The Magazine
Inside POLICY this month
SO , THERE ARE SIGNS of some consolidation among the insurance brokers. And it is sunset for some in the UAE, entailing acquisition or liquidation. With the regulator directing brokers to maintain separate accounts for premiums collected and commission, it is hoped that insurance companies will no longer face the problem of accumulated outstanding and bad debts on account of receivables from brokers. Insurance companies are going to insist on premium payment by the brokers before claims are paid.
Our cover story (Page 20) has some exclusive information that will influence investment decisions of insurance companies in the UAE. Under draft regulations proposed by the UAE Insurance Authority, insurers in the UAE would be required to hold at least 80 per cent of their investments in the UAE, thus limiting their investment options. This would effectively force them to hold a high proportion of their assets in the form of UAE fixed deposits.
The draft regulations should place a greater emphasis on compliance with the principles that are rightly set out therein. At present there is very little detail or guidance here, particularly in the area of systems and controls that will give effect to these principles. The Insurance Authority should work to provide this. The findings of the reinsurance survey by the Qatar Financial Centre Authority are interesting. They are intended to contribute to enhancing the transparency of the GCC reinsurance marketplace and benefit market participants by providing an additional benchmark for decision-making.
Although 2010 was a year characterised by high volatility and uncertainty, the takaful industry continued to grow at a faster pace compared to its conventional peers. However, the 6th Annual World Takaful Conference in Dubai highlighted profitability challenges and over-reliance on investment income, which remains a key concern for the global takaful industry. The operators must undergo internal restructuring of business operations and develop innovative products to drive future growth.
Ernst & Young’s World Takaful Report, released at the World Takaful Conference, sheds lights on the state of affairs in the takaful industry. An increasing number oftakaful players in key markets have intensified competition, with small local players competing against established conventional players. Competing for commercial business requires further capacity, underwriting expertise and better broker relationships. Competition, shortage of expertise and socio-political uncertainty are key business risks for takaful in 2011.
A World Bank policy research paper identifies the main factors that stymie insurance sector development in Mena and prescribes a roadmap for faster growth. (Page46). The report called a spade a spade when it said there seem to be too many companies sharing very small markets. As a result, insurance companies seem unable to generate scale, retain a sufficient volume of premiums, build meaningful risk pools and underwriting capacity, and innovate. Many insurance companies seem to act simply as brokers or front offices, reinsuring most of the business. The report summed up that reducing the participation of state insurers would contribute to faster market development.
Over to the regulators.
Bhaskar Raj,
Managing Editor
