GCC insurance market expanding due to growing wealth, stronger regulation

Three drivers of change have prompted rapid growth in insurance, however, for individuals and companies across the region: growing wealth, which is leading to a significant increase in insurable assets and activity in the region, authorities' commitment to stronger insurance regulations and the widespread introduction of compulsory insurance covers and the development of an Islamic insurance alternative (Takaful).

Standard & Poor's has published interactive insurer financial strength ratings on 12 Gulf region insurers, compared with four in July 2004 and none in 2003.

Kevin Willis, Standard & Poor's credit analyst said, "The growth in interest in our rating is sponsored by first, the move to more robust regulation of the insurance sector, where the rules now being implemented by various governments impose minimum security rating requirements on usage of reinsurance and placement of investment portfolios by insurers and second, recognition by the local insurers of the benefits that accrue from having an authoritative independent opinion on credit quality being offered to policyholders."

Although the overall picture for Gulf insurance companies is positive, there are some pressures on the insurance community that need to be recognised. Risk management and corporate governance generally across the region are unsophisticated practices, and more demanding regulatory environment now being imposed requires companies to be more proactive in both areas. The size of the insurance market will remain small in global terms and to some extend of lesser interest to more sophisticated international insurers, but the apparent interest profitability of these markets does make them attractive to new players. As the market opens up in response to trade agreements, for example, competitive pressures for new providers may determine the benefits to insurers of the strong growth in risk awareness.