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Huge Potential for GCC’s Insurance Sector, Says Study

DUBAI - According to a research conducted by Value Partners, a leading global management consulting firm, insurance premiums in the Gulf Corporation Council (GCC) reached an overall volume of $10.6 billion last year, showing a massive 28 per cent year-on-year growth rate. This compares to a worldwide growth of 3.4 per cent in nominal US dollar terms, implying stagnation in real terms.

“The region’s insurance growth rate sounds impressive; however, it is not nearly as large as it should be,” said Santino Saguto, Managing Director of Value Partners Dubai office. “Insurance penetration, for example aggregate insurance premiums over GDP, stands at one per cent for the GCC countries. In contrast, the developed insurance markets in the US and Europe register penetration rates in the range of 5-15 per cent. GCC giant, Saudi Arabia, has a particularly low penetration of only 0.6 per cent, dwarfed in absolute size by its neighbour, the UAE, which has a penetration rate of 2 per cent.”

The study also gives an insight into the relative strength of insurance classes: motor insurance is the strongest, followed by health and property. Life insurance is particularly weak, accounting for only 15 per cent of total insurance premiums, compared to around 60 per cent in Europe.

“GCC residents seem to buy insurance products only if they have to. It is not by coincidence that mandatory third party motor insurance is the leading class,” said Saguto. “All other non-life insurance classes, health included, are almost 100 per cent corporate business. GCC nationals expect their governments to cover most risks for them, the majority of health care is free and provided by the government, and home loans are often state-guaranteed, without the need for building insurance.”

Value Partners also discovered that there are some severe supply-side restrictions in the insurance market. Only recently have markets been opened to foreign competition, and some regulatory regimes still need to be brought up to world standards. Business is still dominated by local insurers, whose market share ranges from 77 per cent in the UAE up to 90 per cent in Qatar.

The research also identified some major normative and regulatory discontinuities that are expected to provide a strong impetus for growth of GCC’s insurance market. This includes regulatory reform, the growth of Takaful insurance, and the introduction of obligatory health insurance.

“In this growth scenario, new approaches to distribution are expected to provide more aggressive and competent sales channels for insurance products. Trends to watch out for include business to businessto enterprise models, like worksite marketing, where employees can buy voluntary insurance products directly at their worksite through payroll deduction. Banks will enter the sector as well, bundling insurance with financial products,” Saguto said.

business@khaleejtimes.com