Egypt is one of the few countries globally which has the lowest per capita expenditure on insurance. However, its insurance market has witnessed growth in premiums, as a consequence of the improved productivity of the sector as well as strong economic growth.
Political, economic, social and demographic developments are making the insurance markets in the MENA region more attractive. The five MENA markets covered in this collection will represent a combined GDP of US$2.3 trillion in 2015, led by Turkey and Saudi Arabia. In demographic terms, the population in these five MENA markets is still young and is expected to reach US$240.4 million in 2015, headed by Egypt and Turkey. Nevertheless, there is a sizeable elderly population which will demand more pension benefits and life and health insurance services.
In Egypt, government reforms and legislation have also supported the insurance sector and made it lucrative for both domestic and foreign private players, resulting in an expansion of customer base. An expanding national economy, growing demand for automobiles, new employment opportunities and increased household consumption and investment have also boosted the growth of the industry.
Despite huge opportunities, Egypt’s insurance market remains under-developed, because of low awareness, particularly among the poor and middle-class population of the country. The non-life insurance segment of the market holds a stronger position as compared to the life segment, due to an increase in demand for motor, accident and health products. Nevertheless, over the last two years life insurance premiums have recorded a double-digit growth over the non-life segment. This segment, along with government tax incentives and stimulus measures, is expected to record growth, as these products are generally similar to bank savings products. However, the coming years appear promising for the non-life segment, particularly the motor, accident and health insurance segments. Takaful companies have developed extensive facilities to transact all classes of general insurance including life, marine, fire, motor, accident, aviation and engineering.
Health insurance and pharmaceuticals
Healthcare development in Egypt and other MENA countries clearly is in favor of increased privatization; mainly due to lack of public funds and pressure from the industry. The population has different levels of expectations in the national healthcare system. The healthcare system in Egypt, for instance, is in a transitory phase, characterized by progress towards privatization. While access to free healthcare theoretically exists, in practice more private services are appearing as a result of the decline in the standard of public sector care. There is a need for considerable investment in order to continue with the modernization of programs and to maintain the existing facilities. Actually, there are two main areas of reform: primary healthcare and the provision of a national health insurance scheme.
Egypt’s healthcare sector is expecting growth rates of 10% annually for the next five years. According to a statement by the US Department of State, a new study will focus on data collection, inventory management and process standardization, and is “an integral part of the ministry’s health reform effort to provide cost-effective and improved services to the public”. Expanding the capabilities of the current supply chain will lead to lower costs and a greater variety of pharmaceuticals available to patients, according to the statement. The project will fund two pilot projects in two governorates to test key findings of the study.
Pharmaceutical prices in Egypt are lower than other countries, but still relatively high and often unaffordable compared to the wages of Egyptian citizens. There are also problems with the quality of products and research and development by Egyptian firms producing generic products.
Family Takaful
Family Takaful allows anyone who is covered by the scheme to receive medical treatment in another state for free or at a reduced cost. It covers treatment during travels abroad (available in all countries, 24 hours a day), due to illness or an accident, or if they have a chronic pre-existing condition which requires hospital care such as kidney dialysis.
The intention of the scheme is to allow people to continue their stay in a country without having to return home for medical care. As such, it does not cover people who have visited a country for the purpose of obtaining medical care, nor does it cover care, such as many types of dental treatment, which can be delayed until the visitor returns home. Major Egyptian insurance companies like the IHC group (Misr Insurance Company and National Insurance Company of Egypt), Arab Orient Takaful Insurance and Nile Family Takaful have come up with schemes to support a government requirement that all haj and umrah pilgrims must have Takaful coverage.
Egypt’s regulators
Egypt’s regulators and financial institutions have been less active in promoting Islamic banking and Takaful than their counterparts in Bahrain and Malaysia. Nevertheless, Takaful may play a substantially greater part in the overall development of Egypt’s insurance sector than it has to date. Takaful is similar to mutual insurance but with a clear segregation of the assets owned by policyholders and those owned by the insurer.
International rating agencies like AM Best are watching capital equipment, debts and solvency of insurers. AM Best has removed Egypt’s largest insurer Misr Insurance Company from “under review with negative implications” and affirmed the financial strength rating of ‘B++’(Good).
The rating reflects uncertainty regarding the prospective capital position and operating performance (particularly dictated by compulsory motor insurance) of Misr, which is likely to remain under pressure. Currently, Misr (and related group insurance entities) is undergoing a significant restructure, following the regulatory requirement of Egyptian Insurance Law, which obliged companies to separate their life and non-life portfolios effective from the 1st January 2011.
