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Dynamics, Trends And Growth Opportunities For Insurance In The GCC

Posted by: : Paul EbelingPosted on: March 1, 2015 Dynamics, Trends And Growth Opportunities For Insurance In The GCC

Dynamics, Trends And Growth Opportunities For Insurance In The GCC

Understanding the demand-side dynamics, Key trends and growth opportunities within the Gulf Region insurance industry.

No insurance executive can comfortably develop a business plan for any new market without understanding the inherent risks.

Globalization is driving business for today’s insurance executive.

Opportunities for global expansion into new markets represent a powerful force accelerating the growth in insurance premiums today.

Rapid globalization is breaking down many cultural barriers that have impeded insurance growth.

Income per capita levels in the Gulf region as a whole are similar to the global average. The region’s insurance penetration levels, however, are extraordinarily low.

The insurance industry in the Gulf Cooperation Council (GCC) has experienced steady growth on the back of economic development, population expansion, improved regulatory environment, and increased product awareness.

Low insurance penetration, despite strong underlying growth drivers, continues to offer ample opportunities to insurers in the region.

The region’s primary insurance markets are generally profitable with attractive loss ratios and only marginal catastrophe exposure.

Governments across the region have continued to make significant investments – to the value of an estimated USD 1.9 trillion – in governmental projects.

Micro-insurance represents perhaps the most exciting area of product development: the total value of the global micro-insurance market now exceeds US$40 billion, according to Swiss Re.

These are in part a natural effect of the region’s on-going growth and healthy government finances, but other factors are at play.

The football World Cup to be held in Qatar in 2022 is demanding significant preparation and across the region governments are investing heavily in infrastructure and social welfare projects prompted, in part, by a desire to address the issues underlying the Arab Spring.

Implementation of compulsory health insurance programs in different jurisdictions is likely to create strong growth avenues for insurers.

The introduction of mandatory health insurance in Bahrain in 2012 was a key factor in the growth of the personal accident and health segment during 2009-2013: all employers in Bahrain are required to provide health insurance to employees.

During the period, the Bahraini takaful insurance industry grew at a compound annual growth rate (CAGR) of 15.0%.

Bahrain is one of six countries that comprise the Gulf Cooperation Council (GCC), the others being Kuwait, Oman, Saudi Arabia, Qatar and the UAE.

As the middle class expands in many RGMs, family members who once stayed home to care for children and the elderly are entering the workforce and can no longer serve as caregivers.

As a result, sales of insurance products that support home health care and long-term disability are escalating.

These trends help explain why insurance market growth has accelerated in countries where penetration rates once were low.

Demographic trends also confer an advantage on the Gulf Region. There is a youthful, educated and increasingly affluent population. Indeed, the average age in the region is less than 30, and with around just one to one-and-a half per cent currently aged 60 or over.

The United Arab Emirates (UAE) has the largest insurance industry in the Gulf Cooperation Council (GCC) region. The gross written premium registered by the industry increased at a review-period (2008-2012) compound annual growth rate (CAGR) of 9.5%. This is further expected to rise at a CAGR of 10.1%.

The non-life insurance segment accounted for the highest value of gross written premium in the industry. Foreign insurers are permitted to own a maximum stake of 25% in an Emirati insurer.
Emirati insurers cede considerable proportions of their premiums to reinsurers; national insurers ceded 44.7% of their property and liability insurance premium to reinsurers. Brokers and agents are the principal distribution channels in the industry.

Recently released study by Dubai Chamber of Commerce and Industry focuses on the present trends and prospects in the United Arab Emirates insurance marketplace as tinted by BMI (Business Monitor International) report, which specifies that the UAE insurance market is anticipated to see good growth as the interest in insurance products rises.

By Y 2017, insurance density in the Gulf is anticipated to more than double as increased number of people and businesses avail insurance cover. Industry-wide density is likely to increase from US$ 367.3 in 2012 to US$ 751.4 in 2017.

However, the gap between density in the life insurance and non-life segments is projected to widen substantially, going forward.

United Arab Emirates (UAE) and Saudi Arabia remain the largest insurance markets in the GCC while Saudi Arabia may surpass the United Arab Emirates (UAE) as the largest insurance market in the region going forward.

The Saudi insurance industry is seen as a major driver behind growth of the GCC insurance industry as it is anticipated to expand at a CAGR of 26.5% by Y 2017.

