Interview: Jean-Laurent Granier
How do you explain the relatively low penetration rate in Algeria, and what steps need to be taken to energise the local market?
JEAN-LAURENT GRANIER: In regional and global terms, the Algerian insurance market is small. Indeed, despite sustained growth and the evident advancement of the sector, the 1% penetration rate remains below that recorded by neighbouring countries. This can partly be attributed to the market emerging only recently, as the state only relinquished control in 1995. To stimulate demand for insurance, it appears necessary to develop the following levers. The sector must first condense and diversify the distribution system. In addition, there is a necessity to adapt insurance products to the needs of the market while also being innovative and efficient in providing a high quality of service. Algeria is slowly witnessing these trends. Against this backdrop, it is the responsibility of operators in the sector to be proactive. It is important to work consistently to mobilise the skills and expertise to put clients at the forefront of concerns, listen to their expectations and understand their needs. This is to ensure that products and services are tailored to their situation, as well as to provide the ground for insurers to advise and support them in case of need. In this vein it is vital to guarantee fast and efficient support, as well as to trigger innovation in terms of warranties providing customers with extensive conditions. Insurance operators in Algeria, and those seeking to enter the industry, must address these areas in a comprehensive fashion, in addition to improving the quality of customer service.
To what extent could possible mergers and acquisitions operations be assisted in the near future?
GRANIER: The opening of the market together with continued reforms, in particular those introduced in 2006, has ushered 22 insurance companies into the limelight. Of these, six firms have separated the operations of their damages activity, two are mutual insurance companies and a further two specialise in export credit insurance and loans. This means that no fewer than a dozen are generalist operators. Given the current size of the sector, we believe that deep collaboration and alliance among and between companies is not yet feasible in the medium term. It cannot be ruled out, but it is to be expected instead that further players will continue to enter the market and strengthen the sector’s emergence.
What do you expect will be the impact of the revision of the solvency of insurance companies?
GRANIER: In 2011 we witnessed several draft decrees aimed at strengthening potential growth. One of these includes revision of the solvency of insurance companies to allow each branch to have its own solvency margin insurance. This measure comes in the wake of other reforms to the sector, in particular the development of personal insurance and capitalisation reform, which introduced the legal separation of damage insurance activities, among others. A further step has been to adapt the solvency margin applicable to personal insurance itself. Indeed, this would contribute to the elimination of several financial constraints hampering the development of market capitalisation.
The text stipulates a high threshold regarding solvency margin. In fact, it must be greater than or equal to 20% of the total turnover (net of reinsurance), and higher than or equal to 15% of its technical debt. Specifically, an insurance company having a share capital of €10m (the minimum required) cannot subscribe beyond €50m of turnover without resorting to an increase in capital. This ultimately represents a significant barrier to the development of the savings market. From this perspective, it goes without saying that the initiative to transform the solvency margin rate would increase insurance commitments without having to resort to recapitalisation. We believe that the draft text would be an encouraging step for long-term improvement to the Algerian insurance sector.
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