History of modern Islamic banking and insurance in Egypt and Sudan
The first modern experiment with Islamic banking was undertaken in the Nile delta in Northern Egypt. The pioneering effort, led by Professor Ahmad Elnaggar, took the form of a savings bank in the town of Mit-Ghamr, based on Islamic principles. The first modern commercial Islamic bank, Faisal Islamic Bank of Egypt, opened its doors in 1975. Islamic banking in Egypt is growing at a rate of 10-15% per year and with signs of consistent future growth. The Islamic Insurance Company Limited in Sudan was the first ever insurance company established in the world to transact business according to Shariah principles.
Actually, there are eight Islamic insurers in Egypt. From the mid-1980s the idea spread to Asia, before gaining momentum among other Arab countries in the last five years. Abdul Raouf Qutb, the chairman and managing director of the Union of Egyptian Insurance Companies, expects the growth of the Takaful insurance sector in Egypt to reach “between 15% and 20% by the end of 2013”. Internationally, total Takaful premiums are estimated to reach US$7 billion by 2015.
For Takaful companies, the issue of halal and haram is a constant one, to the point of whether it is even consistent with the fatalistic religion to insure your life.
“We’re not preachers, we’re doing business” says Saleh Eid, the CEO of Egyptians for Takaful Life Insurance Company. “We don’t care who says this is improper as we have our Shariah board that says what’s OK and what’s not.” The company has seen its revenue surge in recent years, especially after the financial crisis. Avoiding speculation and derivatives, Islamic finance gained a new reputation for stability, with the credit crunch and subsequent global recession seeing many lose faith in the capitalist system and its vulnerable financial institutions.
In Islamic finance, derivatives, hedge funds, short-selling and speculation are illicit: haram. Furthermore, the risk-sharing concept of Murabahah, where entrepreneurs are granted capital and share the profits with the bank, brings Islamic companies closer in step with the real economy. Advocates say that Islamic banks are untouched by the current crisis due to the nature of Islamic banking, especially its avoidance of the debt trading and market speculation that takes place in European and American banks. The less risky and more stable practices of Takaful companies might go some way to changing Egyptians’ suspicion of religious institutions.
Islamic reinsurers like Takaful Re
Islamic reinsurers like Takaful Re provide a complete range of re-Takaful services and products to Takaful and Islamic companies in order to meet their business requirements. Takaful Re possesses the required expertise within the reinsurance business, underwriting and product development to ensure smooth business operations in a professional business environment. The management acts as trustees with a well-defined corporate governance framework in order to safeguard the interests of customers and stakeholders.
International insurers’ investments in Egypt
The largest Japanese insurance group, Tokio Marine, sees an opportunity to expand its business in Egypt following the recent political turmoil. President Shuzo Sumi recently announced a 40% investment in two Egypt-based Takaful companies, which launched operations in January 2010, through TM’s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co.
“The awareness for insurance, especially personal insurance, is generally low in regional markets including Egypt,” said Mahmoud Bhatty from Tokio Marine Middle East. “Events such as the Arab spring that led to the ousting of president Hosni Mubarak after a 30-year reign will result in increasing the awareness in people that they need to do more about protection of their livelihood and assets.” Mahmoud said that the industry expects to pay claims resulting from the turmoil.
The Japanese insurer said last year that it expected its two Shariah compliant units to generate about US$3.5 million in annual premium income in the first financial year, which closes in June. That should increase to US$136.4 million within 10 years, giving the Egyptian operations more than a one-fifth share of the Takaful market in the country. The industry is expected to be a clear growth driver within the nearly US$1 trillion Islamic finance industry over the next five years. Tokio Marine is also considering launching micro-Takaful operations in Egypt to complement microfinance programs already available.
Micro-Takaful is an Islamic insurance scheme for people of low income who cannot afford regular insurance premiums. As part of a microcredit scheme, a small amount goes to cover areas such as life, disability and accident insurance, as well as livestock cover or crop insurance against hazards of severe weather or flooding.
The idea is to get sub-marginal clients used to the institution of insurance, and to understand the usefulness of insurance and security. Once they develop to middle-class or higher income earners, they will remain the company’s clients and generate real business. Mahmoud said that the company has already successfully provided conventional micro-insurance in India through a joint venture with a Japanese fertiliser company. “We would like to explore micro-Takaful possibilities for Egypt as the economically weaker stratas of society would benefit from it”.
Dr Gerd Guenter Kloewer is an international financial regulation and rating consultant who has worked for the German Government and for EU projects in 25 countries in the Middle-East, Asia and Eastern Europe. He can be contacted at
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