First published in ITIJ 86, March 2008
Tourism is the driving force behind the emerging economies of Morocco and Egypt, and that means opportunity for the travel insurance sector, says Roger St. Pierre
Exotic, yes. But North Africa is much closer in so many ways than a lot of Europeans might think – and that’s in terms of history, trade and culture, as well as location. Take a look at the atlas if you don’t believe me: you’ll see that the north of Tunisia is actually considerably further north than the south of Spain and the whole of Crete. The connections are manifold. After all, the Romans occupied North Africa after defeating the might of Carthage while, almost a millennium later, the Moors occupied Spain for several hundred years, leaving a legacy that includes advanced mathematics, pottery, a love of books, music and folklore. It’s telling that while many nations around the world do not use the Roman alphabet, Arabic numerals have been adopted almost universally, even in the Far East.
Today, of course, Morocco, troubled Algeria, Tunisia, Libya and Egypt are relatively poor countries, with much of their population barely able to afford to travel from town to town, let along venture abroad. However, each of these countries – and especially Morocco – has an emerging middle-class with a strong European connection. With a median age of just 24 years, Morocco’s is a young population – and ambitious at that. And it is among the rising generations that increased disposable income and the desire to travel will take effect. And there’s another window of opportunity for those wishing to market travel insurance in these countries, and that’s the growing numbers of people investing in North African property to obtain their own corner in the sun.
Indeed, Morocco is matching the Cape Verde Islands as the residential property hotspot of the moment, with annual capital gains of as much as 20 per cent.
Projects are sprouting across the country. Colony Capital’s US$2-billion resort development on the Atlantic coast, for example, will cover more than 2,000 acres – and feature five de luxe hotels, as well as housing. Over the past three years, house prices have trebled in many parts of much-favoured Marrakech, and middle-class Moroccans themselves are now catching the second-home bug. Of course, more second homes means more travel, which means more travel insurance sales’ prospects.
Reliable good weather, affordable property prices and the availability of a number of tax breaks have provided the magnet, especially with investors from Britain, as well as Spain and France – two countries that, as former occupying powers, have long-standing strong connections with the kingdom and its neighbours. Says a French estate agent based in Morocco: “Everyone in France used to aspire to a second home on the Riviera. Then it was the Costa del Sol, and now it is Morocco.” As frequent travellers, second-home buyers provide a rich potential for travel insurance sales, with annual policies their first choice.
second-home buyers provide a rich potential for travel insurance sales, with annual policies their first choice
According to Paul Collins, of the BuyAssociation website: “Many Europeans are buying property for retirement or as a second home, but the vast majority are looking at it as an investment that will return a good investment income. That means more visitors, and that means a growing inbound travel insurance market.”
Moroccan tourism thriving
The growing influx of foreign leisure travellers to Morocco bodes well too. The government’s Vision 2010 broad-based tourism policy target is to see the numbers rise to 10 million visitors a year by 2010, and with some seven million in 2007 – a 13-per-cent increase on the previous year – that seems comfortably achievable. The present figures represent an income of £3.8 billion for Morocco’s growing tourism industry, and that is in itself a 12-per-cent increase over 2006.
The outbound market is set for growth too. Though the gap between rich and poor is widening, as in most parts of the world, unemployment is an official 7.7 per cent – though it is thought to exceed 25 per cent in many rural areas, child labour is still rife and around 20 per cent of the population subsists below the poverty line – education standards are improving and average incomes are rising steadily. According to the African Development Bank, Morocco’s GDP currently accounts for seven per cent of that for the entire African continent, making it Africa’s fifth most powerful economy behind South Africa, Egypt, Algeria and Nigeria. The GDP figures for 2006, the latest year for which they are available, stood at US$152.5 billion at PPP (US$58.1 billion at official exchange rates). GDP growth rate slowed to 2.1 per cent last year, but this was largely due to a blip caused by a drought that affected the harvest, leading to unusually large imports of wheat at world prices that happened to be rising fast at the time.
Morocco’s free trade agreement with the EU is set to come into force in 2010, while the USA-Morocco Free Trade Agreement that was enacted in January 2006 allows for 98 per cent of all two-way trade of industrial and manufactured products between the two nations to be wholly tariff-free.
The National Initiative for Human Development is a US$2-billion government programme aimed at tackling poverty and unemployment, but just as important in government eyes is the role that a burgeoning tourism industry will play in the economy’s future. To help this happen, a massive advertising campaign is currently underway. Of major import, if it becomes reality, will be the tunnel planned to pass under the Straits of Gibraltar to link Morocco with Spain. As Karim Ghellab, Morocco’s minister for transportation, said confidently in a recent interview: “I cannot predict an exact date, as yet. But this is a project that will certainly happen, and it will completely change our world.”
