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Middle East Insurance Market Poised for Growth

Posted on May 31, 2012 by Sergio Ulloa ()

A recent study by the Qatar Financial Centre Authority, entitled the GCC (Gulf Cooperative Council) Insurance Barometer has revealed that prospects for the growth of the insurance industry in GCC countries are extremely bright. The GCC includes the nations of Bahrain, Saudi Arabia, Qatar, Oman, the UAE, and Kuwait. The study conducted by the Qatari organization was conducted through a number of interviews with more than 20 senior executives of leading local and international insurance companies and was intended to gauge their forecasts for the relative health of the peninsula's insurance market over the coming years. Over 60 percent of the individuals and companies surveyed stated that they expect the insurance industry to grow over its current levels by 2015 - the GCC's insurance market is currently valued at US$ 15 billion. While the market is situated to lead GDP growth in the nations represented in the GCC, this should not be seen as an indication that higher premiums are over the horizon; more than 70 percent of respondents to the study stated that they believed the premiums associated with insurance products in the region, across all business lines, would remain relatively stable for the next 1-2 years. An example of the dynamic growth currently being demonstrated across the Arabian Gulf can be seen in Bahrain's insurance market. In 2011 insurance sales contributed 8 percent of Bahrain's GDP, up from a mere 3 percent in 2003. This massive upswing in the relative value of the Bahraini insurance market as part of the GDP follows on from increased local penetration for domestic insurance products which grew from 1.95 percent to 2.55 percent from 2002 to 2012. On top of increased penetration levels the insurance industry of Bahrain, a country of only 1.2 million people according to the 2010 census, actually tripled in size between 2003 and 2012; the Bahraini insurance sector grew by a staggering 335 percent during that period. The types of insurance products being purchased in Bahrain have also experienced a shift in the last decade, which may account for the increased levels of growth being demonstrated in the market. The sale of medical Insurance products grew by a staggering 1840 percent which may be due to the proposed legislation to mandate employer provided health coverage in the country; however, Marine and Aviation products saw a loss, shrinking by 13 percent during the same period. The number of providers entering the Bahraini insurance market has grown in tandem with the industry's overall growth levels. In 1995 Bahrain had issued 109 insurance licenses, by 2010 this had jumped to 171; a massive 57 percent increase in the number of registered insurance companies legally allowed to do business in the country. The growth in the number of insurers is indicative of a trend which is being felt across the GCC region - foreign insurance giants, increasingly feeling the burden of struggling markets in western countries are ever more turning to the Middle East and Asia as key development prospects. In fact, according to the GCC Insurance Barometer Study, approximately 60 percent of those surveyed stated that they expect foreign insurance companies to increase their market share by 2014. The fact that the GCC has an extremely health expatriate community will not hurt the Foreign insurers in terms of market penetration, as locally based expatriates prefer to obtain their coverage from organizations which they are familiar with in their home nations. According to the CEO of Arig, a Bahraini based insurance company, Yassir Albaharna, "Foreign insurers continue to show much appetite for the GCC region and increasingly teaming up with local partners rather than establishing a green field presence." Other respondents to the Insurance Barometer study cited foreign companies' higher levels of technical expertise, customer focus, distribution networks, and financial backing as key reasons why these organizations, and not GCC based insurers, would be best placed to capitalize on the recent success of the region's insurance sector. A majority of respondents expected to see strong growth in the region's Takaful Market. However, contrary to this expectation, Takaful insurance, products adhering to Islamic Muamalat laws, have been one of the weakest lines of business in Bahrain. Takaful products have seen a loss each year for the last decade, except during 2010 when Takaful lines posted a 32 percent overall profit. A number of the organizations and individuals surveyed for the GCC Insurance Barometer study, while not in the majority, indicated that they felt Takaful was falling short of the expectations which local providers had hoped this line of business would achieve, and termed the performance of Takaful products "disappointing." While not totally sidelining the possibility of a Takaful resurgence in the coming years, as the products did in Bahrain during 2010, it was indicated that Takaful insurers would need to develop compelling business models in order to realize success in the vibrant GCC insurance sector; a lack of compelling business models has been highlighted as the prime reason for the relative under-performance of these types of products. In general, the future is bright for the insurance industry throughout the Middle East. With a number of initiatives on the cards, including mandated employer-provided health insurance for a number of countries in the GCC bloc, and improved regulation of domestic insurance markets in these countries, the Middle East can be said to be a shining opportunity for insurers globally.
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