Challenges and Strategies in Insurance Market

Prof. Parson Authors: Bojan Gligic, Emanuele Di Maria and Mateja Cvetkovic

Introduction This study is an analytic research about insurance market in five non-EU countries. The aim is to evaluate and present opportunities for foreign insurance companies which are potential new comers and investors in the insurance market of those countries. This analysis will provide profile of each country with aspects of insurance market, nature of the market, possibilities, economic surrounding, political surrounding and etc. We will also identify which country and which type of insurance business is the best choice for a European insurance company which to enter the insurance market of the specific country. The selected countries are: 1. Russia 2. Egypt 3. Turkey 4. United Arab Emirates 5. Kingdom of Bahrain 1. RUSSIA1 Insurance business is present all around the world, different patterns of insurance market among countries is slight but past development of insurance market is not so similar in some countries and past development is important consideration fact when we want to explain the nature of todays market conditions. Insurance market in Russia today is very different of how it looked like back in Soviet period. During that time people in Russia where not so aware of what really insurance is and they individually knew very little about how insurance business works and what it provides to people. Because of that most of the people thought that insurance was a waste of money that government takes from people. That assumption was mostly right except few cases about life saving insurance plans. At that point there was only one insurance agency conducting whole insurance business in Russia and it was owned by the State. Russian Ministry of Finance was declaring the yearly budget for different enterprises. Part of that budget was reserved for Central Insurance Agency in case some natural disaster or fire happens. Only one all-union insurance company existed back then and it was called Gosstrakh, this company was spread in whole Soviet Union region and basically it was creating insurance market for itself. That is the brief description of what Russian insurance looked like in the past.

Russian Insurance by: Economy Watch 2010.

Russian insurance business has come a long way since back then. Now it is an individual bubble of growing economy in Russian emerging market. Russia has its own capital and also its own policies. If look from a point of view of the state, Russias insurance industry has fast development and it is becoming bigger and better. In the October, 2000 there were 1245 registered insurance companies in Russia. All premiums brought in by insurance providers in Russia since the beginning of year 2000 till October the same year equaled 118.5 billion rubles. This number was 4% of the gross national product (GNP). The number of voluntary insurance policies in Russia recorded a great growth over the years after 2000. In fact the premiums collected by companies referring only to voluntary insurance have increased by 1.8 times. And that growth was continuous all that time and it is expected to be continuous further on, this fact is a positive sign for European insurance companies to enter Russian market more aggressively in order to catch the market growth driver as soon as possible. There is also a significant growth in number of Russian citizens who are getting to know that insurance in Russia is not a waste of money, instead it can provide protection for their families and themselves also.

On the table above we can see the statement of direct insurance market in Russia before, during and a year after crisis. In 2009-2010, Russian insurance market recorded a great recovery from crisis and soon started to gain a fast growth till today. During 2011 was a large disturbance in how the insurance markets performed, mostly based on the direction of regional economies, on only available trends which are 1 half or 9 months. US, Europe and Japan were static or even degrading, the rest of the world had a very positive growth rates. Russia has recorded 15% growth and that makes it at top of growth rate percentage in 2011, which is a great success in Russian insurance market and a very good attraction fact for foreign insurance companies to enter Russian market.

Challenges and opportunities in 2012 in Russian insurance market2 Three main development segments are to be noticed during which will largely define the market direction in 2012. First, the growth in new Auto sales, that fact implies the growth in all kinds of auto-motor and driver insurance products. This opportunity should be the key market segment of growth in 2012 in Russian insurance market and it should be the niche insurance product for insurance companies that want to enter Russia. Second opportunity segment in 2012 should be the Russian law changes which are in favor of potential foreign insurance companies. New law is going to be applied on the Liability of High Hazard industries, this fact is a very positive sign for development in the corporate insurance market in Russia as well in citizens rights area. Third, market consolidation is due to have a different pace since the new capital requirements are declared in January, this fact should help insurance companies be stronger and to have more professional and organized distribution. This means that win-win scenario could happen for all market stakeholders. Chances in life insurance segment in Russia3 Russia has the most underdeveloped life insurance segment among the BRIC countries, life insurance segment contributed with only 2.3% of the overall written premium for the whole insurance industry in 2011. The main problems in Russian life insurance segment expansion is the lack of tax benefits on life insurance products, low developed private pension system and the lack of trust for long-term insurance products among the Russian population. Forecasts for 2012 indicate an expected significant growth in individual life insurance products. That expected growth in Russian life insurance is going to be driven by capital inflows from a large number of foreign insurance companies entering the country. The Russian life insurance market is concentrated with the top ten companies capturing 74.8% of its gross written premiums in 2010. So the idea for foreign companies that want to enter Russian market is to create joint ventures with domestic insurance companies if their point of business is concentrated on life insurance segment. 2. EGYPT4 Egypt still has a patriarchal economy, with the major part of state-owned companies and a weak private sector. The overall view is a state who tries to turn back stable (GDP growth should be 1,2% in 2012) with still a strong public presence in the economy. Egypt insurance is a market that has actually seen tremendous growth and success in the past few years. In addition to seeing marked growth in the areas of rate of total assets, investments, premiums, and shareholders equity, the role of authority for the insurance industry has also evolved thanks to new controls and regulations being established by Egyptian law. Today, the number of insurance companies in Egypt has also grown to keep up with consumer demand.

