 Business Information : Insurance
INSURANCE
►overview
Increased regulation and supervision of the sector included a law, which took effect in the summer of 2001, to raise minimum capitalization to $1.5 million. This had the effect of encouraging mergers and acquisitions, with the result that the total number of companies declined from 73 to around 61. Other provisions of the law were to set aside a further $1.5 million in technical reserves and show a 10 percent solvency ratio. The step is seen as strengthening the sector and securing the sector’s future.
► regulatory framework
National Council of Insurance Companies
The National Council of Insurance Companies, located in the Ministry of Economy and Trade, supervises the industry.
Six of the 11-member group are appointed Government officials, four are elected insurance practitioners, and one is a representative from the Insurance Syndicate.
Insurance Control Commission (ICC)
A supervisory group was been formed to ensure insurance laws are properly implemented. Experts are empowered to inspect company books and report their findings to the Ministry of Economy and Trade.
Association of Lebanese Insurance Companies (ACAL)
A 1968 insurance law mandated the creation of ACAL to represent the interests of the insurance company, set operational standards, and submit proposals relating to the insurance sector to the Ministry of Economy and Trade.
► the law
Authorization
Conditions
The National Committee of Insurance Companies in the Ministry of Economy and Trade licenses insurance and re-insurance companies. These companies must be limited liability enterprises solely devoted to providing insurance coverage.
The companies must invest at least 50 percent of mathematical reserves in the domestic market, and must represent a capital base to $ 1.5 million.
License Revocation
A company’s license can be revoked:
• if it is illegally registered
• if it does not abide by the laws or disregards a court ruling
• if it cannot meet its obligations
• if it is jeopardizing the rights of subscribers
• if the home country of an international insurance firm cancels the reciprocal agreement accorded to Lebanese companies.
Fiscal Reporting
All insurance companies must provide regular fiscal reports indicating the solvency ratio. This includes capitalization, reserves, estimated obligations, and percentages of business re-insured.
Technical Reserve Management
The technical portion is the outstanding premium remaining of the policy after December 31. This amount, added to the outstanding claims reserves and life insurance reserves, determines the end-of-year balance sheet and the profit and loss statement.
Re-insurance
Foreign companies that are solely re-insurance agencies can operate in Lebanon via a licensed representative. Re-insurance agencies must have at least a B rating from Standard and Poor’s. The large losses suffered by insurance companies that lacked adequate re-insurance coverage resulted in the government stepping in and requiring that the Ministry of Economy and Trade approve re-insurers.
Arbitration Council
An Arbitration Council, similar to a Small Claims Court, was set up to settle insurance disputes of LL75 million ($50,000) and under. The Arbitration Council has two judicial bodies, one to settle health and hospitalization claims and the other to settle matters arising from car accidents.
Mergers and Acquisitions
Any merger is subject to the approval of the Ministry of Economy and Trade. If the parties receive no word within three months of filing, it is assumed the request was denied. The newly formed company is entitled to an exemption on a portion of its income tax in the fiscal year following the merger.
Foreign Companies
Foreign capital requirements are three times the minimum imposed on local companies. They have three years to fulfill obligations.
►products and premiums
The top 15 companies provide 75 percent of the written premiums. Medical insurance takes up the lion’s share (48 percent), followed by life insurance (22 percent) and motor insurance (20 percent).
Life Insurance
The top five companies have captured 90 percent of the market with the international company American Life Insurance (ALICO) outperforming its local counterparts.
Accidents
Medical / Hospitalization
Hospitalization coverage accounts for nearly half of the policies sold. As a result of the breakdown of the National Social Security Fund (NSSF) in the 1980s and the increase in medical costs, people increasingly turned to private health insurance.
Corporate Health Policies
Corporate coverage also is a growing field. For those companies registered with the NSSF, policies are available to supplement the benefits provided by the state healthcare system.
Mutual Societies
Industry professionals estimate that around 14 percent of the population owns individual medical insurance policies, of which eight or nine percent are with insurance companies. The remainder belong to mutual societies, an unregulated section of the market mostly comprising groups of workers in the same industry.
Workman’s compensation
Required by law but rarely implemented, Decree 136 requires all employees to take out insurance coverage for their employees in case of accidents at work or while traveling to and from work. The insurance companies are obliged to cover the entire cost of hospitalization and typically up to 75 percent of expenses incurred while convalescing.
Auto
The Ministry of Economy and Trade announced that third party car insurance would be compulsory after January 1, 2003. Industry estimates indicate that less than 30 percent of the country’s 1.6 million cars carry insurance voluntarily.
Property Cover:
The cost of fire insurance averages $150 per annum for medium-size homes, and $250 per annum for average-sized stores and offices. The premiums for industrial coverage are clearly higher than those charged for home coverage because of the enhanced risks.
Marine Insurance
Coverage depends on the nature of the goods, the time they take to reach their final destination and how well they have been packed. Protection and Indemnity (P&I) – coverage for cargo – is essential to the maritime trade. Charterers frequently refuse to load goods onto vessels without the necessary coverage.
Engineering Insurance:
As the height of the construction boom in the early 1990’s, insurers decided to form the Lebanese Insurance Pool (LIP) to provide insurance services to engineers, consultants, and contractors engaged in construction projects throughout the country.
The Bankers Blanket Insurance Pool
The Bankers Blanket Insurance Pool was created in 1985 to meet the banking industry needs for insurance coverage. At that time re-insurers refused to extend coverage to the local market. Its activities began to decline because international re-insurance companies have returned to the market.
►actuaries
There are only eight qualified actuaries in Lebanon, although their number is bolstered by a number of foreigners. According to the actuarial association, the country should have at least 25 full-time actuaries, with around four employed at the National Social Security Fund.
Actuaries use statistical analysis to calculate the cost of future risks and play a major role in designing pension plans and developing their funding requirements.
►brokerages
Estimates suggest that brokers generate as much as 60 percent of the business.
Qualifications
Individual brokers can provide personal brokerage services as long as they abide by the licensing and registration requirements and meet the reserve guarantee imposed by the Ministry of Economy and Trade.
Licensing
▫ The company must be registered with the Commercial Registry
▫ The managing director must be a qualified broker
▫ The enterprise must produce a bank statement guaranteeing the company has at least LL25 million in its account.
► international insurance companies
International insurance companies are allowed to contract coverage only through a locally registered insurance agency.
The exception to this rule is cover on imports and exports. Currently, there are four international firms registered to do business in Lebanon.
►Customer complaints
Dissatisfied customers can file a written complaint with the Department of Insurance or the Public Relations Office of the Ministry of Economy and Trade. However, it is the Ministry’s hope that the new Arbitration Council will take over many of the complaints previously filed with the Ministry.
► bank owned insurance companies
There are at least 20 insurance companies wholly or partly owned by banks. The bank has either bought shares in the insurance company or the bank shareholders hold ownership rights to the company.
That means that, while the bank may not directly benefit from the fees and commissions received, it receives indirect benefits. Specifically, the insurance company’s profit, depending upon the type of legal relationship, may be consolidated in the bank’s balance sheet.
|
2010
