Insurance premiums in the Gulf Corporation Council (GCC) reached an overall volume of $10.6 billion last year, showing a massive 28 percent year-on-year growth rate, according to a research conducted by Value Partners, a leading global management consulting firm. This compares to a worldwide growth of 3.4 percent in nominal 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 1 percent for the GCC countries. In contrast, the developed insurance markets in the US and Europe register penetration rates in the range of 5-15 percent. GCC giant, Saudi Arabia, has a particularly low penetration of only 0.6 percent, dwarfed in absolute size by its smaller neighbour, the United Arab Emirates (UAE), which has a penetration rate of 2 percent.” 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 percent of total insurance premiums, compared to around 60 percent 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,” continued Saguto. “All other non-life insurance classes, health included, are almost 100 percent 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 percent in the UAE up to 90 percent in Qatar. Furthermore, 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: Takaful, a Sharia compliant form of insurance, is a system based on the principle of mutual assistance (ta'awun) and voluntary contributions (ta'abarru). Risk is shared collectively and voluntarily by a group of participants, while insurance shareholders are entitled to a fixed remuneration. Takaful insurance, according to the study, will still grow its contribution to the sector. Although its share of the insurance market is currently low, accounting for around 10 percent of overall premium volumes in the GCC, many insurers – even Western companies – invest in this growing market by establishing Takaful operations. Of all insurance classes, health insurance has the best growth prospects, as governments are expanding mandatory insurance for expatriates and, in some cases, even for nationals. GCC countries have a very significant expatriate population, ranging from around 30 percent in Saudi Arabia to 85 percent in the UAE. Saguto concluded, “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 business to 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.”
