Is Jordan’s insurance sector a model market?
Double-digit growth on the horizon and the insurance sector should be ripe for consolidation as it is open to foreign insurers, Policy reports
May 16, 2011 5:18 by kippreport
The small absolute size of the Jordan insurance industry is projected to clock double-digit annual growth.
Total premiums in 2010 amounted to JD400m, including JD362m in non-life premiums and JD38m in life premiums.
In 2015, the corresponding figures should be JD697m, JD602m and JD95m, respectively, according to industry tracker Business Monitor International (BMI).
A key driver that underpins BMI’s forecasts is the non-life penetration, which will rise from 2.14 per cent of GDP in 2010 to 2.40 per cent in 2015. Life density will increase from $8.14 per capita to $18.64.
Non-life insurance is underdeveloped in terms of penetration (premiums as a percentage of GDP). Life premiums per capita are miniscule.
In contrast with much of central and eastern Europe, the global financial crisis has had very little impact on the development of insurance in Jordan through 2008 and 09.
In theory, the insurance sector of Jordan should be ripe for consolidation as it is open to foreign insurers.
The industry is extraordinarily fragmented. There are dozens of insurers that are local operations, affiliated with banks or conglomerates, and which are small by almost any standard, the BMI report said.
According to the Insurance Commission of Jordan (IC), gross premiums increased by 9.4 per cent to $108.7m by the end of February, (latest available figures) compared to $99.4m recorded in the same period in 2010, said the Insurance Commission of Jordan (IC).
Life premiums amounted to $12.5m, up 12 per cent year-on-year and accounting for almost 12 per cent of total market share, while general premiums stood at $96.2m. Gross paid claims increased by 12 per cent to $72.7m.
At the end of February, there were 760 insurance service providers in Jordan, up by eight per cent from the same period in 2010. This figure includes 526 insurance agents, 103 insurance brokers, 53 loss adjusters, 15 actuaries, 14 reinsurance brokers, 24 consultants, 15 companies administering insurance services, and 10 bancassurance operators.
In addition, the IC granted permits for conducting business in Jordan for 29 non-resident reinsurance brokers. New rules allowing for bancassurance have been promulgated, although there is some resistance from leading agency-based insurers.
Bancassurance may have contributed to the growth of the life sector, while cultural factors do not seem to have hindered excessively the growth of the sector. The industry is overcapitalized, but capital usage is more efficient than elsewhere and the sector contains an efficient number of insurers. Retention levels are still low by international standards but are not unreasonable for emerging markets with large peak risks and undeveloped household markets.
Motor insurance accounts for the largest share of non-life premium.
In the Middle East, only Jordan, Morocco, and Tunisia have larger non-life premiums than those predicted by their levels of per capita income.
Besides income, basic demographic factors such as the size of the population, population density, and the age dependency ratio may affect significantly the demand for insurance products. Likewise, inflation may have an impact on the demand for insurance products, especially life products.
The solvency regime in most MENA countries broadly follows the original EU Solvency 1 regime, with some countries modifying the premium and claims weightings according to the class of business. Jordan has adopted a modified US risk-based capital approach, which implicitly allows for a graduated response to deteriorating insurer solvency.