Interview: Zouheir Bensaid; Ali Harraj; Mehdi Tazi

Which segments offer the most potential to extend insurance penetration in Morocco?

ZOUHEIR BENSAID: Small and medium-sized enterprises (SMEs) represent more than 80% of the 750,000 private companies that compose 94% of the nation’s economic fabric. This segment has strong growth potential, since it is considered less volatile, is less exposed to price fluctuations and is more likely to be profitable over the long term. Another interesting niche is work accident compensation, which despite being mandatory has a penetration rate below 5% among Moroccan firms. One way to respond better to SMEs’ needs would be to offer them packages that include employee coverage as well as asset and liability insurance at reduced costs.

Other types of insurance, such as contractor all-risk insurance and decennial liability, are on the way to becoming mandatory, which if it occurs would impact the SME segment. In the individuals segment, Law 17-99 now requires auto insurance, which is one of the most interesting niches, as car ownership and road networks are expanding. If liability insurance is made compulsory, as is included in Book 4 of the new code, we could see a rise in housing insurance. At some point health insurance will also become mandatory.

ALI HARRAJ: Auto and life insurance each represent about one-third of total insurance turnover in Morocco, and even though their weight is already substantial, these two segments are far from having exhausted their growth potential. Auto insurance provides great opportunities for at least two reasons: first, most vehicles are insured only in compulsory civil liability and rarely against property damage, indicating a key potential source of growth, and second, car ownership is still relatively low in Morocco, at six cars per 100 inhabitants, compared to 14 cars per 100 inhabitants in Turkey, for example. As Morocco’s auto sector becomes more dynamic, therefore, this can only be favourable for insurers.

Life insurance is another market with great potential, especially for individuals, who have great need for protection regarding health and death. They also have important needs in savings and supplementary pensions, partly because the state system cannot by itself guarantee an adequate pension for its members. Reforms of the pension system are under way that should increase the space reserved for insurers, who are specialists in capitalisation on long-term savings.

MEHDI TAZI: In the individuals segment, there are two main areas with potential: health and auto. For both of these, much of the population is either uninsured or under-insured. Car ownership in Morocco rises by about 120,000 new vehicles each year, compared to 400,000 in neighbouring markets, but we believe that the total fleet will grow faster than projected economic growth in the next few years, offering interesting potential. Among both individuals and SMEs, there are great needs in health, especially complementary health insurance, as basic health insurance will now be managed by the National Social Security Fund.

To what extent is there potential for takaful ( Islamic insurance) in Morocco?

HARRAJ: The takaful market is not yet very developed in Morocco, and it should see a bright future as soon as the legal and regulatory framework is adapted to these products. Moroccan insurers have already expressed great interest in these types of products and are ready to start selling them. The potential could be significant: takaful products have seen considerable growth in several Arab countries. For now, in the absence of adequate regulation, banking products are commercialised with conventional packaged insurance products. As for penetration, Islamic insurance will address a specific customer category that has until now been either under-insured or reluctant to buy conventional products. Thus takaful activity will raise the sector’s turnover without reducing volumes in other areas.

TAZI: Islamic insurance will not revolutionise the total size of Morocco’s insurance sector. The global market for takaful represents $1.8trn (€1.4trn) in assets and grew by an average of 22% in the past five years. In Morocco, the market could reach between Dh650m (€70.72m) and Dh1.3bn (€141.4m) in the first five years of operations, compared to a local life insurance market that today represents around Dh10bn (€1.09bn). We believe that the penetration of takaful products in the total market could reach 5-10% within 10 years, compared with 7.5% in Turkey and 4.3% in Indonesia in the same span, and 4% in Egypt in six years.

BENSAID: Studies show that takaful products could make up about 13-15% of the country’s insurance market within 10-15 years, which would represent around Dh2.8bn (€304.6m), or 10% of the annual volume of Moroccan insurance premiums. Of these volumes, we estimate that more than 80% will be dedicated to family, life insurance and savings. Many people do not have any bank account or life insurance for religious reasons. Today, just 60-65% of Moroccans have bank accounts, and only 6% of these have credit. With Islamic finance, one could capture the market segment that does not wish to use conventional products.

What are the main challenges and opportunities insurance firms face when entering African markets?

TAZI: One can enter these markets only by starting a new company or acquiring a local one, neither of which is simple. For the first, there is a long succession of authorisations that are hard to obtain; for the second, acquisition opportunities are scarce and, when they do exist, very expensive. Given Africa’s increasing attractiveness to insurance companies, it is even harder now to find acquisition opportunities than it was four years ago. For greenfield projects, it takes time not only to receive the approvals but to make the subsidiary grow.

The Moroccan market also differs from West African markets in many ways. First, some countries in the Inter-African Conference of Insurance Markets ( Conference Interafricaine des Marchés d’Assurance, CIMA) have a common code and a common regulator. Another difference is size: Morocco’s insurance sector represents around €2.5bn, compared to a total of about €1.5bn for the CIMA market. In terms of penetration, the Moroccan market is more mature, at around 3.1% of GDP against 1% or less in CIMA markets. Last, African markets are more fragmented than Morocco’s, with more and smaller players, which affects the solidity and capacity of the actors.

BENSAID: Acquisitions in the African insurance sector usually occur where there are several small companies with small portfolios. With growing demand brought by foreign investors, these companies become very expensive. As for greenfield projects, one needs to respond to particular regional regulations, a long process that requires full understanding of the market as well as flexibility and patience. Knowing the differences between markets is also key. In Morocco, for example, distribution is done through the network of an intermediary, while in most of the rest of Africa this is done via the banking networks. Another difference is legal payment times: in sub-Saharan Africa, if one has not paid within a certain period, the guarantee is cancelled and the coverage ends, whereas in Morocco there is more flexibility and some facilities are offered.

HARRAJ: Each company needs to adapt its strategy to the environment and legal framework of the new country. Moroccan companies can help increase turnover in the insurance sectors of other African countries, instead of acquiring market shares in existing actors. This approach favours job creation and the rise of an insurance culture, bringing know-how and expertise. In West Africa, member countries of CIMA have adopted the same legal framework, which is a very positive point. Medium-term growth and development opportunities exist in all insurance activities in that region, since its penetration rate is low compared to Morocco. Although this potential varies from one country to another, it is more important in certain countries of East and West Africa, given the sustained development of trade volumes, expanding infrastructure, demographic growth and the emergence of a middle class that will only increase over the medium to long term.