Promoting the Growth and Competitiveness of the Insurance Sector in the Middle East

With insurance market growth of 26% between 2005 and 2008, the region’s insurance sector has made significant progress, but still has room for improvement.

In the last 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 percent compounded annual growth between 2005 and 2008, which was surpassed only by Central and Eastern Europe’s 27 percent growth rate. In 2008, the market in the United Arab Emirates (UAE) was the largest in terms of Gross Premium Income (GPI), representing more than $5 billion, followed by Saudi Arabia with $3.1 billion and Morocco with $2.5 billion. Bahrain, Algeria, and the UAE showed the strongest GPI growth rates between 2007 and 2008, at 46 percent, 45 percent, and 41 percent, respectively.

But there is still room for improvement: “The MENA region’s share of the world market accounted for just 0.42 percent 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 percent in 2008 from 1.05 percent 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, though 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,” commented Vayanos.

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 prioritize 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 harmonize 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 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 program accredited by the Chartered Insurance Institute (CII), the first such certification in the world.

The region should strive to reach a point where universities and private training centers offer multiple insurance degrees and certifications to accommodate the needs of students and professionals, and to target a wider range of individuals interested in pursuing insurance studies. “This will guarantee an abundant supply of qualified personnel to meet the region’s growing demands of market participants and regulatory authorities,” said Vayanos.

Enhancing Public Awareness

Arab countries have initiated a limited number of public insurance awareness campaigns. Notable exceptions include campaigns in Lebanon and Jordan. As a result, insurance penetration in Lebanon and Jordan—at 3.4 percent and 2.3 percent, respectively—is among the highest in the region.

Other MENA countries’ public awareness forays have been limited to the publication of monthly bulletins and market surveys, but these do not reach all potential policyholders and more initiatives are needed to spur demand.

“Authorities can derive lessons from international best practices and employ consumer surveys to measure the level of knowledge and acceptance of insurance. This will help reveal areas of weakness to be addressed in future outreach campaigns,” said Kastoun. Conducting such surveys regularly will also enable regulatory authorities to measure the evolution of market awareness and adjust their communication strategies accordingly. Regulatory bodies should support public awareness campaigns that target specific audiences and are tailored to the needs of each jurisdiction. These campaigns should emphasize the policyholder’s recourse to lodge complaints with the insurance authority.

Developing Takaful

Takaful, Islamic insurance, is emerging as an increasingly important form of insurance in the Arab world. The GCC region is currently the world’s largest market for takaful, representing over 59 percent of all takaful premiums written in 2007. The 26 percent compounded annual growth rate of takaful premiums between 2004 and 2007 matched that of conventional insurance markets over the same time period. To achieve the region’s full takaful potential, the following need to be in place:

  • Regulation: Insurance regulators should coordinate with leading takaful authorities and representative bodies in the MENA region and elsewhere to develop regulation guidelines for takaful and retakaful.

  • Accounting standards: There is a need to implement takaful specific accounting best practices in all MENA countries to ensure transparency and protect stakeholders’ interests.

  • Public awareness: Insurance regulators should develop consumer education programs on a regional basis, set up informative websites about takaful and retakaful and their related benefits, and work with leading media outlets to inform the public.

  • Skills and training: Insurance leaders should support the development and promotion of national and regional Islamic finance centers that offer certifications and degrees in takaful. Similarly, takaful-specific courses should be added to existing insurance curricula.

  • Products: Regulators must take steps to encourage investment in product development. “Most insurance companies have their own Shari’a boards to validate the compliance of takaful products with Islamic law, which should be augmented by the establishment of national authorities to certify the alignment of takaful products with Islamic law,” Vayanos explained.

  • Distribution channels: Insurers should look to explore new distribution channels such as Banctakaful—i.e., the distribution of takaful products via banks’ branch networks—and develop marketing events and other initiatives to reach the corporate and public-sector segments.

  • Corporate governance and risk management: Companies are leery of the negative image incase a lack of understanding about Shari’a leads to non-Shari’a compliant products being sold inadvertently. One solution would be the creation of a regional authority to oversee Islamic corporate governance and risk management issues and disseminate topic-related guidelines in collaboration with leading Islamic institutions such as the Islamic Financial Services Board (IFSB).

Promoting a Regional Insurance Market

The objective of Arab regulators should be the development of a regional insurance market. “To achieve this, policymakers and regulatory authorities in the region must work together to harmonize legal frameworks and ensure that supervisory standards are on a par with international standards,” Kastoun stated.

Organizations such as the Arab Forum of Insurance Regulatory Commissions (AFIRC) has taken significant steps to harmonize insurance markets in the Arab world. AFIRC, which brings together 16 Arab countries’ regulatory authorities, aims to promote collaboration, transparency and adoption of international standards among regulatory authorities in the region. AFIRC and Hawkamah - which strives to bridge the governance gap by assisting the regions’ countries and businesses in developing and implementing sound corporate governance frameworks - have established a joint task force to conduct a corporate governance assessment of the region’s insurance sector, develop corporate governance guidelines, and expand the industry’s corporate governance capabilities. Such organizations are expected to assume increasingly significant roles in the development of the industry as a result of their efforts to support the adoption of international standards and best practices in the region. 


“With MENA insurance expected to grow throughout the coming years, policymakers and regulators will have to address the challenges that lie ahead for the region to capture insurance’s full growth potential, including developing an insurance talent base, fostering the development of takaful, creating and improving public awareness about insurance and supporting the growth of a regional insurance market,” said Vayanos.

To achieve these goals, policymakers and regulators will have to act locally, regionally, and internationally: locally by working closely with insurance companies, service providers, and other industry stakeholders to ensure a close oversight of their activities yet provide enough room for them to grow organically and inorganically; regionally by working closely with other regulatory authorities of the MENA region to promote transparency, collaboration, and implementation of international standards; and internationally by collaborating with standard-setting bodies to move understanding of regulatory and supervisory matters further.