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Health Insurance and Takaful in Egypt after the Financial Crisis PDF Drucken E-Mail

The MENA countries, at the southern border of the European Union, find them self currently in the middle of a crisis that rivals that of 1929. The origins of this perfect storm are many and the nature of the crisis has changed over the past three years. Several trends in the financial sector including the insurance sector have contributed to dramatically amplify its impact and to weaken the stability of the financial system.

These include increased leverage and maturity mismatches,
• increased interconnectedness between financial institutions,
• increased diversification and reduced diversity of banks and insurance companies,
• the growing use of credit derivatives and securitization,
• the widespread use of market and model-based risk measures, and
• the development of the shadow banking sector.
Financial crises are not rare events. According to the Basel Committee on Banking
Supervision, there have been thirty financial & banking crises since 1985, each time leading to very high costs for savers, policyholders and shareholders.

Previous Basel and solvency regulation did not prevent the crisis from happening.
Europe and MENA countries need further reforms (Basel III and IV) to address
the shortcomings of the current regulation and reduce the probability and severity of
futures crises. Objectives of the financial regulation reforms are enhancing
financial stability and the safeguarding of depositors’ interests, while ensuring the
international competitiveness of the financial sector.

Some voices in the industry argue that the reform is ill-timed as the current crisis makes it dangerous to require banks and insurance companies to increase their capital at a time when stress in bank funding markets has gone back to very high levels. We would argue to the contrary: the fact that the economy is currently under stress is no reason to avoid or delay reforms. Quite the opposite in fact, as it merely reinforces the need to improve the resilience of the financial system, to have sounder and safer banks and to restore confidence.

Stronger regulation in EU and MENA will not penalise banks and insurance companies but rather promote a much needed return to sustainable long term shareholder value creation, as opposed to a shortsighted focus on short term profits.

Shareholders and customers these days need rather strong banks that are profitable over the long run. If regulation can also ensure that finance refocuses on its core purpose of allocating capital to productive use in the real economy, it should be beneficial to everyone, from financial system stakeholders to society at large.

Egypt is one of the most fascinating markets in the world today. Egypt has a large population of hard working people who desperately want Egypt to get back on track and moving up the global value chain. In the post-Mubarak age, fresh capital from the Arab neighbor countries and from the Gulf area could flood the country . Neighboring Arab counties are looking for a fresh market to tap and develop.
This is where Islamic financing will come in to play its part. Not simply in the structuring of products but in making sure that the types of projects and companies that get financial support are Shari’ah compliant in spirit as well as in fact. New SME financing will focus on low cost housing and the regeneration of the agriculture sector.
The Egyptian Insurance and Takaful (Islamic insurance) industry are making every effort to convince its customers, shareholders and employees, that insurance means security and stability. By preparing in advance, customers have the peace of mind that comes from knowing they are e protecting their family's financial future. Insurance gives security and social peace. Marketing oriented politicians know that he who works all his life for his house, his family and his pension, and who owns life insurance contracts, is no revolutionary but strives for steady democratic evolution and social peace.

The insurance industry are introducing the finest Sharia compliant insurance products to the Egyptian market ensuring the peace of mind for customers from the daily risks that threatens the future of their families supported by highly admired customer service. Especially by the Islamic variant of Sharia complient insurance or Takaful. Egyptian Takaful companies want to provide their customers with an environment where their traditions are appreciated and respected.

Reflected against these proud words of the insurance and takaful industry, Egypt ‘s reality is far behind. Egypt is one of the few countries globally which have the lowest per capita expenditure on insurance. However, its insurance market has witnessed growth in premiums, as consequence of improved productivity of the sector as well as strong economic growth.
Political, economic, social and demographic development is making the insurance markets in the Middle East & North Africa (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 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 legislations have also supported the insurance sector and made it lucrative for both domestic and foreign private players, resulting in expansion of customer base (increasing premium and investment). 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, compared to Europe, 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, on account of an increase in demand for motor, accident, and health products. Nevertheless, in the last two years, the 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 product. However, the coming years appear promising for the non-life segment, particularly the motor, accident and health insurance segments.

