and make policy recommendations, which are a prerequisite to a sector strategy.
In addition, the government can promote the development of supply and demand for micro-insurance with a variety of mechanisms, including the creation of an enabling legal environment, education and social marketing, strengthening institutions and providing financial assistance. Furthermore, insurers need to understand market needs and involve the target market in the design of simple products. This helps educate the target market and earns customers’ trust, while maximising efficiencies, enhancing relationships, encouraging quick claims resolution, and creating an internal micro-insurance culture for staff that is characterised by a longer-term perspective.
What explains the rising interest from foreign investors in Islamic insurance products like takaful?
KOTB: Sharia-compliant insurance plays a vital role in the Egyptian insurance sector. The majority of the population does not currently insure their risks according to their religious considerations, which creates a significant opportunity for increasing market penetration rates at large percentages. Thus, there has been significant interest from foreign investors.
One must not forget that takaful is a relatively new segment in Egypt, compared to most Muslim countries, having only entered the market in 2003, about three decades after the launch of the industry in 1979. The growth of the segment has been significant during the last five years, with a huge increase in the number of takaful companies, in addition to the roll out and growth of niche sharia-compliant insurance products.
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