Insurance Sector in the Arab World

Insurance is one of the cornerstones of the modern-day
financial services sector. In addition to its traditional role
of managing risk, the insurance sector promotes longterm
savings and serves as a conduit to channel funds
from policyholders to investment opportunities, including
mortgage lending. As such, a thriving insurance sector is
not only evidence of an efficient financial services sector,
but it is also a key enabler of a healthy economy.
Insurance in the Middle East and North Africa
(MENA) region has traditionally lagged in growth and
development relative to other elements of the region’s
financial services sector.This is evidenced by the low
level of demand as measured by penetration and density
levels, undercapitalized supply, and generally underdeveloped
legal and regulatory environments.
This paper outlines a set of policy recommendations
to be adopted to promote the growth and competitiveness
of the insurance sector in the MENA region.We
begin by reviewing and assessing the existing state of
the insurance sector across the region.Thereafter, we
examine the key enablers that underpin a successful
insurance sector before recommending policy changes
to promote the growth and competitiveness of the
MENA insurance sector.
Review and assessment
The locally admitted insurance market of the MENA
region is small and underdeveloped. According to the
Swiss Re Sigma report and other publicly available
information, the total gross premium income of the
MENA region amounted to around US$9 billion in
2005.This compares with US$47 billion for the countries
of Middle and Eastern Europe, and US$1,177 billion
for the initial 15 countries of the European Union
(EU). In terms of share of the world market, the MENA
region accounted for roughly 0.26 percent in 2005.
Figure 1 compares the size of the insurance markets of
major regions of the world.
A measure of the development of an insurance sector
is insurance penetration, defined as gross premium
income (GPI) as a percentage of gross domestic product
(GDP).When comparing the MENA region with other
regions of the world, this measure reveals the extent to
which the MENA market is underdeveloped. In 2005,
the level of insurance penetration in the MENA region
was approximately 1 percent, compared with an average
of 6 to 9 percent in industrialized countries and 2.5 to 4
percent in emerging markets. Figure 2 compares GPI as
a percentage of GDP for major regions of the world.
To better understand the insurance sector of the
MENA region, we assessed the existing state of the market
from a demand-and-supply perspective.This assessment
revealed a number of findings that are unique to
the region. Although there are differences between
countries, these findings are present to a greater or lesser
degree in each of the countries of the region.
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2.4: Growth and Competitiveness of the Insurance Sector
98
2.4: Growth and Competitiveness of the Insurance Sector
North America Western Europe EU15 Central and Eastern
Europe
Middle East and
North Africa
1,222 1,241
1,177
47
9
Figure 1: Gross premium income by region, 2005 (US$ billion)
Source: Swiss Re, 2006b; Bahrain Monetary Agency, 2006j.
North America EU15 Western Europe Central and Eastern
Europe
Middle East and
North Africa
8.97%
8.64% 8.44%
2.66%
1.05%
Figure 2: Gross premium income as a percentage of GDP (2005)
Source: Swiss Re, 2006b; Bahrain Monetary Agency, 2006j.
The market is growing and has significant potential for
future growth
The markets of the MENA region, albeit small, are
undergoing rapid growth. Many countries in the region
experienced double-digit growth between 2004 and
2005. Furthermore, this growth has not been limited to
the most recent years: between 2000 and 2005, the
insurance market in the MENA region grew at a compounded
annual growth rate of 12.5 percent. Figure 3
illustrates the size of the market by country for 2004
and 2005, and its growth rates between 2000 and 2005.
Further growth is expected during the foreseeable
future, fueled by a combination of factors, including:
• Macroeconomic growth. Above-average levels of
macroeconomic growth will spur the demand for
insurance. In particular, many countries in the
region, especially the energy-rich countries of the
Gulf, are witnessing large investments in infrastructure
and growing trade internationally and across
the region. Both of these factors will create strong
demand for insurance coverage.
• Emergence of compulsory insurance classes.
The recent introduction of compulsory insurance
classes, principally automotive and health insurance,
in many countries of the region will drive the
demand for insurance on the retail side and
make these the largest classes of insurance in the
marketplace. By way of example, we estimate that
in Saudi Arabia, by 2009, the combined health and
automotive market could represent up to 75 percent
of the total insurance market of around US$4 billion.
• Privatization and restructuring of government
pensions. Government privatization programs will
serve as a catalyst for the development of the insurance
sector, since entities that were formerly selfinsured
will now require insurance coverage. In the
future, the expected restructuring of state pension
funds and the reduced role of the state in providing
pensions will also lead to rising demand for life
insurance and long-term savings products.
• Growth of financial services. The growth in
asset-based financing, such as housing and auto
loans, will lead to an increase in the demand for
insurance products to mitigate the risks associated
with the underlying assets.
From a slightly different perspective, the
emergence of the capital markets has provided an
alternative source of investments for insurance
companies. Although the emergence of the capital
markets will not in itself drive demand for insurance,
the maturing of these markets will provide opportunities
for insurance companies to diversify the
sources of their investment income.
0.0 0.5 1.0 1.5 2.0
Algeria
Tunisia
Morocco
Egypt
Jordan
Lebanon
Bahrain
Oman
Qatar*
Kuwait
United Arab Emirates
Saudi Arabia
Figure 3: Gross premium income of MENA countries (US$ billions)
Source: Swiss Re, 2006b; Booz Allen Hamilton analysis.
* Qatar CAGR (compound annual growth rate) is for 2003–05, as 2000 data are not available.
CAGR 2000–05 (percent)
11.1
19.6
18.1
16.2
12.4
12.6
7.1
16.0
5.5
8.9
13.1
17.0
2005
2004
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2.4: Growth and Competitiveness of the Insurance Sector
• Demographics of the region. The population of
the MENA region is generally very young. As the
population matures, the demand for insurance
products will increase.
Despite the recent rapid growth of insurance in the
region, the market still has significant potential for future
growth. As mentioned above, the level of insurance penetration
(GPI/GDP) is very low in the region. Figure 4
provides a comparison of the countries of the MENA
region with selected other countries and reveals the
sector’s future growth potential.
Another indicator of the potential for future
growth is the level of insurance density, measured in
terms of GPI per capita. In 2005, the insurance density
in the Middle East ranged from US$10 to US$440; this
compares with a range of US$40 to US$1,000 in
Eastern Europe, US$1,400 to US$5,500 in Western
Europe, and US$2,400 to US$2,900 in North America.
Figure 5 presents a comparison of insurance density for
countries in the MENA region against selected other
countries.
