Lebanon's insurance industry

The Lebanese insurance market has always been open and liberal, in line with Lebanon’s free market economy. Private insurers have historically been the only players in the local market and the state has never nationalized or expropriated an insurance firm.

Additionally, the Lebanese state never owned insurers and private companies did not have to compete with state entities or worry about government monopolies, as is the case in many other Arab countries.

This characteristic has helped the sector respond to market forces and avoid the distortions associated with state-ownership of insurers. Further, the sector has very low barriers to entry and is one of the most open insurance sectors in the region.

The existing rules and regulations already allow foreign insurers full ownership of local operations and for the acquisition of a domestic insurer. Competition exists from a large number of domestic firms as well as from Arab and foreign insurers already present in the market.

The Lebanese insurance sector is facing a lot of changes and challenges. Specialization, concentration, increased competition, slow consolidation, cross-sector alliances, economic slowdown, and globalization are some of the ongoing trends that are shaping the sector.

Insurance premiums generated in Lebanon totaled $467.3 million in 2002, of which non-life premiums totaled $342.2 million and life premiums reached $124.9 million.

Overall premiums rose nominally by 11% in 2002 with non-life premiums growing by 6.04% and life premiums rising by 27.3% from the previous year. But on an inflation-adjusted basis, total premiums rose by 6.53%.

Lebanon’s real growth rate of 6.53% in total premiums is slightly higher than the 5.5% growth rate in global premiums but significantly lower than the 11.8% rate posted by emerging markets.
The consolidated profits of the sector totaled $19.6 million in 2001, with shareholder equity at $222.8 million and assets at $795.5 million.

The insurance market in Lebanon is highly fragmented. The number of insurers increased significantly after the end of the 1975-1990 war due mainly to lax regulations and an attempt to fill market demand. There were 113 licensed insurers in 1992, of which 79 were operational.

Despite a reduction in the number of insurance firms, the sector is still characterized by an unjustifiably large number of players. Gross premiums per operating company have steadily improved between 1997 and 2002, rising from $3.9 million in 1997 to $7.9 million in 2002.

Although this growth reflects the reduction in the number of operating insurers in the Lebanese market, the low figures per firm point to the need for further consolidation, as small and medium-size insurers are under increasing pressure to have the necessary technological infrastructure and human resources to compete on products, market share, as well as profitability levels

Health, auto and life insurance dominate the underwriting of insurance categories in the Lebanese market. The business of health insurance requires large outlays for service infrastructure such as claims-handling technology, and sufficient membership to generate negotiating clout with providers.

It is questionable whether the auto insurance market in Lebanon will reach a position of strong underwriting profitability in the next few years due largely to the business’ highly competitive nature and the uncertainty of regulatory and legal factors.

The operational efficiency of the Lebanese insurance sector is positively influenced by the fact that the industry is totally in the hands of the private sector. On the other hand, Lebanon does not have the advantages of the more efficient Arab markets in terms of large industries related to oil production.

Further, Lebanon has one of the more developed life insurance sectors relative to other Arab countries, which increases the comparative efficiency of the Lebanese market. Consolidation would bring about improved operational efficiency. The reduced number of firms will inevitably result in a smaller workforce, leading to higher premiums per employees.

Already, several large Lebanese insurers have a regional and international presence. There is a general consensus that the regional markets that offer the biggest potential for Lebanese insurers are Iraq, Saudi Arabia and Syria.

The three countries are considered to be the largest ‘natural’ markets for Lebanese insurers. The sheer size of the capitalization of Gulf insurance firms as well as the scale and scope required to enter the Saudi and Iraqi markets tend to limit regional expansion to the large, well-capitalized Lebanese insurers that have alliances with Gulf or foreign players.