Interview: Youcef Benmicia, Nacer Sais
What segments will be the main drivers of growth for the Algerian insurance sector in 2014?
YOUCEF BENMICIA: In 2013 the insurance sector witnessed organic growth of around 14%, with total revenues of AD114bn (€1.1bn). The non-life insurance segment remains the main contributor by far, accounting for 93% of total revenues, at AD105bn (€976.5m). Even though the life insurance segment remains quite modest, representing just 7% of sector revenues, at only AD8bn (€74.4m), the segment saw more dynamic growth of 22% in 2013, compared to 14% for non-life.
Non-life insurance growth was mainly supported by car insurance, which accounted for 58% of the segment and increased by 17% in 2013; followed by fire and miscellaneous insurance, at 33% of the segment with 11% growth. Transport insurance represented just 5% of the segment and rose by 3%, while agricultural risk insurance remained modest, accounting for 3% of the nonlife segment, but growing 24% over the year.
According to figures for the first half of 2014, the insurance sector should continue growing by approximately 6% to reach over AD120bn (€1.12bn) in annual revenues. This encouraging performance follows an overall positive long-term trend, with the sector posting double-digit growth on average over the past decade. This has been stimulated by the numerous development plans initiated by successive governments to develop infrastructure, revamp industry and boost economic activity as a whole. Indeed, these public investments always have an impact on the industry’s development.
In 2011 the sector went through a reorganisation, as insurance companies were compelled to split their life and non-life operations. I believe this measure will benefit the sector in the medium to long term as insurers are encouraged to grow more, develop further, and innovate and diversity their portfolio of products.
NACER SAIS: The insurance sector as a whole will continue to post significant growth in 2014, comparable to 2013 figures; however, the car segment, which accounts for more than the half of all non-life insurance, should see a deceleration in growth in 2014, dropping to 3% or 4%, according to figures released by the National Insurance Council in August 2014.
This lower growth rate is driven by two main factors: first, the drop in car imports and sales, which can be explained by households reorienting their savings towards housing rather than vehicles. Consumer credit has been banned since 2009, further limiting the purchasing capacity of households. However, the possible resumption of consumer credit, which would be contingent on products having minimum local content of more than 40%, should positively affect car sales in the medium term – all the more so if the government is promoting the domestic automotive industry.
The second factor at play are the programmes implemented by the National Agency for Youth Employment Support and the National Unemployment Insurance Fund, which encourage young people to buy all-risks car insurance policies for the first year of ownership – with many choosing to switch to minimum third-party liability coverage thereafter. Consequently, more work needs to be done in cooperation with banks to sensitise and encourage new buyers to remain fully insured.
Other non-life insurance sectors, such as fire and miscellaneous or transportation, should experience strong growth of up to 15-16% in 2014, thanks to the dynamic macroeconomic environment. Life insurance growth will continue to outperform the non-life insurance segment as life insurers have succeeded in implementing their marketing schemes and widening their distribution channels. While economic conditions are favourable for the development of new products, the market is restricted to pay-as-you-go life insurance, as life insurance capital systems are as yet unable to be implemented due to Algeria’s current financial system.
How can insurers reach more of the population, and what potential is there for new sales channels?
SAIS: Bancassurance is a new distribution channel for the insurance sector, and public companies have been among the first to establish partnerships with banks to develop the segment and reach out to more of the population. The National Insurance Society, for example, has signed an agreement with the Local Development Bank and the Agriculture and Development Bank.
Bancassurance has largely contributed to the development of insurance in rural areas over the years, notably in terms of agricultural risk insurance, which is set to post 17% growth in 2014 to reach AD500m (€4.7m) in revenues. Bancassurance can also provide efficient solutions in other areas, such as the purchase of a house. Banks and insurers have to continue working together to implement training programmes and corporate incentive policies, while companies must diversify their portfolio of activities. Mass insurers not only need to focus on directing their actions towards optional insurance, but also on reinforcing their activities in segments such as product liability insurance, which are compulsory but not really commercialised.
Since the liberalisation of the sector, there has been a consensus amongst operators that competition is mainly price-based: companies offer the best rates, and consumers try to pay as little as possible. However, this is bound to impact the quality of service. While there are a lot of market niches to be explored, no strategy is going to be effective if operators do not come together to restructure the sector and enhance customer compensation rights. To achieve this, the Convention on the Direct Compensation of the Insured, needs to be better applied in day-to-day dealings.
In 1962 there were 260 insurance companies operating in Algeria: today, there are only around 22 – this is even less than in Tunisia, which has 30 firms. There is plenty of room for more insurance companies to contribute and reach out to new segments of the population – as long as insurers return to their core business, which is centred around counselling and helping clients.
BENMICIA: The quality of service is imperative for insurance companies to expand their activities and convince people of the importance of being covered. Insurance companies should act in accordance with high standards in every step of the contractual relationship, and competition must be encouraged on the basis of improving the services offered, not lowering the price.
Another important factor is the extent to which insurance products are distributed. One interesting trend is the development of bancassurance in Algeria, which was initiated in 2006 to allow insurance companies to distribute their products in banks. Life insurance companies in particular are on the frontlines of this new channel of distribution, as it is common for bankers to guarantee the loans and mortgages they grant by requiring a subscription to life insurance (with the possibility of selling it on the spot).
Although bancassurance accounts for only 1% of current insurance operations, it could serve as a significant medium-term growth driver for the life insurance segment. Indeed, seven life insurance companies are already operational, with two more on the horizon.
What is the potential for the development of a regulatory framework currently exist?
BENMICIA: The current regulation on insurance does not include the development of takaful, and no studies have been conducted thus far to assess the Algerian market’s interest in Islamic insurance products. However, I believe there are some segments of the market where this type of product could resonate with the public. Even without a regulatory framework on takaful insurance, some companies develop their own lines of products with sharia-compliant aspects or principles, and in doing so cater to this specific demand.
SAIS: Conventional and takaful insurance are based on a shared principle of solidarity, with many commercial initiatives having been put in motion. As a Muslim country, Algeria cannot remain on the margins of this trend, but in my point of view, the regulator’s priority must be on improving of the quality of service and protecting the consumer’s right to expedient compensation.