Although not the first sector that comes into mind when thinking about sustainability, the insurance sector plays a vital role in fighting climate change and creating a green economy. In Egypt, insurance stakeholders are transforming the sector to a key accelerator of change.
In 2020, the Egyptian insurance market grew 14% to EGP40.1bn or USD2.55bn. As a result of its size and vital importance to the wider economy, the insurance sector has significant influence on the direction the Egyptian market is going. Besides its moral responsibility, there is also an economic argument to make. Climate change studies by central banks found that natural disaster-related insurance claims could cause premiums to surge as much as 200% in a matter of 30 years.
Steps are made in Egypt to prepare the insurance sector for the impact of climate change. The Egyptian Insurance Federation (IFE) has created a new insurance pool that needs to strengthen protection against natural disasters and other environmental risks. Also reinsurers will be invited to participate in the pool. The initiative is also used to train Egyptians on how to protect themselves from fires and other natural disasters.
But insuring the insurance sector is not enough. The sector also wants to unlock green change and to become a regional role model. In May 2019, Egypt organized the inaugural Egyptian Principles for Sustainable Insurance (PSI) Market Event, the first of its kind in the whole of the MENA region. During the event, the industry leaders and financial regulators announced a roadmap to develop a national sustainable insurance strategy and action plan.
As a result, the IFE created an action plan to promote sustainability across the sector. This is a welcome change since all insurance companies must produce annual sustainability reports as of January 2022. These reports will make more clear to investors and regulators how insurance companies are implementing new standards in their organisation but also to make sure they are complying with international standards on sustainability.
The plan will guide companies across the value chain and see where changes can be made. Possible measures vary from customer service and workshops to product design and underwriting. Particularly changes in underwriting will influence the way insurance companies will offer products to other companies. Business activities that comply with the latest international sustainability standards are rated more favourably than others in order to create an incentive for change. GIG Egypt for example, an industry leader, has particularly focused on businesses that deal with plastic by offering more attractive insurance products for companies that use recycled products.
Regardless, the transition to a green economy must be an inclusive one which is not an easy objective to achieve. The green economy is still not a very familiar topic for many Egyptians and Egyptian companies. As a result, the IFE created a micro-insurance committee to develop new micro-insurance products. Being able to reach more Egyptians and Egyptian companies will not just help the IFE and regulators to make the green economy more inclusive, it also helps to unlock the economic potential of SME’s and the informal sector. The micro-insurance steps by the FJE already helped to grow the market with 6 million clients.