Insurance in Russia still 'push' product by: Chartis 2012.

Life Insurance in Russia, Key Trends and Opportunities to 2016: Introduction of Tax Benefits on Life Insurance Products Key to Market Expansion by: Timetric 2012.
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Lloyds country profile 2011.

When looking at Egypt insurance, you will find options from various companies for the public and private sector companies. Although all areas of insurance coverage have done well, one in particular has reached incredible success and that is life insurance. Regardless of the policy you might be interested in securing, all insurance companies in Egypt are closely monitored by the Egyptian Insurance Supervisory Authority. If we analyze the GDP contribution of the insurance market in Egypt, we see that is less than 1% and, compared with the developed country (4 or 5 %) means that there are a lot of possibility to grow. And furthermore looking at past and present numbers for the Egypt insurance industry, it is easy to see that a significant and fast growth rate has occurred. In fact, when looking at life insurance in particular, this type has actually grown faster than any other type of insurance for the country. Overseeing all the changes and regulations is the Egyptian Insurance Supervisory Authority. To assist the Egypt insurance industry, World Bank recently signed a $75 million loan to help boost the health insurance system currently in place. With this money, health insurance processed would improve and a more efficient and effective system overall for insurance would be created. The people in Egypt have been battling for decent health insurance coverage for a long time and while financing has been a serious issue, with the new loan agreement, some optimism is starting to be seen. The most recent report for the Egypt insurance industry came out in March of 2010 pertaining to the most recent conference looking at current standards. Without healthcare reform of some kind, the Egypt insurance industry would continue to struggle. In this country, hospitals refused to treat civilians until they are repaid by the Ministry of Health for all the free care provided. Sadly, just 53% of people in Egypt have insurance and just two million receive free healthcare from the government. Those features make Egypt a very attractive country from an insurer point of view. So Egypt can be seen as interesting investment field, with high possibility to grow, especially if we have a low risk aversion. As I said before, a good business can be the health insurances. On the fifth of May 2012, was signed a cooperation protocol between the Insurance Federation of Egypt and the Egyptian Association for Health Care Administration to promote the medical insurance industry in the Egyptian market. If I can have the opportunity of choose, my plan is to offer a very basic and cheap health insurance that covers the basic hospital expenses for a general diseases or accident. Something like micro-insurance that can give to millions of Egyptian the possibility to cover their medical expenses. Regarding the channel of distribution I want look forward and not use the traditional way. In general financial and insurance products are sold through specialized network, such as banks and insurance agents. Moreover, I don't think that a good opportunity can be selling insurance by internet, because if is true that the social network had an important role in the Arab spring, is also true that a new generation of Arabs rise. So I think that, a good campaign in the school, from the primary until the university can be a good solution. Add, the value of the learning, the value of the culture, to the message of take care of yourself by yourself! can works. A self conscious

