Regulating the lost city of stone

June 10, 2014 3:38 pm

Jordan has found itself in a unique position. Although the country shares cultural similarities with northern neighbours, such as Lebanon and Syria, political stability through a largely respected royal family and immunity from the Arab Spring show that its financial services sector has continued to grow in similar ways to other Gulf states’.

However, how did this happen? Why has the kingdom avoided the worries of the Arab Spring? Why is Jordan’s regulatory system one to be admired?

POLICY explores everything that is insurance in the Hashemite kingdom to present a comprehensive profile of its financial services sector and, more specifically, its insurance market.

Looking at key indicators that define the industry and why it has continued to grow in the backdrop of regional instability, POLICY speaks with Rana Tahboub, director-general at the Insurance Commission (IC) of Jordan, and Ali Karakuyu, associate director at Standard and Poor’s. It endeavours to shed some light on the success of the kingdom’s insurance industry, but also looks at its various problems. POLICY also investigates the country’s inability to host a reinsurance market, recent issues surrounding the compulsory TPL motor insurance of 2012, and key challenges facing both the industry and authorities, while finding out what to expect in the coming years.

The Jordanian insurance sector, at the moment, comprises 514 agents, 98 brokers, 11 reinsurance brokers, 50 loss adjusters and surveyors, 13 actuaries, 22 consultants, one cover holder, 15 companies administrating insurance business and nine banks licensed to practice bancassurance.

It experienced considerable growth after 1995, when the industry was re-opened for investors, with a minimum capital requirement of JOD2.0 million. During that time, this was considered a low minimum capital requirement, which favourably positioned the sector on a high growth trajectory.

The current state of affairs 

When analysing Jordan’s insurance landscape, it is important to understand the market’s segmentation by life and non-life, market size and future projections. Meanwhile, vitality also plays a role in the segmentation of the entire non-life segment and market shares of major players.

Rana Tahboub of Jordan’s IC points out to this very fact and claims that the country’s insurance market comprises too many smaller players that do not allow stronger companies to offer better services and products.

“The biggest challenge is the fragmentation of the country’s insurance market; too many smaller players have been hindering the emergence of stronger companies that can display better resilience in the face of economic fluctuations, offer new insurance products with added values and improve the level of their services.”

Tahboub goes on to stress the efforts of the IC to urge insurers to consider options of consolidating operations in order to constitute bigger and more liquid portfolios.

“The more solvent insurance entities, resulting from mergers and acquisitions, will also be in a better position to improve their services and expand into neighbouring markets. The IC utilises different platforms to acquaint the sector with the benefits of consolidations, while emphasising that this step ought to be taken by firms themselves.”

Speaking with Ali Karakuyu from Standard & Poor’s, one gets a similar point of view. “There are simply way too many companies for the level of premiums being shared and there is a small amount of bottom-line profit in the market.”

However, he adds that it is not just a matter of firms consolidating operations, as “there are too many of them in the market, but consolidation is not an explicit solution. Firms must ensure that they are pricing in a way that does not undermine their bottom-line profits for the sake of market shares”. Karakuyu also highlights the importance of regulators keeping a close eye on the market without micro-regulating.