The advent of low-cost airlines has already made a big difference, while Royal Air Maroc, the national carrier, now flies to 58 destinations in 27 countries, as well as providing an air link between 16 Moroccan cities – and while it’s likely there will always be more Europeans flying in and out than Moroccans flying out and in, the market for travel insurance will continue to grow. Things have not been quite so healthy in the insurance sphere in general though.
Insurance industry booming
Back in 1995, the government had to step in to prop-up the industry when substantial financial difficulties revealed themselves in a number of the major providers. Things were so bad that in September the same year, the government abandoned its attempts to restructure the five big state-owned companies and, instead, put them into liquidation, with combined losses estimated at US$550 million. Morocco has notoriously high road accident levels and both motor and personal accident policies had been sold far too cheaply to cover the claim levels. As a result, new legislation was enforced to ensure that companies maintain sufficient reserves.
Moroccans are at last becoming insurance minded, and the sector has seen massive double-digit growth over the past few years. The country is now the second biggest market in all Africa, after South Africa. A 2005 amendment to the insurance code enabled banks to start selling insurance policies while continuing privatisation is producing both competition and growth. Government hopes are for half the population to have health and accident insurance, up from 35 per cent in 2006.
Currency controls make foreign direct investment into the market rather difficult, but these are likely to be relaxed as the economy strengthens, and most of the major European and North American insurance giants are seriously looking at entering the fray.
the Moroccan insurance sector has seen double-digit growth over the past few years
Over in Egypt, insurance is a concept which still at times sits uneasily with Islamic concepts of usury, being considered by many as being in breach of Sharia law. Nevertheless, the industry is sizeable and growing. According to the Insurance Federation of Egypt’s latest figures, the non-life market leader by a long way is Misr, with US$257.8 million of gross written premiums, followed by Al Chark, with US$80.1 million; National, US$34.5 million; Suez Canal, US$26.7 million; AIG, the first among the big international groups, US$20 million; and Allianz, US$13.2 million. Total direct premiums written by the industry, other than life policies, stands at US$487 million.
Founded in 1900, using mainly capital from British cotton industry interests, National was Egypt’s first insurance company, and the market grew steadily until the 1956-58 period, during which nationalism was rife in the country and Colonel Nasser froze all Western capital and nationalised the industry in reaction to the Suez invasion. By 1975, things had slipped to a point where the country had just 19.5 insurance policies in force per 1,000 people, whereas the then figure in the US stood at 1,335 policies per 1,000. Since then, and with growing liberalisation of the economy, things have improved enormously, in terms of asset growth, shareholder value, investments, premium income and a better managed industry. Governing the industry today is the Supreme Council of Insurance, along with the Egyptian Insurance Supervisory Authority, while the Egyptian Insurance Federation looks after the industry’s interests and the Insurance Studies Institute tracks the development of the business.
Egyptian tourism market
As in Morocco, tourism is booming at present, and the estimated three million Egyptians now working abroad, many in skilled sectors like engineering and medicine, help explain the rapid rise in air traffic volume. Currently, tourism surpasses agriculture, petroleum exports and traffic passing through the Suez Canal as the nation’s biggest foreign exchange earner. Additionally, the country has, since 1979, received an annual average of US$2.2 billion in US foreign aid.
The adoption of more liberal economic policies, plus the increase in tourism revenues, has helped boost the economy enormously. Taxes and tariffs have been slashed, and in 2005 the corporate tax rate was halved from 40 to 20 per cent. The resultant increase in economic activity has actually led though to a 100-per-cent increase in tax revenues and has stimulated foreign direct investment, which exceeded US$6 billion in 2006 and looks likely to soon overtake the impressive foreign direct investment (FDI) levels in South Africa. Egypt is now rated by the International Monetary Fund (IMF) as one of the world leaders in economic reform.