Egyptian, can easily accept the idea to insure himself if he see the insurance usefull like the school. 3. TURKEY5 According to several firms, there is no more fascinating country where insure like the Turkey. Mr Eisele says Swiss Re considers the Turkish market of strategic importance for doing business. The market is maturing very quickly and the presence of many global corporations encourages good underwriting practices and the exchange of global know-how among industry players. There is in no doubt that Turkey is the right place to be at the moment with plenty of development opportunities still to come. According to Ms Wania: "Turkey ranks 28th in the world in terms of non-life premium and the insurance penetration is low, compared with 3.1% in Europe. Non-life premium per capita is US$90 compared to $750 in Europe. The life market is even less developed and insurance penetration is far below the European average." Its geographical position as the gateway between West and East makes it an interesting proposition and its move to join the EU has meant the government has been looking at the insurance market closely. Certain covers would become compulsory if Turkey was to join the EU such as professional indemnity insurance. Together with Poland, Turkey has been among the fastest growing insurance markets of its size in Europe. Along with the rapid growth in the Turkish insurance sector, there have been major changes to the Turkish insurance legislation in the last few years. New legislation has improved the regulatory framework and has brought the industry more into line with international practice. The general trend for the last decade in the Turkish non-life insurance market was that premium growth tends to be twice as high as economic growth. This trend is estimated to continue in the near future. Furthermore, Turkey is seen by many foreign insurance companies as a prospective market. Some foreign players such as Axa, Allianz, Groupama and Mapfre have now gained a significant position in the Turkish market. It is estimated that around 2/3 of the Turkish non-life market is generated by foreign insurers. One of the biggest business in Turkey, is for sure the insurance for the earthquakes. As a country that faces major earthquakes, the government has set up a pool to manage the risk. Ebru Gurtan, general manager at Ace Turkey, explains: "The Turkish market is set up to protect customers for earthquake risks. It is mandatory for homeowners to buy earthquake cover, there is a national pool that manages the retail quake risk and on the commercial side, there is a tariff for earthquake risk. On the other hand, Mr Kemp says that, the pool covers buildings, but not contents which has to go into the open market and penetration is at much lower levels on contents and there are real opportunities to grow market share.

Lloyds country profile 2011.

So, our business ideas, is to create an insurance for the house. Naturally, not only for the building, but, also for the contents of the house. An insurance that hug the entirely value of the house and of the stuff that in the house is content. This can be a good solution, and, is not so expensive to achieve. Infact, in case of earthquakes, the insurance that have to provide to refound the clients, have, in proportion, a major claims for the house, but, with a full-box insurance, the claims can be negociated to the lower because there is also the content to the house to refound. In a psicologica dimension, the client, can be very interested to sign for an insurance that, in case of earthquake provide him to everithing, and not only to the standalone building. Furthermore, this kind of insurance can be suitable with an option that provide to take care of the client from the date of the earthquakes, until the rebuilding of his house.

4. UNITED ARAB EMIRATES6 Insurance is considered as a sector with lot of potential in the Middle East, thanks to the current low penetration levels, high growth in population and supportive economies. This holds true for the UAE too, especially as it is one with a relatively higher per capita income. However, it would be difficult for the domestic companies to repeat their performance in the past years, as the Ministry of Economy and Commerce has already submitted recommendations to allow new foreign insurance companies to operate in the UAE. Considering the fragmented nature of the domestic industry, it would be difficult for the players to withstand foreign competition. This could possibly lead to consolidation in the medium term. The global recession outstanding in the UAE insurance industrys long-term outlook remains positive. Although weakness in new car and home sales and construction project delays and cancellation will result in weaker growth in 2009 than over the past decade, we believe the sector will resume double digit growth rates in 2010 to 2012 . The key factors underpinning the strong growth potential are: Low insurance penetration. Regulation, greater affluence, growth in organized savings, greater availability of Takaful insurance products and changing consumer habits are some of the key drivers for spending on insurance products; Strong economic growth. Efforts to diversify local economies and greater investment in development of local economies (as opposed to investment abroad) than in the past.; Favorable demographics; Life and medical is growing faster than general insurance; the UAE insurers are responding to lower growth by ceding less business to reinsurance companies. In the second quarter of 2009 the ratio of ceded to retained premiums fell to an all time low of 56.4%; Gross premium income growth is slowing rapidly, while net premium income continues to grow fast, signaling slower revenue growth ahead in 2009; Very strong underwriting performance in the first half of 2009, but the long term trend points to greater competition.

Business opportunities by: Market Watch 2012.

GIUPO PRODUCT, CHANGE SOME WORDS AND THE CHANNEL FOR SELL. FOR EXAMPLE INTERNET. CIAO!!!!!!! The products we decided to sell in this market are the followings: one is related to the main UAE oil sector and the second one related to another important sector of this country, that is tourism. To enter in details, about the latter we thought about to offer an insurance product for B2B market, to luxury hotel chains, in order to be protected by possible losses in the reservation due to terrorism attacks or threats. For example, if the number of cancellations will exceed of a certain threshold, as 60% of total bookings for that period, the hotels are compensated for a proportion of expected revenues (minimum or franchise deductible in addiction of a limited value). The channel distribution that can be used to deliver our product in our view is the Agents channel that, as we have mentioned before, is one of the most used in this country. Our mode of entry for this product in the market can be the establishment of a little branch, which can be used also as a point of reference for our agents. Instead for the oil sector we thought about a more classical non-life product (property insurance and liability too): the insurance for oil wells against accidents (explosions, fires). We can use also for this product the same branch and agents as mode of entry the market and distribution channel, so we can get a sort of economy of scale in order to be able to offer a lower premium price than our competitors.