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Leading economist gives ME's insurance market failing grade - Morocco cited as regional leader in premiums

'Sector in the Middle East is growing ... much faster than the rest of the world'

Comparing the insurance sector in the West to the one in the Middle East will definitely embarrass any broker or analyst. "It's like comparing a water melon to an apple," one broker said.

This hard-hitting news was no surprise to hundreds of Arab insurance executives who listened carefully to the assessment of the Middle East market by a leading Swiss economist Thomas Hess.

Hess, the chief economist of leading insurance and re-insurance firm Swiss Re, gave a detailed account on the state of the insurance industry in the Middle East."Insurance is underdeveloped in the Arab countries. The current underdevelopment is reflected in premium volume: average expenditure per person on insurance is $23.1," Hess told 1,300 executives and representatives of insurance firms attending the 25th conference of the General Arab Insurance Federation at the Phoenicia Inter-Continental hotel.

He added that compared to GDP, less than 1 percent is spent on insurance, of which 0.77 percent was spent on non-life insurance and a minuscule 0.18 percent on life insurance."Most of the Arab countries spend less than countries with similar levels of income," Hess said.

According to a recent study, the total insurance premiums of 16 Arab countries are only $6.4 billion.

In a country like Yemen for example, the total premiums are only $28 million compared to $1.2 billion in Saudi Arabia."The country that is most developed in the region is Morocco, which boasts premiums per GDP of 2 percent in non-life insurance and 1 percent in life insurance," Hess said.

He added that this is lower than the worldwide average of 3.4 percent and 4.8 percent, respectively. But Hess saw some positive signs despite the current statistics."The insurance sector in the Middle East is developing fast; indeed much faster than the rest of the world. Many countries in the region are making steps toward liberalization, which can open the door to solid growth," Hess said.

Hess' assessment came amid calls by Prime Minister Rafik Hariri and others to create big insurance firms with huge capitals in the Middle East.

Many insurance firms in Lebanon are pressing for the creation of a large re-insurance firm in the region in order to end the high prices charged by other re-insurance companies in Europe and the United States. Prices of premiums rose by 20 percent in Lebanon in 2003 following the events of Sept. 11, 2001.

Hess also urged the Arab states to end state monopoly of the insurance sector."The insurance industry in many Middle Eastern countries is still dominated by state monopolies or state-owned companies. There are exceptions, such as Morocco, the UAE and Lebanon."He added that regulation is often underdeveloped and contain many loopholes which threaten companies with failure, thereby harming the industry's reputation.

However, Hess noted that Lebanon, Morocco and Egypt have taken important steps to modernize their insurance laws.

"Despite the progress made in the region in recent years, a comparison of the Middle Eastern insurance market with more advanced markets reveals major differences." He added that cultural differences must also be taken into account, which is where developing Takaful insurance could play a key role in predominately Muslim counties.

Many Muslims have mixed feelings about certain types of insurance. Some of those who reject the concept of insurance premiums base their argument on religious grounds.

Hess said that many countries in the region permit trade in insurance and re-insurance business without discriminating against foreign companies.

Beirut,05 17 2004
Osama Habib
The Daily Star
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