The insurance industry in the Gulf region is not likely to see major consolidation over the coming two years due to “comfortable” capitalisation of domestic insurers and “little” shareholder pressure. But foreign risk cover providers may enhance their foothold in the market, according to a study.
The GCC (Gulf Cooperation Council) Insurance Barometer, recently launched by the Qatar Financial Centre Authority, found that 60% of respondents do not expect the market to consolidate over the next 12-24 months.
In contrast, 40% believed the insurance market was poised to consolidate over the next two years as profitability challenges grow and regulatory developments put “significant” pressure on smaller market participants.
“Regulatory reforms could be an important driver for consolidation in the GCC insurance markets,” Farid Chedid, CEO, SEIB Insurance, said.
The barometer found that 60% of respondents expect foreign insurers to gain market share over the next two years, pointing to their superior financial security, technical expertise, customer focus and distribution know-how.
In addition, the study said, a growing expatriate community tends to choose insurers from their home countries.
Those who expect an erosion in foreign insurers’ market share suggest that these companies apply more rigorous profitability standards, making them more inclined than their domestic counterparts to shrink their books in the currently highly competitive market environment, it said.
“Foreign insurers continue to show much appetite for the GCC region and increasingly teaming up with local partners rather than establishing a green field presence,” Yassir Albaharna, CEO, Arig, said.
Finding that bank and broker distribution was expected to grow the fastest, the study said lenders should be able to capture a “disproportionate” share of rapidly growing life insurance sales, whereas brokers are believed to benefit from their superior product expertise and increasing acceptance, in commercial lines in particular.
“Product innovation and a broadening and deepening of the distribution spectrum offer major opportunities in the GCC insurance markets,” according to Maroun Mourad, CEO Middle East, Zurich Insurance Company.
Bancassurance would continue to grow, encompassing a wide spectrum of life and non-life businesses, said Ravi Shankar, CEO, Oman United Insurance Company.
On Islamic insurance, the barometer found that the vast majority of respondents expect the takaful market to grow faster than the insurance market in general.
However, this assessment contrasts sharply with a generally critical view of takaful expressed by interviewees with most considering the current role and performance of takaful insurance as “disappointing”, falling “significantly short of expectations”. In particular, respondents held that takaful failed to develop compelling business models.
Regarding the prospects for a deeper regional integration over the next two years, it said views are equally divided. The sceptics cited barriers to cross-border trade in insurance services and the lack of the political will to push forward with regional integration.The study found that 60% of respondents expect foreign insurers to gain market share in the Gulf over the next two years, pointing to their superior financial security, technical expertise, customer focus and distribution know-how.
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