Regulatory reforms to support Egypt’s insurance sector

Egypt has outlined a series of reforms aimed at expanding insurance penetration, with the expectation that regulatory measures, coupled with the rollout of universal health coverage, will lead to a doubling of premiums within the next five years.

In early April Mohammed Omran, head of the Financial Regulatory Authority (FRA), said proposed changes to the existing Insurance Act would see the authority gain complete regulatory control of the sector, governing areas such as the establishment and licensing of operators, procedures for mergers and acquisition, and the setting of industry standards and practices.

The recently drafted amendments, expected to be finalised in the second quarter of the year, would improve supervision of private insurance firms, which it is hoped will strengthen the legislative environment and bolster sector regulation.

In a further effort to boost customer protection, the authority has completed draft regulations to establish and oversee a policyholder protection fund, to be used in the case of insurance company insolvencies.

Under the draft National Strategy 2018-22 for Non-bank Financial Services, officials aim to double the value of insurance premiums to LE50bn ($2.8bn) by 2022, and see investments made by insurance companies rise from LE86bn ($4.9bn) to LE150bn ($8.5bn) over the same period.

In doing so, the government is looking to increase the insurance sector’s contribution to GDP, which stood at just 1.2% in 2016, according to the FRA.

“Compared to Morocco, where insurance penetration stands at between 5% and 6% of GDP, Egypt’s penetration rate is low,” Alaa Zoheiry, CEO of Arab Misr Insurance Group, told OBG. “It might take three or four years, but public and private players are working very hard to double this number.”

Diversification key to insurance inclusion

Central to plans to expand coverage and improve insurance inclusion is diversification of the sector.

Officials have highlighted plans to develop micro-insurance and niche offerings such as takaful (Islamic insurance).

August of last year saw the launch of a new takaful insurance company, Misr Takaful Insurance. A subsidiary of state insurer Misr Insurance, the company has authorised capital of around LE500m ($28.3m), issued capital of LE120m ($6.8m) and paid-up capital of LE60m ($3.4m). Products include accident, travel, fire, vehicle and marine insurance.

This brings the number of firms providing sharia-compliant services to 35, accounting for approximately 9% of market share, according to media reports.

The FRA has also outlined plans to tailor regulations to and provide incentives for insurers to offer lower-cost coverage to small and medium-sized enterprises, which account for as much as 80% of GDP but have historically been poorly covered by the formal financial sector, and therefore offer significant growth potential.

In other moves to improve access to insurance, in March the FRA granted permission for some types of insurance to be applied for and issued online. This includes compulsory motor insurance, travel insurance and temporary life insurance.

Universal health insurance rollout offers significant growth potential

The proposals to expand insurance coverage come as the government seeks to roll out a new universal health insurance programme, which could create further opportunities for private investment.

In December the Parliament approved a draft law on health insurance that will extend coverage to all households and residents, with the scheme to be funded by employee and employer contributions, higher consumption taxes, and a range of fees and tolls.

The initiative – due to be launched in mid-2018 in five governorates, before being fully implemented by 2032 – will extend insurance to the 30-40% of the population currently without coverage. Given Egypt’s population of more than 96m, this should provide a substantial boost to health care insurance.

Crucially, the final legislation will define the roles of private and public insurance providers in the new scheme. Local media has reported that the private sector is expected to be able to participate with the government at regulated prices, which could create a significant new source of demand for insurers.

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