on July 4, 2013 by admin in Insurance Industry, Comments (0)

Despite Fundamentals, Gulf Insurance Industry Faces Hurdles

Fast-growing populations, an increase in life expectancy, booming economies and under penetrated markets all help provide fertile ground for the insurance industry in the six countries of the GCC (Gulf Cooperation Council). And in a new 111-page report, investment bank Alpen Capital predicts the regional insurance sector to expand at an impressive 18.1% annually to eventually transform into a $37.5 billion industry by 2017.

However, what sets the region apart is that most of the growth is still fuelled by non-life insurance as the law requires some forms of insurance. Simply put, car insurance is mandatory whereas getting a life insurance isn’t. No surprise therefore that the life segment, which includes savings and pension products, remains underdeveloped contributing 13% to all regional premiums compared to more than 50% in mature markets.

“Life insurance is one of those areas in the Middle East that does not enjoy nearly the same penetration that one would expect to see in a developed economy,” said Wayne Jones, a Dubai-based partner at law firm Clyde Co.

“The reasons are partly historical and cultural. Traditionally the large expat community has continued to purchase life insurance from overseas providers,” Mr. Jones said. Locals are said to eschew life insurance as it contravenes Islamic principles.

All in all, the GCC’s insurance industry continues to be a small affair as it accounts for only 0.4% of the world’s market, worth roughly $4.6 trillion, according to the Alpen report.

The challenges the industry faces here include the following: the insurance market itself is highly fragmented, consisting mostly of small, government-linked insurers who are unable to underwrite large risks. Foreign insurance giants such as Axa and Zurich are active here but albeit in a more modest fashion than in some of their other emerging markets. The result is that the sector is overcrowded which again puts pressure on margins.

Political instability in parts of the region also remains a cause for concern. And the global economic malaise also curtailed growth in certain segments such as marine insurance. But above all, the lack of a consistent and strong regulatory environment across the region continues to hamper the industry’s development.

“The life insurance industry really thrives when there’s a robust regulatory infrastructure in place and we don’t have that at this stage,” said Matthew Waterfield, general manager Middle East Africa for Friends Provident. “There’s a lot of commitment to do something, it’s putting that commitment into practice and we’re a long way from that,” he said.


Article source: http://blogs.wsj.com/middleeast/2013/07/03/despite-fundamentals-gulf-insurance-industry-faces-hurdles/

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