Question

In chapter two, we discussed the current situation of the insurance sector in Palestine. The insurance market can be classified as an oligopoly since three insurance companies control 60% of the market.

You are required to write a short report discussing "How the lack of a perfectly competitive insurance market in Palestine can limit the development and the spread of more comprehensive insurance services. And what are the main challenges that face the insurance industry in Palestine."

Requirements:

1) You should write no minimum than 600 words.

2) Report should be in English.

3) Please upload your report as a pdf file via ITC

4) Report should be written in your own language as plagiarism is seriously considered.

Answer 1

Solution:

Challenges faced by the insurance industry in Palestine”

The insurance industry in Palestine has been administered and supervised by the Palestinian National Authority since 1994. However, the industry faced initial challenges due to the lack of insurance laws. The Palestinian market authority was incorporated in 2004 to authorize, organize and control the insurance business.

• Perhaps, this development led to growth in the Palestinian insurance industry and was considered to be in a better shape in comparison to the other industries.
• It created an appropriate environment for investment and financial growth. According to the PCMA Annual Report, 2014, the sector achieved immense growth where the portfolio of the sector grew to USD 171 Million.

Despite the growth, the industry faces huge challenges ahead of it. The primary reason being the lack of a perfect competition market. A perfect competition market is characterized by large no. of buyers and sellers. However, only 3 companies hold more than 60% of the insurance portfolio in Palestine. Thus, the industry loses out on the price taker advantage for comprehensive growth.

• The lack of perfect competition fosters the way for severe competition between companies operating in a small market.
• Thus, the companies would try to expand market share by lowering the prices. This would lead to lower profitability for the sector as a whole and at the same time may generate losses.
• Presence of externalities and government intervention also lead to severe problems which a perfect competition market does not face.
• The mandatory laws by the government drive around 50% of the insurance activities. Also, the insurance regulatory laws are not fully functional that weaken the growth. In addition, a big segment of the population cannot access financial services and hence there is imbalance.

Economic indicators of country as a whole reflect that there is high unemployment, lower income and lesser development. Despite this, premiums are high, indicating exclusion of the poor and the middle class of the population. Perception plays an important role here. Majority of the population has a negative perception towards the insurance industry. Hence, it lowers the scope of development.

• Lack of promotion and marketing strategies by the companies also contribute to the challenges.
• Innovation and technological barriers create massive problems for the overall growth and development of the insurance industry. The economy faces social and economic issues that are very important.
• This involves distribution and transfer of risk through the insurance mechanism in exchange for affordable payments.
• Legal barriers restrict the growth and development of the industry.
• The sector is affected by regulatory and administrative challenges.
• These lower demands and restrict investments. Insurance expertise and knowledge is limited in Palestine.
• Training and development of the insurance personnel has not been modernized and institutionalized in Palestine creating problems such as poor marketing and growth strategy.
• Inclusivity and Institutionalization should be done to get rid of some of the major weaknesses faced by the industry.

The lack of perfect competition ensures that prices are disproportionate. The insurance restrictions in terms of the price rates reduce inclusiveness. The basic premium starts from NIS 3000 which may be of high cost to certain families.

The above listed measures pose serious threat to the growth and development of the insurance industry in Palestine. As a consequence, it contributes minutely to the GDP of Palestine. There has been considerable growth in comparison to other Arab countries. However, the demerits of not having a perfectly competitive market, less social inclusivity, overall economic prevalence , lack of market strategy and growth has led to serious problems which should be overcome for the betterment of the country as a whole.

****************************************************Thank You************************************