Life insurance is significantly underdeveloped
Life insurance has historically had limited take-up in the
region, resulting in an average level of insurance penetration
for life insurance in 2005 of around 0.3 percent
versus 1.4 percent for general and health insurance.We
believe the reasons for this low level of penetration are:
• Shari’a sensitivity. The purchase of life insurance
products is strongly influenced by perceptions of
whether or not the products are compliant with
shari’a. Similar to other conventional financial products,
life insurance is perceived to have prohibited
elements of uncertainty (gharar), gambling (maiser),
and interest income (riba). Uncertainty stems from
the notion that the outcome of the insurance contract
is not known at the time it is created and
varies according to the time of death of the insured.
Gambling stems from the notion that the insured
may gain large amounts (that is, profit) from the
insurance coverage if certain events take place.
Interest income stems from the notion that the
premiums are invested in non-shari’a-compliant,
interest-bearing instruments.
• Lack of awareness of life insurance products.
A limited awareness of life insurance and its benefits
among the citizens of selected countries in the
region has limited the take-up of such products.
This is partly driven by cultural factors, such as the
reliance on the extended family network, and partly
by structural factors, such as the provision of generous
benefits by the state in the event of death or
disability.
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2.4: Growth and Competitiveness of the Insurance Sector
15
0
5
10
Saudi Arabia
United Arab Emirates
Lebanon
Jordan
United Kingdom
Germany
United States
Spain
Malaysia
Qatar Kuwait
Oman Egypt
Morocco
Tunisia
Algeria
Bahrain
Figure 4: Insurance penetration by country (2005)
Source: Swiss Re, 2006b; Booz Allen Hamilton analysis.
Premium value (US$ billions)
Small (< 1 billion) Medium (1–10 billion) Large (10–1,000 billion)
Insurance penetration (percent)
• Absence of life insurance in related financial
services. Until recently, there were few related
financial products (such as mortgage lending) that
stipulated the purchase of life insurance to settle
outstanding obligations in the event of the death or
disability of the borrower.
Emergence of takaful as an alternative to conventional
insurance
In response to shari’a sensitivity, takaful—a form of
insurance that complies with the principles of shari’a—
emerged as an alternative to conventional insurance.
While there is limited information as to the size and
penetration of the takaful market, interviews with market
participants and the increase in the number of Islamic
insurance companies point to rising demand for takaful.
Fragmented supply base with a large number of small
competitors, limited presence of foreign insurers
From a supply perspective, many markets of the MENA
region are characterized by a large number of small
players when measured by capital employed. Selected
countries (including Egypt, Jordan, and Lebanon) have
recently introduced legislation to raise the minimum
level of capital. However, average levels remain very low
when compared with international standards.
There is also a limited presence of foreign insurers
in the market in terms of market share. Furthermore,
many of the international insurers have a narrow focus,
particularly on the life side.
Intermediary distribution channels remain informal
The role of intermediaries in developing markets is
important since they not only increase the distribution
of products, but also serve as a means to educate customers
about products.
Across the region, the level of penetration of brokers
and agents varies. In the cases of Lebanon and
Saudi Arabia, brokers are very active, especially on the
corporate side. In other markets, intermediaries are less
active and the business is driven through sales forces tied
to companies.
The informal conditions under which brokers and
agents operate, however, are common across the region.
There are a number of reasons for these conditions,
including:
• Absence of regulatory frameworks to govern
intermediaries. Until recently most countries in
the region did not have a regulatory framework to
govern the activities of agents and brokers.This in
turn undermines the credibility of companies and
individuals acting in this capacity.
• Lack of qualifications, accreditations, and
licensing requirements. The absence of these
standards undermines the development of intermediaries
since there is no way for customers to independently
verify the quality of the agent or broker
with whom they are dealing.
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2.4: Growth and Competitiveness of the Insurance Sector
0 15,000 30,000 45,000
1,500
3,000
4,500
United Arab Emirates
Lebanon Kuwait
United Kingdom
Germany
United States
Spain
Jordan
Malaysia
Saudi Arabia
Qatar
Oman
Egypt
Morocco
Tunisia
Algeria
Bahrain
Figure 5: Insurance density by country (2005)
Source: Swiss Re, 2006b; Booz Allen Hamilton analysis.
Insurance density (US$)
GDP per capita
Bancassurance, or the sale of insurance products
through a bank, is a similarly informal channel. Specific
challenges facing bancassurance include ensuring adequate
training and incentive schemes for bank staff to sell
insurance products, implementing systems to facilitate
the processing of policies, addressing regulatory issues
such as which regulator (banking or insurance) should
oversee bancassurance activities, and determining whether
conventional banks are able to distribute takaful products.
In summary, our assessment has revealed that the
market is underdeveloped on both the demand and supply
sides.That said, there is significant potential for
future growth. Capitalizing on this potential will require
regulators and policymakers to address gaps in the
underlying enablers of growth.
Evaluation of the enablers of growth
The development of an insurance market is a function
of the underlying enablers of growth, and the existing
state of the market is a reflection of the maturity of
these enablers.We believe that there are five types of
enablers that shape an insurance market (see Table 1).
In order to develop policy recommendations to
address the underlying enablers (and consequently promote
the growth and development of the market), it is
necessary to evaluate the maturity of each of these
enablers. Since the state of development of the enablers
differs by country, it is necessary to perform this evaluation
at the country level. Accordingly, we have reviewed
these enablers for nine of the major countries within
the MENA region.The results of this evaluation are
presented in Appendix A and summarized below.
Legal framework
At the legal and regulatory levels, there is wide variability
in the maturity of the frameworks that govern regional
insurance markets. Until recently, almost all MENA
countries had outdated insurance laws and regulations;
some countries had no insurance law at all. Over the past
few years, many countries have initiated serious efforts
to upgrade their regulatory frameworks, as evidenced by
the enactment of new laws.They have strengthened the
independence and supervisory capabilities of regulatory
entities in line with the core principles of the International
Association of Insurance Supervisors (IAIS); they have
also issued sector guidance notes covering, for example,
governance, market conduct, and risk management.
That said, there still remains a wide variation in the
comprehensiveness and application of legal frameworks
across the region. At one end of the spectrum, Bahrain
has a well-established and applied legal framework for
insurance activities. In April 2005, Bahrain issued the
Insurance Rulebook, which sets out elaborate licensing and
operational regulations for both conventional and takaful
insurance.A recent report by the Financial Sector
Assessment Program (FSAP), a joint venture between
the International Monetary Fund and the World Bank,
acknowledged the comprehensiveness of this regulatory
framework.1
At the other end of the spectrum are countries such
as Kuwait, Qatar, and the United Arab Emirates (UAE),
whose regulations are limited. For example, in the United
Arab Emirates, regulations do not require companies to
adhere to solvency regulations but rather only meet
minimum capital requirements. In the case of Qatar, the
law lacks adequate legislation that lays out the rights and
obligations of parties entering into insurance contracts.