The region’s insurance sector is also expected to structurally mature going forward, in line with positive regulatory developments and efforts by some players towards attaining greater operational scale and efficiency”.

Enterprise Risk Management (ERM) is still in the development phase in the region. However, insurance companies are increasingly sensing the need of having more robust and systematic risk management processes for the future.

• The improved outlook for financial stability in many of these markets • development of new distribution systems to drive growth • evolution of new product innovations across many RGMs • Converging consumer trends that will create new insurance demands.

Of course, digital channels — including mobile devices and social networks — are becoming critical for insurance providers. A recent report, analyzed the need for insurance firms to gain greater digital skills and outlined the exponential growth expected in mobile and tablet use

Overall government effectiveness is high, mitigating to some extent Dubai’s exposure to shifts in international capital flows.

Macroeconomic management is improving and the Crude Oil sector continues to generate a foreign currency surplus, despite looming demographic and fiscal challenges.

Its economy is heavily dependent on oil and its by-products; oil accounted for 70% of total government revenues, more than 60% of total Bahraini export receipts and 11% of the country’s GDP in 2013.

The prospect of major infrastructure and construction projects in the Gulf region ranks highest in terms of market opportunities, up from 3rd place in Y 2013.

In addition to initiatives in Qatar in the run-up to the 2022 FIFA World Cup and Saudi Arabia, many respondents point to opportunities offered by Dubai’s successful bid for the World Expo 2020.

Low penetration levels – the number one opportunity identified – are the 2nd most frequently mentioned opportunity.

The average share of premiums in the wider region’s GDP is about 1.3%, compared to 6.5% for the world as a whole.

As the region’s average GDP per capita is similar to the global average, the potential penetration is a multiple of the current one.

Population growth, including a continued and accelerating influx of expatriates, ranks third, with personal lines business expected to benefit in particular.

The prospect of major infrastructure and construction projects in the Gulf region ranks highest in terms of opportunities.

Takaful, or sharia-compliant insurance, represents another area of innovation and growth.  Internet sales of takaful are also increasing in the UAE, where policy sales have shown consistent growth.

Eventually, new and innovative product offerings are expected to generate higher demand for family Takaful products in the Gulf. The sector is expected to launch a strong recovery, and grow at a CAGR of 23.0% by Y 2016 to US$ 1.2-B

Alpen Capital estimates that the Insurance industry in the Gulf is projected to expand at a compounded annual growth rate (CAGR) of 18.1% between by Y 2017 to reach a size of US$ 37.5-B, split between life (US$ 2.4-B) and non-life (US$ 35.1-B) segments.

In 2012 insurance premiums accounted for just 1.3% of GDP, a fifth of the global average.

Encouragingly, this gap is narrowing as insurance markets outpace regional GDP growth. Between Ys 2007 and 2012, total non-life and life insurance premium volume in the region expanded from about US$ 26 billion to more than US$ 44 billion.

Going forward, this trend is expected to continue. Swiss Re (Global Insurance Review 2013 and Outlook 2014/15) forecasts real annual premium growth of about 7% by Y 2015, almost twice as much as the International Monetary Fund expects for economic growth.

Micro-insurance and Takaful are 2 promising approaches to increasing the region’s insurance penetration. ”

These factors underpin what we here at Global Modern consider to be a positive picture for the future for the insurance industry’s medium to long term future.

As levels of wealth continue to rise, there is a corresponding increase in the awareness of and the need for insurance. In the GCC in 2012 combined GWP (gross written premium) in both life and non-life amounted to USD 16.3-B, having grown at a CAGR of 11.8% since Y 2008. Projected growth for the period 2012- 2017 is estimated at 18.1% per annum.

We may choose to establish a foothold via fronting arrangements with local insurers. There are clear benefits for doing so. Fewer restrictions are in place for fronting arrangements and the regional financial centers offer hubs for foreign companies looking to set up regional operations.

By Reza Hashemi, President, Global Modern Insurance Company (in organization)

Paul Ebeling, Editor.


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Paul Ebeling

Pattern Recognition Analyst, equities, commodities, forex
Paul Ebeling is best known for his work as writer and publisher of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly-regarded, weekly financial market letter, where he enjoys an international audience among opinion makers, business leaders, and respected organizations. Something of a pioneer in online stock market and commodities discussion and analysis, Ebeling has been online since 1994. He has studied and worked in the global financial and stock markets since 1984.

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