Insurance penetration in Morocco, Tunisia and Algeria remains low, but population growth and new regulations present growth opportunities for the insurance industry.
The region's insurance sector has seen stunted growth due to a generally restrictive financial services environment, regional political turmoil, cultural factors and lack of awareness of services.
"We believe Maghreb insurers will continue to be largely oriented toward property/casualty business in the next five years," according to Standard & Poor's latest report on the sector.
"Low insurance penetration and increasing demand for life and health insurance should support insurers' premium growth in Algeria, Morocco, and Tunisia over the next three years."
Tunisia transforming
S&P believes Tunisia's insurance sector is in the "process of transformation," with supportive regulatory framework, as insurance classes like motor, third-party liability, professional liability, and work accident insurance are compulsory.
New regulations by the financial services authorities such as mandatory insurance and incentives for the takaful (Islamic insurance) industry is also expected to boost the country's nascent sector.
According to business intelligence group Research and Markets, Tunisia's insurance industry is dominated by the non-life insurance segment, which made up 69.6% of the industry's premium in 2012. Overall insurance penetration stood at only 1.8%.
In written premium value terms, the industry grew from TND 955.7 million (USD 775.1 million) in 2008 to TND 1.2 billion in 2012, recording a growth rate of 6.6% annually during the period.
Morocco's Contrat program
In Morocco, insurance penetration stood at 3.1% in 2012 with a lot of headroom for growth. The country's insurance sector grew at a compounded annual growth rate of 8% in 2012, according to Research & Markets.
"This growth was partly driven by favorable government strategies to expand the insurance industry, including compulsory provisions such as compulsory third-party motor insurance and the implementation of other favorable provisions such as the Contrat Programme in 2011."
The program was introduced to expand mandatory coverage on natural catastrophe and increase insurance penetration in property insurance and health and for salaried and independent workers. It also encompasses fiscal incentives that are likely to promote demand for long-term savings products in life business.
"Personal lines are likely to develop faster in Morocco, supported by a developed bancassurance market and a supportive sector transformation program supported by the state."
Morocco has been identified as a key growth area among emerging markets by Ernst & Young. Rising population and high growth in vehicle ownership makes the North African state an attractive opportunity for insurance companies.
Government-sponsored insurance companies in Morocco are being replaced by private enterprises, but Algerian state entities continue to keep a tight grip on the market.
Algeria industrial growth
Large-scale infrastructure spending in Algeria, where insurance penetration stands at 0.6%, could raise the insurance sector's profile, while the easing of personal and auto loans would also generate more interest in buying life and auto insurance in the country.
S&P expects the insurance sector to grow between 10%-20% annually on the back of new capital spending by the government.
"We see greater growth for industrial lines in Algeria, largely because of infrastructure projects driving up the economy," according to S&P.
Motor insurance already accounts for 60% of all insurance and is set to rise further as banks are expected to start offering loans after lifting a clampdown on consumer loans in 2009.
However, the government's restrictive approach to foreign investment in the sector has kept global insurance companies at bay.
Regional governments' push to make insurance mandatory in some segments will also boost the sector.
"We still believe that the three markets might confront some hurdles in coming years, such as slow economic recovery in Europe, which is the Maghreb's main trade partner, as well as political and economic uncertainties in Tunisia," S&P said.
The feature was produced by alifarabia.com exclusively for zawya.com.
© Zawya 2014