The existence of a robust and comprehensive legal
framework is one of the core underpinnings of a healthy
insurance market. In addition to building the confidence
of local market participants, an established legal framework
serves to attract international players and, at a
regional level, avoid potential regulatory arbitrage.
Regulatory bodies
Regulatory bodies operate in tandem with legal
frameworks. Not surprisingly, the level of maturity of
these bodies is a reflection of the underlying laws and
regulations.
All the countries surveyed in this study have an
insurance regulator, although the form of the regulator
varies. In some countries, the insurance sector is supervised
by an existing financial services regulator, such as
the central bank or capital markets authority. In other
countries, the sector is supervised by a government
ministry.
Our assessment did reveal the existence of more
than one regulator with overlapping responsibilities in
selected countries, which leads to inconsistent application
of the regulations, potential confusion in the marketplace,
and unnecessary bureaucracy for market participants. For
example, in Saudi Arabia there is an overlap in the area
of health insurance between the Council of Cooperative
Health Insurance (CCHI) and the Saudi Arabian Monetary
Agency (SAMA).This is in addition to existing overlaps
between SAMA, the Capital Markets Authority (CMA),
and the Ministry of Commerce. Similarly, in Lebanon
there appears to be duplication between the activities of
the Insurance Control Commission and the Directorate
of Insurance Affairs of the Ministry of Economy.
The comprehensiveness and effectiveness of regulatory
processes, especially supervisory processes, varies
considerably across the region. As mentioned above, this
is a function of the maturity of the underlying legal and
regulatory frameworks. Countries such as Bahrain and
Jordan, which have well-developed regulatory frameworks,
are either applying or developing risk-based supervision
processes that comply with the standards of international
bodies such as International Association of Insurance
Supervisers (IAIS). Other countries, such as Qatar,Kuwait,
and the United Arab Emirates, have less-developed
supervisory processes that are more administrative in
orientation.
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2.4: Growth and Competitiveness of the Insurance Sector
The effectiveness of a legal and regulatory framework
is directly correlated to the existence of regulatory
bodies to enforce the law.Within the MENA region,
there is a need to upgrade the capabilities of selected
regulators to ensure comprehensive and consistent
enforcement of regulations.
The nature of competition
The insurance markets of the Middle East are generally
competitive.This can be measured by the extent to
which foreign insurers are present in the market, the
level of state involvement through government-owned
firms, and the extent to which the market is fragmented.
Over the past few years, countries in the region have
lifted restrictions and/or moratoriums on the operations
of foreign insurers. As a result, the markets of these
countries are now open to foreign insurance companies,
which are present to various degrees throughout the
region. However, their share of the local market tends to
be small; this circumstance can be traced to previous
restrictions on market entry, regulations that require
insurers to invest a large proportion of premiums in
local markets, and the fact that the individual markets of
the region may not have been attractive given their
small size.With the lifting of restrictions and expected
market growth, the level of activity of foreign insurers is
expected to grow significantly.
Additionally, foreign insurers in many cases have
focused exclusively on the life business.This can be
ascribed to the fact that local insurers have been less
active in this area due to less-developed capabilities and
limited demand from nationals owing to shari’a implications.
International insurers also benefit from the natural
affinity of expatriates who are more inclined to purchase
life insurance.
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2.4: Growth and Competitiveness of the Insurance Sector
Legal framework
Table 1: Insurance market enablers
ENABLER ROLE SUPPORTING EVIDENCE
• Protect the rights of policyholders, regulate
the activities of market participants, and
ensure the financial health of the sector
• Existence of an insurance law appropriate to
existing market conditions
• Existence of insurance regulations/
implementing guidelines
Regulatory bodies • Oversee and supervise the sector and
ensure the enforcement of laws and
regulations
• Existence of an insurance regulator
• Evidence of regulatory processes being
applied
• Evidence of an insurance judicial authority
Skills and training • Assess the risks to be insured
• Provide customers with the appropriate
products/services
• Ensure the availability and development
of local skills
• Availability of skilled professionals
• Availability of training programs, training
institutes, and accreditations
Market-led initiatives • Drive self-regulation and the development
of the industry at the country and regional
levels
• Existence and application of insurance
standards
• Availability of insurance statistics and
market data
• Existence of professional associations
• Existence of industry-level programs to
create awareness
• Existence of regional forums
Nature of competition • Drives innovation, competitive pricing, and
the adoption of best practices
• Evidence of foreign insurers and the extent
to which foreign ownership is allowed
• Extent of private- sector involvement—
market share of private vs. public insurers
• Extent to which large, well-capitalized
insurers exist
Source: Booz Allen Hamilton analysis.
The insurance sector in the Middle East is characterized
by a high degree of private-sector involvement.
There are notable exceptions, such as Egypt and, until
recently, Saudi Arabia. In the case of Egypt, the stateowned
insurers command around 75 percent of the
non–life insurance market and 60 percent of the life
insurance market. However, there are moves afoot to
consolidate the activities of the state insurers with a
view to ultimately privatizing the resulting entities.
Although there is significant involvement of the
private sector in the insurance industry, this is offset to
some extent by a high degree of market fragmentation.
In particular, many markets of the MENA region are
characterized by a large number of small players when
measured by capital employed.
There are a number of ramifications of the current
low levels of capitalization. At an overall industry level,
this results either in insurance being placed directly outside
of the region through international brokers or in
the practice of fronting, whereby local insurers retain a
small portion of the risk and transfer the remaining risk
to their international reinsurance partners. As a consequence
of the lack of capacity, risk-management and
actuarial capabilities in the region remain underdeveloped,
resulting in a disproportionate reliance on international
reinsurers to assess the risks and provide appropriate
pricing guidelines.
At an individual company level, low levels of capitalization
limit the resources available to build the
required capabilities to serve customers efficiently and
effectively.
Encouraging the formation of large (but not dominant),
well-capitalized insurers is vital to the development
of the regional insurance sector, since these companies
can invest in the capabilities needed to promote growth.
In addition, creating the conditions to attract foreign
insurers is important to ensure the transfer of skills and
best practices to the region.
Skills and training
Across the region, the insurance sector is characterized
by a shortage of skills—particularly product development,
underwriting, and actuarial skills.The absence of skills
clearly affects the development of the sector, specifically
in the areas of product innovation, risk assessment, and
pricing.This situation is exacerbated by nationalization
requirements in some countries, which extend the time
required to train and equip staff for key positions, and
the availability of highly attractive positions in other
areas of the financial services sector.