Among the main players on the Egyptian insurance market, American Egyptian Life Insurance Company (ALICO) e.g. is one of the largest national financial service companies . ALICO is looking for marketing agents to develop retail & corporate products to adopt with market changing needs. The Egyptian candidates should conduct regular research for gateways securing new business opportunities. They are to explore market potential for strategic alliances with third parties to secure flow of new business and prepare high-level projects.

Health Insurance and Pharmaceuticals

Healthcare development in Egypt and other MENA countries clearly is in favour of increased privatisation , 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, characterised by progress towards privatisation. While access to free healthcare theoretically exists, practically 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 the modernisation of programmes and maintain the existing facilities. Actually, there are two main areas of reform: primary healthcare and the provision of a national health insurance scheme.

Sanofi-Aventis the largest pharmaceutical provider in Egypt

International companies recognise the value and potential of the Egyptian and other MENA pharmaceutical markets. Sanofi-Aventis, for instance, is the largest pharmaceutical operator in Egypt, whilst GlaxoSmithKline is the leader in Saudi Arabia. Some local producers, such as Hikma from Jordan and SPIMACO from Saudi Arabia, aim to become regional leaders. In fact, the total MENA pharmaceutical market is expected to represent a combined valued of US$35.9 billion at retail prices in 2015, including pharmacy and hospital sales. The region is headed by Egypt and Turkey, followed by Saudi Arabia. Local manufacturing production is fragmented and geared towards branded generics, but reliance on imports remains. Biotechnology is still in its infancy.

Positive economic and demographic factors are expected to drive pharmaceutical market growth. However, healthcare provision is highly fragmented. Regulatory advancements in the internal market will increase manufacturing opportunities, although concerns remain regarding drug price referencing, introduced in 2009. The private pharmacy sector has increased by a high double digit figure in recent years, while per capita consumption is still low. The pharmaceutical market is expected to grow over the next few years, as domestic production is expected to rise and as the healthcare system continues in its transition towards modernisation. There are a number of leading local private producers, some of them involved in biotechnology, which are strengthening their manufacturing capabilities.

GlaxoSmithKline and SPIMACO from Saudi Arabia have disclosed the acquisition of an Egyptian pharmaceutical producer in 2010. The Saudi public sector is dependent on oil revenues and is characterised by cost-containment and late payments for tenders. There is little domestic production, therefore the vast majority of the market is provided by imports. Saudi Arabia imports a large amount of semi-finished medicaments from Egypt, some of which are then re-labelled, repackaged and exported. In terms of research, the Ministry of Commerce & Industry has identified biotechnology as an area of investment in the country.

A new health insurance draft law will be presented to Egypt's Shoura Council and People's Assembly in the upcoming parliamentary session, announced Magdy Rady, official spokesperson of the Cabinet of Ministers. The decision came after a meeting between Prime Minister Ahmed Nazif, Minister of Finance Youssuf Boutros-Ghali and Minister of Health Hatem El-Gabaly discussing the establishment of a health insurance and care system as well as primary health care units around the country.

The new law will include key principles that aim at spreading health care to all citizens, in addition to implementing the concept of social solidarity, whereby the state, represented in the Ministry of Social Solidarity, will be paying for all low-income citizens. Nazif highlighted the importance of having a well-integrated health insurance system in order to meet the desired objectives and having proper primary health care units and public hospitals that are of high quality.

The new health insurance system needs proper economic management. The system will be implemented gradually in governorates around Egypt, starting with places where an infrastructure to accommodate the program already exists. Pilot health insurance projects have been executed in the governorate of Suez, where there was a new open enrolment system, improved access and coverage of low-income groups, expansion of the benefits package to include secondary care and building capacity at the local levels to sustain reforms.
In a statement, Minister of Social Solidarity Ali Moselhi said that just as all families who are covered by the social solidarity system do not pay the tuition fees for their children's education based on an agreement with the Ministry of Education. They are seeking a similar agreement with the Ministry of Health in order to cover these families with health insurance. Over 27 million children in Egypt are covered by the umbrella of health insurance. Furthermore, the ministry is currently carrying on studies on the different ways of implementing the medical insurance system on children with disabilities and special needs.

In 2010, Egypt received a USTDA grant of over half a million dollars from the US that will fund a study on how to decrease the price of pharmaceuticals and increase their availability in the local market. US Ambassador to Egypt Margaret Scobey and Kamal Sabra, assistant minister of health for pharmaceutical affairs, recently signed a cooperative agreement for the $557,704 grant.

