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Promoting Growth And Competitiveness
| March 11, 2010 by Peter Vayanos and Roger Kastoun
With insurance market growth of 26 per cent between 2005 and 2008, the region’s insurance sector has made significant progress, but it still has room for improvement, according to Peter Vayanos & Roger Kastoun of Booz & Company.
In the past three years, policy makers and regulatory authorities have made progress in promoting the growth, competitiveness and development of the insurance industry in the Middle East and North Africa (MENA) region. As the industry looks to build on this success, several key challenges will need to be addressed to sustain growth and bring the region in line with developed insurance markets around the world, according to a new study by Booz & Company.
The foundation is set
Aided by regulatory authorities’ efforts, the MENA region’s insurance market saw 26 per cent compounded annual growth between 2005 and 2008, which was surpassed only by Central and Eastern Europe’s 27 per cent growth rate. In 2008, the market in the UAE was the largest in terms of Gross Premium Income (GPI), representing more than US$5bn, followed by Saudi Arabia with US$3.1bn and Morocco with US$2.5bn. Bahrain, Algeria, and the UAE showed the strongest GPI growth rates between 2007 and 2008, at 46 per cent, 45 per cent, and 41 per cent, respectively.
But there is still room for improvement: “The MENA region’s share of the world market accounted for just 0.42 per cent last year. Furthermore, insurance penetration – GPI as a percentage of gross domestic product – remains low in the MENA region,” said Peter Vayanos, a partner at Booz & Company. This ratio grew to 1.08 per cent in 2008 from 1.05 per cent in 2005, but paled in comparison to every other major region of the world.
The MENA region’s progress to date
In 2006, Booz & Company introduced a framework to assess the development of insurance in the region, identify gaps, and prescribe a set of policy recommendations to be adopted. The framework was based on five key market “enablers”: a legal framework, regulatory bodies, the nature of competition, skills and training, and market-led initiatives. “The industry has made significant progress in addressing these issues, although some critical gaps still exist,” stated Roger Kastoun, a senior associate at Booz & Company.
Legal framework: Having a robust legal framework in place protects the rights of policyholders, regulates the activities of market participants, and ensures the financial health of the sector; several countries have improved or expanded their legal frameworks.
Regulatory bodies: Regulatory bodies are needed to oversee and supervise the sector, and ensure the enforcement of laws and regulations. Today, the region remains a patchwork of sophisticated and underdeveloped regulatory regimes, with Bahrain leading in terms of regulatory oversight.
Nature of competition: Innovation, competitive pricing, and the adoption of best practices are all natural outcomes when countries welcome free competition in their insurance market. “Today, most MENA countries have more than 20 insurers in operation and are keen on attracting foreign players. Some markets, however, are still dominated by state-owned or partially state-owned companies,” Vayanos commented.
Skills and training: An adequate insurance knowledge base helps assess the risks to be insured, provides customers with the appropriate products and services, and ensures the availability and development of locally-based skills. Two recent initiatives have helped to address knowledge gaps: The Gulf Insurance Institute (GII) was established recently in Bahrain. In Qatar, the Qatar Financial Centre (QFC) established a training institute offering accredited courses in several specialist areas, including banking, insurance and wealth management.
Market-led initiatives: A vibrant insurance market should be able to stand on its own two feet, with little government intervention. Some markets have attempted to foster the availability of insurance market data and conduct consumer awareness campaigns to promote a better understanding of the market and help attract talent. Insurance market data, however, is largely unavailable. Similarly, limited coordination among policymakers at the regional level is causing key issues to slip through the cracks.
Booz & Company has identified four critical objectives that regulatory bodies should prioritise to enjoy sustained growth in the coming years: building the talent base, improving public awareness and acceptance of insurance, fostering the development of takaful and coordinating efforts to harmonise insurance markets in the Arab world.
Building talent
“One of the most notable developments in enhancing insurance skills and training in the region was the establishment of the Gulf Insurance Institute (GII) in 2007, which offers accredited insurance certificates and a membership system,” Kastoun stated. Furthermore, the Bahrain Institute of Banking and Finance (BIBF) offers a professional insurance certificate that is administered in more than 11 countries. In 2008, the BIBF launched a new takaful certification programme accredited by the Chartered Insurance Institute (CII), the first such certification in the world.
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