The generally limited number of training institutes
and the absence of international accreditations hampers
the development of skills. Again, there is wide variability
across the region in terms of training facilities. Bahrain
stands out by virtue of the Bahrain Institute of Banking
and Finance (BIBF), which offers 20 insurance programs
—including courses in underwriting, risk management,
and information technology that meet the requirements
of four internationally recognized professional designations.
The shortage of skills and limited training facilities
are perhaps the greatest impediments to the development
of the insurance sector in the region.
Market-led initiatives
Market-led initiatives refer to initiatives at an industry
level that seek to develop the sector as a whole.This
includes market standards and the availability of statistics
to enable insurers to improve product development and
pricing, the existence of industry associations to foster
cooperation between industry players, and the existence
of industry programs to create awareness among the
population of the concept and benefits of insurance.
Although these initiatives occur at the country
level, our assessment also covered efforts to improve
coordination among individual regulators and players at
the pan-regional level.
Across the region, there is a lack of reliable market
data. In the markets that do collect data, the data are
neither comprehensive nor sufficiently granular to provide
insurers with the necessary insights to improve
product development and pricing.
Almost all of the region’s markets either have an
insurance industry association or are in the process of
forming such an association.These associations play an
important role in promoting the sector by facilitating
cooperation between insurance companies and professionals.
On the awareness level, there are limited programs
in place in the countries of the MENA region. Bahrain
and Jordan appear to be the only countries with formal
programs in place to promote such awareness. In the
case of Bahrain, the Insurance Market Development
Committee (IMDC) initiated its first awareness campaign
in 2005, which was aimed at increasing insurance penetration
using educational messages through a specially
created cartoon character,“Taamina.” In Jordan, the
Insurance Commission (IC) has launched an awareness
campaign consisting of three phases: introducing the role
of the IC, raising awareness of the benefits of insurance,
and introducing various insurance products to the public.
Similarly, there are limited, if any, programs aimed at
raising the profile of the insurance industry and attracting
university/college graduates and other professionals.
On a regional level, pan-regional cooperation has
manifested itself in numerous forums, associations, and
standard-setting organizations. Each of these bodies aims
to foster the development of the regional insurance sector
and promote regulatory coordination.
At the regulatory level, the Arab Insurance
Regulatory Commission (AIRC) was established in
September 2006 with the participation of 12 countries.
ARIC’s objectives are to provide a forum for Arab
insurance commissioners to share expertise and training
programs, develop regulatory and supervisory standards,
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2.4: Growth and Competitiveness of the Insurance Sector
and coordinate their activities with those of international
organizations such as the IAIS.
At the sector-development level, the General Arab
Insurance Federation (GAIF) plays a regional role, with
annual recommendations geared toward the development
of the insurance markets through initiatives led by the
public and private sectors.
Finally, regional insurance forums play a positive
role by using panels of experts to address issues and
emerging trends facing the markets. Key regional forums
include the annual Middle East Insurance Forum and,
on a Gulf Cooperation Council (GCC) level, the Gulf
Insurance Forum, which is organized by the UAE-based
Coordination Commission for Gulf Insurance and
Reinsurance Companies.
However, while there is no shortage of regional
bodies, there is limited evidence of coordination among
pan-regional bodies, leading to overlapping efforts and
diverging priorities.
In summary, our evaluation revealed that there are a
number of gaps to be addressed at the enabler level. In
particular, there is a need to ensure a consistent level of
maturity for legal and regulatory frameworks and the
concomitant regulatory bodies, as well as to address the
shortage of skills in the marketplace.
Policy recommendations to promote growth and
competitiveness
Policymakers in the MENA region have the opportunity
to play a central role in unlocking the growth potential
of their respective insurance markets.We have identified
a set of recommendations to be adopted by policymakers
or regulators that builds on our evaluation of growth
enablers and takes into account best practices from other
markets.The recommendations will not apply in their
entirety to all the countries of the region, given the varied
state of development of individual markets.Therefore,
we encourage policymakers to select the recommendations
that are most applicable to their respective markets.
We have grouped our recommendations within the
same framework adopted for the evaluation of growth
enablers.
Legal framework
Enacting a modern legal framework and designating a
special judicial authority to handle insurance-related
cases are key requirements to enable market development
by protecting the rights of policyholders and regulating
the activities of market participants.
As noted earlier, there is wide variability in the
maturity of legal environments across the region, and a
number of countries have underdeveloped legal frameworks.
Insurance regulators in such countries should
seek to upgrade their legal frameworks and ensure that
they reflect international best practices, such as the principles
of the IAIS. In addition, policymakers should seek
to establish a specialized insurance judicial authority to
resolve insurance disputes in countries where such an
authority does not exist.
A modern legal framework should regulate all
insurance market participants, including insurance companies,
intermediaries, and professionals.The regulations
covering insurance companies should address a number
of areas, including, among others, licensing, product
approval, financial reporting, investments, reinsurance,
and solvency margins. In addition, and in line with IAIS
principles, the regulations should stipulate the minimum
internal capabilities of market players, such as governance
and risk management.The regulations covering intermediaries
and insurance professionals should entail, at a
minimum, qualifications criteria, licensing requirements,
and a code of conduct.
In countries where there is a rapidly growing
demand for takaful insurance, the legal framework should
also promulgate adequate legislation to address this form
of insurance.There are three main challenges in takaful
regulation: capital requirements, corporate governance,
and consumer protection from misinterpretation.
Although the underlying risk is the same, the risk
profiles of conventional and takaful insurers are different
because the latter has higher operational risk. It is
uncertain whether this leads to increased capital requirements
for takaful insurance, especially in the Al-Wakalah
structure that is predominant in the Middle East.A
sound governance system, including risk management
and internal control processes, is crucial for meeting
these capital requirements. Furthermore, the regulation
has to ensure that the shari’a compliance claim of a
takaful insurer is valid.To do so, the operations of the
shari’a board have to be scrutinized by the regulator.
There are two different approaches to the regulation
of takaful insurance.While some countries have established
a special takaful law, others have modified their existing
regulatory frameworks and adjusted them to the specific
needs of Islamic insurance.Whether or not there needs
to be a separate takaful regulation should depend on the
definition of the term insurance in the conventional regulation.
Separate takaful-specific regulation is not
required where takaful can be interpreted as a subset of
conventional insurance.
In implementing a legal framework, countries in
the region should start from a compliance-based legal
framework that involves setting prescriptive rules and
guidelines to be complied with by the market.This is a
model that is commonly adopted by newly regulated
and underdeveloped markets. In such a model, for
example, insurance products are subject to form and
rate approval by the regulator prior to being sold in the
marketplace.