Egypt's healthcare sector is expecting growth rates of 10 percent annually for the next five years. The grant, signed by Scobey on behalf of the US Trade Development Agency (USTDA), will fund a feasibility study and a project on how to enhance Egypt's pharmaceuticals supply chain to meet growing needs. According to the director of the US Trade and Development Agency (USTDA), US-Egyptian cooperation in 2011-1012, in the coming phase of partnership between both countries, will focus on trade rather than aid. Sponsored by the USTDA in collaboration with the US Department of State and Commerce, and the Egyptian Embassy in Washington, the US Chamber of Commerce and the US-Egypt Business Council, aim to connect attending Egyptian businessmen and entrepreneurs with some 200 US company leaders seeking potential cooperation.
Highlighting opportunities for financing projects in the four key sectors of health, information and communication technology, , transportation and agri-business, the forum kicked off with a plenary session in which Egypt's ICT Minister Magued Osman opened his remarks with an emotive video showing scenes from the Jan. 25 uprising and the financial crisis.

According to a statement by the US Department of State, a new study focuses 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, the statement read. The project will fund two pilot projects in two governorates to test key findings of the study. "The United States and Egypt have had a long history of cooperation in the healthcare sector, including implementing programs to improve health coverage of underserved populations and strengthening the technical and managerial capacity of the health sector to positively impact the well-being of the Egyptian population," Scobey said at the signing ceremony. "Today's USTDA grant is yet another opportunity for Egypt and the US to work together, this time addressing the supply and distribution of pharmaceutical products in Egypt," she added.
Pharmaceutical prices here 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 (R&D) by Egyptian firms producing generic products.
Ahmed Lotfy, manager of a pharmacy near the German Embassy in Mohandessin-Gizah, lauded the grant and said it will be crucial for studying and addressing problems in the Egyptian pharmaceutical markets. He added that while the Ministry of Health was doing a good job of decreasing prices of many pharmaceutical products, "it is hard to know which medicines' prices are decreasing or increasing." "We need to keep in mind that 68 percent of all expenditure on pharmaceuticals in Egypt is out-of-pocket.

Islamic Health Insurance (Family Takaful)

Islamic insurance companies have developed extensive facilities to transact all classes of general insurance such as life, marine, fire, motor, accident, aviation, engineering, etc. Islamic Insurance Companies are functioning very efficiently on most economic and competitive terms consistent with safety and security.

Islamic Travel Health Insurance (Family Takaful) is a modern type of health insurance especially appropriate for Muslim or Islamic clients. An important aspect of Islam is that the society at large is based on the concept of humanity and brotherhood of the Muslim community. According to Islamic principle, it is basically the moral responsibility of the individual to cater for his own needs through his own efforts.

Islamic Travel Health Insurance allows anyone who is covered by the scheme to receive medical treatment in another state for free or at a reduced cost. It covers the treatment during travelling abroad (available for 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 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 pilgrims must have Takaful coverage. An Islamic health insurance company transacts business on a co-operative basis in accordance with the principle of Islamic Shariah. All the functions of conventional insurance companies, i.e. underwriting, claims, reinsurance, marketing, investment, company management, etc. of Islamic Insurance Company should fully conform to Islamic Shariah Code. At the same time, Islamic insurance companies should also make the scope and benefits of insurance coverage traditionally provided by the conventional companies available.

Egypts regulators

Egypts regulators and financial institutions have been less active in promoting Islamic banking and Takaful than have 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. Islamic insurance, or Takaful, is similar to mutual insurance but with a clear segregation of the assets owned by policy holders and those owned by the insurer.

International rating agencies like A.M. Best are watching capital equipment, debts and solvency of insurers. A.M.Best has removed Egypt’s largest insurer Misr Insurance Company from “under review with negative implications” and affirmed the financial strength rating (FSR) of B++ (Good). The rating actions reflect uncertainty regarding the prospective capital position and operating performance (particularly dictated by compulsory motor branch ) of Misr, which is likely to remain under pressure. Currently, Misr (and related group insurance entities) are undergoing a significant restructure, following the regulatory requirement of Egyptian Insurance Law, which obliged companies to separate the life and non life portfolio effective by 1. January 2011.