Holidays, even in home resorts, are now well beyond the financial reach of most Egyptians though, especially since restaurant, hotel, bar and tourist attraction prices, while still extremely low by international standards, have risen sharply, taking benefit from foreigners’ deep pockets and in the process pricing Egyptians out of the market. Currently, some 90 per cent of all travellers staying in Egypt’s much acclaimed Red Sea resorts come from abroad, mainly Europe, the US and the emergent Asian countries. Price competitiveness now helps attract more than 10 million tourists a year – already reaching the levels Morocco aspires to. That’s quite an achievement, considering the backlash from the terrible terrorist attacks on tourists in 2004 and 2006. Currently the main markets for Egyptian holidays are the UK, Russia, Germany and Italy, with Chinese arrivals rising fast. Expenditure per head among incoming tourists is expected to rise by close on 35 per cent between now and 2010.
in Egypt, insurance is a concept which still at times sits uneasily with Islamic concepts of usury
While inbound tourism will continue to dominate, steadily rising incomes – predicted to rise by close on five per cent per annum in the five-year period between 2007 and 2011 – will see more and more Egyptians travelling, both at home and abroad, and a healthy growth in travel insurance policy sales is confidently expected. By 2011, some 65 per cent of the population is predicted to be in the 15 to 64-year-old age group and, given the greater interest in travel among younger people, this is bound to have an important effect. The tourism industry is already gearing up for such increases, and major international hotel operators like Accor, Sheraton, Marriott and Le Meridien have been investing heavily to meet demand.
Until recently, Egyptian tour operators concerned themselves almost exclusively with catering to the needs of inbound foreigners, but many of them now see Egyptian residents as a growing market. Locally headquartered Excel Travel, for instance, now has a busy Excel Outbound department offering a wide range of international travel services – including insurance – for individuals and groups, working through an extensive network of overseas suppliers.
Socialised medicine remains patchy across North Africa and in remote areas barely exists at all, but the Egyptian government is ahead of the game in many ways and is currently undertaking a massive health sector reform programme, with technical assistance from the British Council and financial support from the European Commission. A team of 20 Egyptian and foreign experts, resident in Cairo, Alexandria, Sohag and Menoufia has been working for the past three years, calling on resources from more than 50 nations, and providing expertise in finance, budgeting, construction, information systems, human resource development, management and clinical services. The five-year plan in place between 2002-2007 saw the government allocate some US$2.9 billion, or four per cent of all the country’s planned investments, into improved healthcare. Chronic underfunding has been a problem. There are shortages of doctors and nurses outside the major cities, and the Egyptian Ministry of Health and Population is seeking to address this by paying realistic salaries that obviate the need for medical staff to take on second jobs to supplement their income.
Dr Ian Pett, head of the British Council led team, commented: “We are very concerned that the planning and development of the new system should be based on a principle of sustainability, with the goal of bringing superior healthcare to all Egyptians, regardless of their location or ability to pay.”
Generally, medical standards in Egypt are good, especially in the main cities, but insurers should make their policyholders aware that most doctors and hospitals will expect payment in cash at the time of treatment, whether the patient is carrying proof of adequate insurance cover or not.
Morocco, like Egypt, is intent on improving its medical sector and a long-awaited universal healthcare scheme came into force last year. However, hospitals outside the main cities can be rather primitive and under-resourced, and specialised treatment is not always available locally. While emergency treatment is generally provided free of charge, visitors will likely be required to pay for tests, investigations, medication and for overnight stays in public as well as private hospitals. Again, immediate cash payment is usually demanded. For this and other reasons, insurers often opt for repatriation of patients.
Air ambulance providers
North Africa has a long experience of medivac. Indeed, Marie Marvingt started a Moroccan air ambulance service, the first in Africa, way back in 1934 – just six years after Australia’s Royal Flying Doctor Service became the first such initiative in the world.
In Egypt, Connex Assistance is one of the major medivac providers, also covering Libya and such African and Middle Eastern countries as Sudan, Somalia, Eritrea, Jordan, Syria, Lebanon and the UAE. Their well-honed Medivac Repatriation Service handles the entire process, starting with transfers from hospital to air ambulance, and includes provision of accompanying medical personnel right through to the final destination when required. The company has handled a number of mass repatriation exercises, including one in 2003 when 63 patients were repatriated, another in 2004 involving 23 people and a third in 2005 when 26 people were evacuated. With specially adapted 4x4 ambulances, Connex can even recover patients from the depths of the desert, far from tarmac roads.
hotel operators like Accor, Sheraton, Marriott and Le Meridien have been investing heavily to meet demand
Conveniently located just across the Mediterranean in Malaga, Spain, Mayoral Executive Jet runs an air ambulance service that covers North Africa as well as Spain. Says sales director Paulo Vassar: “We regularly cover Egypt, Morocco, Algeria, Tunisia, Libya and the Spanish North African enclaves of Mellila and Ceuta.”
A national air ambulance network was established in Egypt in 1998 as part of a government initiative to improve emergency and medical rescue services at tourist sites and remote desert locations. Some 167 emergency centres have also recently been inaugurated at strategic points long the nation’s highway system.