In time, and as the market matures, the regulatory
framework can move toward a principle-based model
that allows regulated entities more flexibility in meeting
regulatory requirements. In contrast to the example
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2.4: Growth and Competitiveness of the Insurance Sector
above, this model would allow insurance products to be
sold in the marketplace immediately after the regulatory
filing has been completed. Regulators then would have
the authority to intervene at their discretion.
A critical component of the legal framework is the
establishment of minimum capital requirements to give
reasonable assurance that policyholders’ interests will be
protected, and capital adequacy requirements (a solvency
margin), to ensure that insurers are able to absorb significant
unforeseen losses.2
In setting minimum capital requirements, regulators
should consider an appropriate amount based on the
characteristics of their markets and the insurance classes
being regulated. In the case of solvency margins, regulators
are encouraged to adopt risk-sensitive approaches.
At present, there are two regimes that govern solvency
requirements: Solvency I and Solvency II.
Countries in the region can pursue a two-stage
plan to adopt risk-sensitive solvency margin requirements.
Initially, regulators should adopt an easy-to-apply
solvency model (for example, Solvency I) and use
collected market data to fine-tune the risk factors
applied to premiums or claims by insurance class. Over
time, regulators can apply more risk-sensitive formulas
(for example, risk-based capital) after developing the
requisite internal capabilities (in terms of data availability,
advanced staff skills in risk assessment, and understanding
of key risks in the marketplace) and after fostering the
development of insurers’ capabilities (especially in terms
of risk measurement).
In addition to the above, MENA countries that
have not established a dedicated insurance judicial
authority should do so.This would require a competent
judicial authority staffed with experienced insurance
staff and legal professionals who have proficient knowledge
and expertise in the field of insurance legislation.
The chosen judicial authority can be in the form
of a special court or committee that deals with insurance
disputes and litigations. Such a court should be
independent from the regulatory body.The court should
aim to build public confidence through efficiency in
handling cases, consistency in interpreting the legislation,
independence, and fairness.
Regulatory bodies
An empowered insurance regulator with well-developed
capabilities enables market development by ensuring
appropriate market oversight and enforcement of enacted
laws and regulations.
In parallel with upgrading legal frameworks, policymakers
in the region should seek to empower their
insurance regulatory bodies.The empowerment of the
regulatory body should be constituted in the legal
framework, which should address the body’s legal form,
ensure its independence, vest appropriate authorities, and
clarify any overlapping responsibilities with other governmental
entities.
In addition, regulators should seek to enhance their
capabilities, especially in the area of supervision (including
staff and IT). In upgrading supervisory capabilities, regulators
should take into account the guidelines set out as
part of the IAIS core principles.
In general, there are two approaches to supervision:
an audit-based (or data-focused) model, under which
the regulator focuses on data collection and ensuring
compliance with the rules and requirements; and a riskbased
model, under which the regulator focuses on early
identification of risk, systematic prioritization of risk to
allocate supervisory resources to the highest areas of
risk, and timely and proportional intervention to help
reduce insolvencies.
In practice, most international regulatory regimes
fall within these two approaches, with developed markets
gravitating toward the risk-based model.The choice of
the appropriate supervisory approach should be aligned
with the development stage of the regulatory body and
the legal framework, insurers’ risk-management capabilities,
the qualifications of insurance professionals, and the
stage of development of the overall financial market.
From an implementation perspective, MENA countries
should devise and pursue a medium-term plan to
apply a risk-based supervision approach.The adoption
of such an approach consists of building advanced
competencies in five integrated areas, which collectively
provide the regulator with a risk-based view of the
highest-risk insurers and the areas of greatest concern
within such insurers.These areas include financial
reporting, solvency monitoring, financial analysis,
on-site inspection, and market analysis.
In addition to the above capabilities, supervisors
should design an intervention framework with clear
stages that link the legal framework, supervisory
approach, supervisory conclusions, enforcement powers,
and actions of the regulator under various market
events.The stages of intervention serve as a primary tool
to ensure the consistency of supervisory actions and,
when they are communicated to the market, they set
market expectations in terms of supervisory responses
under certain conditions.
The nature of competition
Fostering a competitive environment drives innovation,
competitive pricing, and the adoption of best practices,
and is a key enabler for the development and growth of
insurance markets in the MENA region.
The ultimate objective from the standpoint of market
growth should be to have a profitable sector adequately
serving market demand, with local insurers equipped to
withstand the competitive pressures of increasingly liberalized
markets.
Although the insurance markets in the region are
generally competitive, regulators should seek to raise
the competitive bar further through higher capital
requirements and the introduction of governance and
106
2.4: Growth and Competitiveness of the Insurance Sector
risk-management requirements. In highly fragmented
markets, regulators should investigate the option of
increasing capital requirements to stimulate market
consolidation and increase the level of risk-retention
capacity.This in turn would result in larger local
companies with the resources to invest in capabilities,
and would also reduce the level of fronting.
On the governance side, regulators should introduce
minimum governance requirements such as the establishment
of internal functions (for example, an internal
audit), the definition of fit and proper criteria for board
members and senior management, the development of
policies and procedures manuals, and the formation of
an investment policy subject to review and approval by
the board.
In countries where there is a rapidly growing
demand for takaful insurance, regulators should identify,
develop, and disseminate risk-management best practices
that take into account the contractual relationships of
Islamic insurance products.
Skills and training
Cultivating the growth of a pool of skilled local insurance
professionals is paramount to the development of
the insurance sector, given the existing acute shortage
of skills. Policymakers and regulators should act as catalysts
in the development of professional knowledge in
three ways:
• Setting qualification and accreditation
requirements for the insurance profession.
In general, it is customary to set minimum
requirements for insurance professionals that go
beyond general educational attainment and include
specialized insurance qualifications. Regulators can
influence the market in raising the standards of
training programs by adopting internationally
accredited programs and selectively approving
local programs that meet minimum criteria.
• Organizing specialized training programs.
Training programs can be organized by the regulator,
the industry itself (such as associations of insurance
companies and the companies themselves), and by
the private sector as the demand for such training
increases. In the absence of market-led training programs,
regulators should bridge this gap by organizing
accredited training programs through affiliations
with specialized training institutions (for example,
institutes of banking), general academic institutions
(such as universities), or leading training institutions
in more developed markets.
In countries where the demand for takaful
products is growing rapidly, regulators need to
ensure the availability of training programs to educate
the market on these relatively new products.