The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of the rating process and highlights the different rating criteria employed.

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 Prof. 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. Worldwide, Islamic banks have more than 300 institutions spread over 51 countries, as well as an additional 250 mutual funds that comply with Islamic principles. Conservative estimates suggest that by 2012 over US$1,000 billion of assets are managed according to Islamic investment principles. With the establishment of the the Islamic Development Bank, Prof. ElNaggar, and H.E. Prince Mohammed-al-Faisal-Al-Saud of Saudi Arabia took initiative for the establishment of a number of Islamic Banks.

The Islamic Insurance Company Ltd. Sudan was the first ever insurance company established in the world to transact business according to the Islamic Shariah.

Actually, there are 8 Islamic insurers in Egypt. From the mid 1980s the idea spread to the Far East, before gaining momentum among other Arab countries in the last five years. Abdul Raouf Qutb, 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 percent by the end of 2013."

In a nutshell, Takaful pools a community's resources with an investment manager or company. Contributors to the fund are then given financial support when they need it. In essence, there are two kinds of investment tools: Equity-based and fixed income-based, explains Mahmoud Abdallah, chairman of Insurance Public Holding which holds 55 percent of the Egyptian insurance market.

Islamic companies invest only in the first kind of tools, which means sharing risks and variable premiums. The idea, spiritual as it is, has proved a success worldwide, with cooperative insurance coming as a parallel body to the illicit conventional insurance, in which companies deposit premiums in interest-bearing, but risky, investments.

Internationally, total Takaful premiums are estimated to reach US$7 billion by 2015.

"Clients view their contribution as a “donation” which is transferred to the ownership of the Takaful Waqf Fund and placed in interest-free sharia-approved investment projects including Faisal Islamic Bank, and Egyptian Saudi Finance Bank," adds Shehata. Each Takaful company has a governing body (Sharia Board) that consists of ulamaa (Islamic scholars) to judge if the company’s transactions are consistent with Islamic practice or not.

For Islamic life insurance 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, CEO of Egyptians for Takaful Life Insurance Company. "We don’t care who says this is improper as we have our sharia board that says what's ok and what's not." The company has seen its revenue surging 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.

"I think the financial crisis has caused clients shift from investing in commercial banks and institutions to Islamic companies," adds Shehata. "We have customers who don’t give much attention to issues of halal and haram. We also have Christian clients." In Islamic finance, derivatives, hedge funds, short-selling and speculation are illicit, i.e. “haram”.

Furthermore, the risk-sharing concept of murabaha, 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, according to the Saudi Al-Sharq Al-Awsat daily. The less risky and more stable practices of Takaful companies might go some way to changing Egyptians' suspicion of religious institutions.

At the moment, there are eight Islamic insurance providers in the country. However, there are twice as many traditional insurance companies, with far larger investments and assets. Islamic Reinsurers like Takaful Re provide a complete range of ReTakaful services and products to Takaful and Islamic companies in order to meet their business requirements. Takaful Re consistently ensures that the products and services are in accordance with the Principles of the Quran and Sunnah as recommended by its Shari’a Supervisory Board.
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 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 Midle East. "Events such as the Arab spring that led to the ouster 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. Bhatty said the industry expects to pay claims resulting from the turmoil.

The Japanese insurer said last year that it expected the two sharia-compliant units to generate about $3.5m in annual premium income in the first financial year, which closes in June. That should increase to $136.4m within ten 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 $1 trillion Islamic finance industry over the next five years.

Tokio Marine is also considering launching micro-Takaful operations in Egypt to complement microfinance programmes already available. Micro-Takaful is an Islamic insurance scheme for people of low incomes 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 stay the company’s clients and generate real business.

Bhatty said 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". Takaful and insurance will increase the individual’s peace of mind, social stability and peace. More insurance means more peace.

The author: Dr. Gerd Kloewer, international financial consultant, has been working for the European Union, German Government Agencies, GIZ, banks and insurance companies in 25 countries ( Diese E-Mail-Adresse ist gegen Spam Bots geschützt, Sie müssen JavaScript aktivieren, damit Sie es sehen können )

by Gerd Kloewer

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© DAG am Donnerstag, 20. Juni 2019
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