Gabon: Regulating insurance
Two new changes to Gabon’s insurance market are expected to develop the reinsurance segment and professionalise premium payment collections but with insurers still struggling to pay claims within a new three-month grace period, there are still challenges ahead to growth.
The government has taken the lead in developing the country’s reinsurance market with the recent creation of the Gabonese Reinsurance Commercial Society (La Société Commerciale Gabonaise de Réassurance, SCG-RE). The government has a 67.5% stake in SCG-RE, while local insurers hold the remaining share.
SCG-RE was created to keep insurance premiums in the country. The proportion of premiums transferred to reinsurance companies such as Swiss Re, Munich Re and Cica Re (all outside Gabon) stood at 37.3% in 2009, largely unchanged from 37.1% in 2008 but down from 40.9% five years earlier.
Local insurance operators are now obligated to cede 15% of non-life contracts and 10% of life contracts to the new company. This requirement should help to quickly establish SCG-RE’s presence in the marketplace.
The move could also help reduce the amount of fronting, which is particularly prevalent in the Gabonese oil and gas sector due to its current small size and Gabonese firms’ consequent inability to insure large industrial risks. Under fronting arrangements, local insurance companies issue policies, as required under Inter-African Conference on Insurance Markets (CIMA) regulations, but then effectively transfer the risk back to the organisation (or its captive insurance unit – i.e., an entity established for insurance purposes owned by the organisation itself), taking a percentage of the premium as a fee.
“Gabon’s insurance market has a lot of fronting, and with industrial projects as part of Gabon Industriel, there is a need for a lot of capital to insure at a high-value level,” Eugénie Ndende, the CEO of ASSINCO, one of Gabon’s largest insurance firms, told OBG.
Not all sectors will be obliged to follow the new rules, however. To ensure its own sustainability, the SCG-RE has established some limitations. At present, the reinsurer does not cover offshore oil, aviation, or health care-related risks. The company may also seek to mitigate some of its risk by insuring up to 10% of collected premiums with other reinsurers.
While efforts to develop the country’s reinsurance market are positive news for local insurance companies and their customers, the sector is not without its challenges. According to local press, insurers are not reimbursing all claims within the three-month time period established by CIMA code.
While failing to make payments to customers in a timely fashion obviously damages insurers’ efforts to attract new clients, this shortcoming may be linked to a deeper problem. Premium collection by CIMA members is also in arrears, with some reports claiming that unpaid premiums account for more than half of yearly booked revenue.
In an effort to address this issue, CIMA revised Article 13 of the CIMA code in mid-2011, forbidding insurance companies from issuing or renewing a policy for which the premium has not been paid. Insurers are also required to invoice policyholders at least 45 days in advance of policy renewal.
The reasoning behind the change is two-fold: one, it means that for a policy to be valid, the entire premium must be paid. Policyholders can no longer “fraction” their premiums into multiple payments. Two, brokers – who are estimated to account for about 70% of all sales – can no longer cash in checks for premiums destined to insurers.
So far, the change has led to a slight improvement in revenues, according to Joël Muller, the director-general of AXA Gabon. “Cash flow improved at the beginning of 2012, as before people were used to a 12-month payment schedule,” he told OBG. “But [the new rule to reimburse claims within three months] can be difficult for companies, as it means they have to access and use a lot of money all at once to pay premiums.”
Receiving – and disbursing – timely payments will certainly boost the sector’s overall professionalism, as well as its image in a country where insurance penetration reached only 2.09% in 2009. Likewise, boosting the local reinsurance segment with a national reinsurer will not only lessen the prevalence of sending premiums abroad but will also strengthen the fundamentals of the whole sector. These cooperative efforts will prove indispensable in the drive to expand Gabon’s insurance market.