• Encouraging companies to build up the
knowledge of their staff. Regulators can require
companies to take a more active role in developing
the expertise of their employees by mandating
training budgets and staff training programs.These
programs would be subject to audits by the regulator
to ensure companies’ compliance. As an incentive,
regulators can consider subsidizing part of
the training budget through a reduction of annual
regulatory fees.
Market-led initiatives
Promoting the involvement of industrywide bodies,
whether at a local or regional level, is a valuable enabler
for the development of the market by providing forums
for the harmonization of standards and activities, and for
the sharing of best practices. By definition, market-led
initiatives lie outside the boundaries of regulators’ direct
control. Nevertheless, insurance regulators can play a key
role in bridging market gaps while stimulating the
emergence of more-effective industry-led market development
initiatives.
In particular, policymakers and regulators can play a
valuable role in promoting more active involvement
from industry associations, encouraging the adoption of
market standards, fostering the availability of granular
market statistics, generating consumer awareness of
insurance, and raising the profile of the industry to
attract new talent. Policymakers and regulators should
encourage the formation of industrywide associations as
a way to harmonize the representation of market participants.
In countries where associations exist, regulators
should emphasize the role of the association by channeling
regulatory consultation efforts through these bodies
or adopting industry standards endorsed by associations.
Regulators can also mandate the adoption of internationally
accepted accounting standards—such as IFRS
4 issued by the International Accounting Standards
Board in 2004—to ensure consistent treatment of insurance
contracts and appropriate disclosure.
Fostering the availability of insurance market data is
a requirement for promoting better understanding of
the market and supporting informed decision making.
By virtue of their access to market data, regulators
should support the publication of accurate, consistent,
and up-to-date information on the market. Some countries
in the region have made significant improvements
in this regard; however, the lack of good market data
remains a visible weakness in many MENA markets.
In addition to sector-level data, granular statistics
(for example, pricing, claims, and loss statistics) are
required to support product development and pricing.
The private sector can fill this gap by collecting and
providing such statistics. For example, a private company
in the United States—the Insurance Service Office
(ISO)—provides statistical, actuarial, and claims data.The
ISO gathers information from insurance companies on
107
2.4: Growth and Competitiveness of the Insurance Sector
hundreds of millions of policies, including the premiums
companies collect and the losses they pay. In the MENA
region, regulators should encourage the establishment of
such specialized data services organizations and mandate
that product pricing decisions be based on relevant market
data and statistics.
Creating consumer awareness of the advantages of
risk coverage provided by insurance products and services
is a key enabler to stimulate the demand side.
Promoting awareness among retail consumers is particularly
important in the GCC countries, where awareness
of the benefits of insurance is considered low.
Insurance regulators can increase awareness by
launching public communication initiatives, publishing
educational material, setting up a function to handle
inquiries (whether telephone- or Web-based), and
encouraging insurance companies to launch informative
promotional programs geared at raising consumer
knowledge.
The programs to raise the level of awareness of life
insurance in Malaysia are a good case in point. In 2003
a joint initiative, InsuranceInfo, was launched by Bank
Negara (the Central Bank and insurance regulator of
Malaysia) and other industry players. InsuranceInfo
covers topics such as standard life insurance, annuities,
investment-linked insurance plans, and child education
plans. InsuranceInfo disseminates this information primarily
through its website, as well as through booklets
made available in branches of selected insurance companies
and articles published in major newspapers.This
program has contributed to the development of the life
insurance market, which generated premiums of US$4.8
billion in 2005—more than three times those in the
entire MENA region.
Furthermore, policymakers should seek to promote
the industry as a whole to attract talent.This can best be
achieved by industry associations targeting university
and college graduates through career days, internships in
insurance companies, and similar initiatives.
At a regional level, it is important that a standardized
regulatory and compliance framework exists across the
region before attempts are made to create a regional
market. As such, policymakers should seek to harmonize
the efforts of the many pan-regional bodies to ensure
consistent attention on the key issues. Specifically,
regional cooperation should focus on promoting financial
stability, participating in the global trend toward
cooperation and harmonization (for example, Solvency
II), improving risk management and corporate governance
practices, protecting the integrity of the financial systems
from illegal activities, and preventing regulatory arbitrage
(that is, offshore entities that seek out the least restrictive
regulatory environment from which to operate locally
and cross-border).
Cooperation among regional insurance regulators
would create significant economic advantages for
their respective insurance markets. Primarily, active
coordination would accelerate the development of a
standardized regulatory framework and harmonize the
regulatory compliance requirements, which in turn
would enhance the attractiveness of the regional insurance
market to international insurance groups and facilitate
the formation of regional insurers. In addition,
active cooperation among insurance regulators would
facilitate the transfer of acquired supervisory knowledge
and expertise, and improve the efficiency of supervisory
activities by avoiding duplication of supervisory efforts
across the region.
Conclusion
The insurance markets of the MENA region show
significant potential for future growth. Realizing this
growth, however, will require policymakers and regulators
to address the existing gaps in the underlying
enablers of growth.
Specifically, selected countries in the region need to
upgrade the existing legal and regulatory frameworks
and improve the capabilities of regulators. Similarly,
there are opportunities to improve the competitive landscape
and thereby drive innovation, competitive pricing,
and the adoption of best practices by mandating higher
capital levels and introducing governance and riskmanagement
requirements. Across the region there is a
need to address the skills shortage by introducing minimum
qualification levels and fostering internationally
accredited training programs. And finally, at a market
level, the use of industry associations, improvements in
market data, and the introduction of consumer awareness
programs will go a long way toward the overall development
of the sector.
In the end, each country will need to chart its own
course and take into account local circumstances.The
speed of development of individual insurance markets
will be a function of how rapidly policymakers and
regulators are able to address the individual enablers
of growth.
Notes
1 See IMF (2006).
2 AIS core principle number 23.
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2.4: Growth and Competitiveness of the Insurance Sector
110
2.4: Growth and Competitiveness of the Insurance Sector
The evaluation of growth enablers at a country level
was based on publicly available information. In evaluating
the enablers, we adopted the following symbols
to reflect the performance of each enabler:
0 Nonexistent
1 Below-average performance/underdeveloped
2 Average performance/basic development level
3 Above-average performance/intermediate
development level
4 High performance/advanced development level
SAUDI ARABIA
Legal framework 2
• Until recently the Saudi insurance market was unregulated.
In 2002 the Cooperative Heath Insurance Law
was enacted, which sets mandatory health insurance
requirements for expatriates. An independent government
body, the Council of Cooperative Health Insurance
(CCHI), was established to regulate the health insurance
market.
