Insurance industry across the GCC is poised for strong growth during the next five years, thanks to the huge economic diversification programme undertaken by governments, supportive population dynamics and changing regulations that have introduced mandatory health insurance cover in many countries, according to a recent forecast by Alpen Capital.
The report projects GCC insurance market to grow at a compounded annual growth rate (CAGR) of 10.9 per cent from $26.2 billion in 2016 to $44 billion in 2021.
“The GCC insurance sector has demonstrated resilience against the decelerating economy, highlighting the industry’s strength and potential amid constrained fiscal, business and consumer spending. The factors that empowered the industry during the slowdown were the implementation of mandatory health insurance and risk-based pricing in the major markets of the UAE and Saudi Arabia, respectively,” said Sameena Ahmad, Managing Director, Alpen Capital (ME) Limited.
These growth drivers are in addition to growing base of population and revenue diversification efforts. The sector is witnessing a major overhaul of the regulatory framework, as the governments are deploying efficient and stringent guidelines to make the insurance sector globally competitive. Consequently, the penetration levels, although low, have been rising while offering ample opportunities for conventional as well as Islamic insurance providers.
The UAE and Saudi Arabia retained their positions as two of the largest insurance markets in the GCC, accounting for 39.1 per cent and 38 per cent of the region’s gross written premium (GWP) in 2016, respectively. The composition is justified by the population concentration in these countries. However, measured by annualised growth in the last five years, GWP in Qatar and Saudi Arabia grew at the fastest pace of 19 per cent and 15 per cent, respectively. While growth in Qatar was steered by developments ahead of the Fifa World Cup 2022 and rising inflow of expatriates, the growth in Saudi Arabia was led by mandatory insurance lines and the introduction of actuarial pricing.
“The growth in GWP across GCC is likely to be moderate in 2017, as the industry players are adapting to the new regulations amid increasing competition and recovering economic activity. On one hand, increased capitalisation requirement and actuarial pricing are improving the financial performance of insurers and on the other hand, the regulations are encouraging consolidation activity,” said Siraj Bhavnagarwalla, Managing Director, Alpen Capital (ME) Limited.
The prominent business lines in the GCC insurance market are motor, health and property/fire. Accordingly, non-life insurance segment at $22.9 billion constituted 87.6 per cent of the total insurance premiums written in the GCC in 201. The segment GWP grew at a CAGR of 12.4 per cent from 2011 led by an expansion in the medical and motor insurance lines that form more than 70 per cent of the non-life premiums.
While motor insurance is compulsory across the GCC, medical insurance is currently mandatory only in Saudi Arabia and in the major emirates of the UAE. Oman is in the process of rolling out mandatory health insurance in a phased manner and the other countries may follow the suit soon. Nonetheless, expatriates in the GCC purchase a medical policy or are covered by their employers to safeguard against the high health care costs.
Life insurance is a small component of the GCC insurance sector, unlike the global markets where the segment is either larger or similar to the size of non-life. This is mainly due to the generous social welfare schemes bestowed on the nationals by the states. Additionally, the low awareness and cultural reservations on mortality-based insurance products are limiting demand. The product is largely popular among the expatriates, who invest in life insurance to take care of adversities. FAQs can be useful to look at before investing in a life insurance policy, or any other insurance policy for that matter so someone knows they have the best deal for them.
Driven by demand from the increasing expatriate population, the life insurance GWP grew at a CAGR of 10.4 per cent between 2011 and 2016 to reach $3.2 billion. Life insurance market in the UAE is the largest accounting for 75.6 per cent of GCC life insurance GWP as well as the fastest growing in the GCC (CAGR of 13.9 per cent between 2011 and 2016). However, the overall share of life segment has been declining due to the rapid increase in non-life insurance lines
The non-life insurance market is expected to grow at a rapid CAGR of 11.7 per cent between 2016 and 2021. At $39.8 billion in 2021, the segment will comprise 90.4 per cent of the total insurance market, an increase of 2.8 puts from 2016. During the forecast period, the life insurance GWP is projected to grow at an annual average rate of 5.3 per cent to $4.2 billion.
Key growth drivers
Dubai: Economic diversification efforts have intensified in the GCC to build a sustainable economy in view of the low oil price environment. This has given a boost to construction activities across sectors, with the total active projects estimated at $2.4 trillion. Completion of such projects is likely to create a large base of insurable assets, thus providing underwriting opportunities to insurance firms.
Mandatory health insurance has boosted the GWP in the UAE in recent years and in Saudi Arabia in the past. A gradual implementation of such law in the other GCC countries is likely to steer industry growth, as health insurance business accounts for about 40 per cent of the GCC insurance market.
The GCC insurance market is becoming competitive with its evolving regulatory landscape. Regulations such as risk-based capital reporting and actuarial-led pricing are likely to improve the financial strength and market conduct of the firms and build stronger business models in the long term.
A growing population (comprising young and working people), rising urbanisation and high disposable incomes are the factors driving demand for life and non-life insurance products in the GCC. The consumer base is set to grow further, with an anticipated addition of 6.5 million people by 2021.
Source: Gulf News