• In 2003 the Cooperative Insurance Companies Law was
enacted, which requires all insurance companies to
operate under the Shari’a-compliant Takaful insurance
model. The insurance law is complemented by the
implementing regulations. In October 2006, the Council
of Ministers approved the licenses of 13 insurance companies
under the new law.
• At present the market is in a transition phase whereby
existing players are allowed to operate under a grace
period ending in the first quarter of 2008. At that point,
insurers must either have a license or exit the market.
• Overall the insurance legal framework in Saudi Arabia is
in its early stages and has yet to be fully implemented
and tested.
Regulatory bodies 1
• The Saudi Arabian Monetary Authority (SAMA) has been
entrusted with regulating the insurance sector. SAMA
has established a dedicated unit, the Insurance
Supervision Directorate (ISD), to carry out its regulatory
and supervisory mandate.
• At present there is an overlap with respect to health
insurance between CCHI and SAMA; this is expected to
be clarified in 2007.
• A special court has been established to settle insurance
disputes: the Committee for Resolution of Insurance
Disputes & Violations.
• Overall, as a new regulatory body, ISD is in the process
of building up its supervisory capabilities and is expected
to become fully operational in 2007.
Nature of competition 1
• There are more than 70 insurers in the market, all of
which are in the private sector except for the stateowned
National Company for Cooperative Insurance
(NCCI).
• NCCI dominates the market with over 35 percent of
market share, focusing mainly on general insurance.
This dominance will come under pressure as newly
licensed companies will be able to tap public-sector
business, which was traditionally accessible only to
NCCI.
• The majority of existing insurers are based in other
countries, mostly Bahrain. In addition, most have low
capitalization, relying extensively on reinsuring a significant
portion of their risk portfolios.
• The recently enacted insurance laws and regulations are
expected to stimulate market consolidation (by setting
high capital requirements) and foster the development
of improved insurers’ risk-management capabilities (by
limiting reinsurance levels).
• As a result of the new legal framework, which allows
foreign insurers to operate in Saudi Arabia, several
multinational companies have applied for licenses to
establish a local presence. This is expected to bring in
international expertise and raise the competitive playing
field to a new level.
Skills and training 1
• There is a significant shortage of skills within the industry,
and the Saudization requirements mandated by the
new law are likely to compound this situation.
• At present, there are limited training programs available.
The Institute of Banking offers some insurance training,
but the programs are not accredited.
Market-led initiatives 1
• At present, the market lacks reliable market statistics,
professional associations, and consumer awareness programs
needed to develop the market at an overall level.
Appendix A: Country Evaluation of Enablers
111
2.4: Growth and Competitiveness of the Insurance Sector
UNITED ARAB EMIRATES (UAE)
Legal framework 1
• The UAE insurance market is regulated by the 1984 federal
law on Insurance Companies and Agents and
Executive Regulation, issued by the Ministry of
Commerce.
• The existing legal framework is in need of significant
upgrading in light of the evolution and rapid growth of
the insurance market. For example, the regulations do
not require insurance companies to adhere to solvency
margins but only to meet a minimum capital requirement.
In addition, the regulations require insurers to
invest in the local market without putting clear limitations
on risks and asset classes.
• The United Arab Emirates has initiated work to upgrade
the regulatory framework. A special committee, the
UAE Insurance Committee, is entrusted with developing
and proposing the regulations for the insurance sector.
• There is no dedicated insurance judicial authority in the
United Arab Emirates.
• Overall, the insurance legal framework in the United
Arab Emirates has significant limitations that are expected
to be addressed in the planned regulations.
Regulatory bodies 1
• The sector is regulated by the Insurance Companies
Division of the Ministry of Economy.
• Existing supervisory processes are undermined by the
underdeveloped regulatory framework.
• In line with the new regulatory framework, an insurance
commissioner position is expected to be established in
2007.
• Overall, the capabilities of the regulatory body are
underdeveloped as a result of the gaps in the existing
regulations. The regulator’s capabilities are expected to
be enhanced through the establishment of a commissioner
post and the updating of the legal framework.
Nature of competition 2
• There are 49 insurers serving the UAE market, including
5 foreign insurers.
• Overall, local insurers are privately held although several
large players are partially state-owned.
• Local companies hold around 75 percent of the non–life
insurance market, while foreign insurers are more
focused on life insurance. Recently, some foreign insurers
have announced their intention to focus on expanding
their non–life insurance business.
• The market is competitive with several large local companies
in the market. The largest 10 insurers account
for around 50 percent of market premiums.
Skills and training 2
• There is a shortage of qualified staff, especially among
nationals. The law requires that 15 percent of total staff
be nationals; at present it is only 6.2 percent.
• To support Emiratization, the Supreme Insurance
Committee and National Human Resource Development
Committee in the insurance sector are implementing a
number of insurance training programs to develop the
capabilities of nationals.
• The Emirates Institute of Banking and Financial Studies
also offers a one-year insurance diploma program.
Market-led initiatives 2
• The Ministry of Economy publishes high-level market
data. However, there is a significant shortage of granular
statistics that would improve the understanding of market
performance and profitability.
• The Emirates Insurance Association (EIA) plays an
industrywide role in promoting the insurance sector by
facilitating cooperation between insurance companies,
setting standards, providing training to insurance professionals,
and promoting insurance awareness.
• The Coordination Commission for Gulf Insurance and
Reinsurance Companies is a UAE-based entity that promotes
coordination among GCC insurance companies.
BAHRAIN
Legal framework 4
• In an effort to strengthen its position as a center for
Islamic finance operations (including takaful and re-takaful),
Bahrain issued the Insurance Rulebook in April
2005. The rulebook sets out elaborate licensing and
operational regulations for both conventional and takaful
insurance.
• A recent report by the Financial Sector Assessment
Program (FASP), a joint venture between the
International Monetary Fund and the World Bank,
acknowledged the comprehensiveness of this regulatory
framework.
• Overall, Bahrain’s insurance legal framework is well
developed and is one of the most-established legal
frameworks in the region.
Appendix A: Country Evaluation of Enablers (cont’d.)
112
2.4: Growth and Competitiveness of the Insurance Sector
Regulatory bodies 3
• Since 2002, the insurance sector has been regulated by
the Bahrain Monetary Agency (BMA). In September
2006, the BMA was succeeded by the Bahrain Central
Bank (BCB) which is mandated with carrying out the
activities previously undertaken by the BMA, but with
stronger operational independence and wider enforcement
powers.
• A recent FASP report indicated that prudential supervision
is generally effective. However, the report also
highlighted the limited resources available to the BCB to
implement the supervisory activities promulgated under
the Rulebook.
• Overall, the regulator is experienced and appears to
have well-developed capabilities.
Nature of competition 3
• As of 2005, there were 19 insurance companies serving
the local market, comprising 11 that are locally incorporated
as well as 8 branches of foreign insurers.
• The market is led by private-sector insurers.
• Local insurers dominate the non–life insurance market
with 87 percent market share, whereas foreign insurers
dominate the life insurance market with 82 percent market
share.
• There are three local large insurance players controlling
45 percent of the market. The largest insurer is Bahrain
National Insurance with 22 percent market share. Next
are the Bahrain Kuwait Insurance Company and Gulf
Union Insurance and Reinsurance, with market shares
of 12 percent and 10 percent respectively.
Skills and training 3
• Bahraini nationals account for 63 percent of the insurance
workforce, one of the highest figures in the GCC.
• The Bahrain Institute of Banking and Finance (BIBF)
offers 20 insurance programs, including courses in
underwriting, risk management, and information technology
that meet the requirements of four internationally
recognized professional designations. These designations
are: Associate of Risk Management of the
American Institute for Chartered Property Casualty
Underwriters (USA); Associate of the Chartered
Insurance Institute (UK); Certificate in IT for Insurance
Professionals (UK); and the Professional Insurance
Certificate, which is jointly awarded by UK’s Chartered
Insurance Institute and BIBF.
• In 2006, BIBF signed an agreement with London-based
Chartered Insurance Institute (CII) to be the exclusive
provider of CII training courses in the Middle East.
Market-led initiatives 4
• Bahrain is reinforcing its role as a leading center for
takaful by fostering the development of industry associations
and professional organizations. For example, the
Bahrain-based International Takaful Association (ITA) is
currently being formed. It aims to play a leading role in
promoting the takaful industry, encouraging cooperation
among members of the association and educating the
public about the unique features and benefits of takaful.
Another example is the Bahrain-based Accounting and
Auditing Organization for Islamic Financial Institutions
(AAOIFI), which is responsible for developing standards
for the international Islamic finance industry, including
takaful.
• The Bahrain Insurance Association (BIA) plays an industrywide
role in developing the sector. For example, the
BIA facilitated the Insurance Rulebook public consultation
process by putting in place industry teams that
liaised with the BMA to finalize draft modules of the
Rulebook.
• In 2003, the BMA established the Insurance Market
Development Committee (IMDC) to undertake programs
to raise awareness about insurance in the market and
enhance the image of the Bahrain insurance industry at
an international level. In 2005, IMDC initiated its first
awareness campaign aimed at increasing insurance penetration
using educational messages through a specially
created cartoon character, “Taamina.”
QATAR
Legal framework 1
• Qatar enacted an insurance law in 1966 that has not
been amended since.
• The existing law lacks adequate legislation laying out
the rights and obligations of parties entering into insurance
contracts. An effort is underway to issue a new
insurance law in the near future.
• Overall, the insurance legal framework in Qatar has serious
limitations that are expected to be addressed by the
new insurance law.
Appendix A: Country Evaluation of Enablers (cont’d.)
113
2.4: Growth and Competitiveness of the Insurance Sector
Regulatory body 1
• The market is regulated by the Ministry of Economy.
• The regulator’s capabilities are undermined by the existing
legal framework.
Nature of competition 3
• There are nine companies serving the market, comprising
five local companies and four foreign insurers.
• The market is led by the private sector.
• The market is largely dominated by the few local insurers.
The two largest companies, Qatar Insurance and Qatar
General Insurance & Reinsurance, hold around 45 percent
and 20 percent of market premiums respectively.
• Foreign insurers represent a fraction of the marketplace
and are estimated to command less than 5 percent market
share.
• Overall, competition from foreign insurers is expected
to remain low and be limited to life insurance, given the
strong position of local firms and the relatively small
market size.
• In 2004, the government amended the Foreign Capital
Investment Law to allow foreign investment in the
insurance sector. However, it is not clear whether multinational
insurers will be attracted, given the size and
competitive characteristics of the local market.
Skills and training 1
• At present, there is a significant shortage of skills in the
marketplace, and only a few insurance training programs
are available.
Market-led initiatives 1
• At present, there is a lack of adequate market data and
no existing insurance industrywide entities or professional
associations. However, Qatar has indicated plans
to set up an association of insurance companies.
• The Qatar Financial Center is indirectly leading the effort
to foster the development of the insurance sector. For
example, as part of its efforts to establish itself as a
regional financial center, it has mandated a senior officer
with the role of raising awareness of the Middle East’s
improved regulatory environment and identifying higher
standards for the insurance industry.
OMAN
Legal framework 3
• Insurance companies in Oman are governed by the
insurance law issued by Royal decree in 1979. The law
has been updated in 1987, 1995, and 2002.
• In addition to the law, the sector is governed by regulations,
guidelines, and instruction papers issued by the
regulator. These cover corporate governance, code of
conduct, and reinsurance management strategies. The
regulations were significantly upgraded following the
collapse of a local insurance company in 2001.
• In 2006, the regulator announced a major update of the
insurance law and executive regulations. The draft law
and regulations have been sent to insurance companies
for their feedback prior to final approval.
• Overall, the legal framework in Oman has been upgraded
in recent years, and is undergoing an extensive
review to better reflect international best practices and
address regulatory gaps.
Regulatory bodies 2
• The sector is regulated by the Capital Markets Authority
(CMA).
• The CMA is in the process of implementing the IAIS
core principle of supervision.
Nature of competition 2
• There are 17 insurance companies serving the market,
comprising 9 local insurers and 8 foreign players.
• The market is led by the private sector.
• The market is largely dominated by local companies,
which collectively command 80 percent market share.
• There are three large local insurers in the market.
Dhofar Insurance is the largest insurer with 30 percent
market share, followed by ONIC and Oman United
Insurance, each holding around 15 percent market
share.
• Overall the market is characterized by overcapacity,
which has spurred price competition and negatively
affected sector profitability.
• Recently a few multinationals, which previously operated
in the market through agency agreements, entered
the market through joint ventures with local partners.
Appendix A: Country Evaluation of Enablers (cont’d.)
114
2.4: Growth and Competitiveness of the Insurance Sector
Skills and training 2
• There is a significant shortage of skills within the industry;
Omanization requirements mandated by the law
compound this situation.
• There are no specialized insurance institutes offering
training programs in Oman.
• In response, the CMA is playing a key role in identifying
training needs and organizing training programs to build
the skills of nationals by coordinating training workshops
with local and international academic and training institutes.
Market-led initiatives 2
• The CMA is leading the effort in setting and fostering
the adoption of sectorwide best practices through the
introduction of guideline papers covering, for example,
corporate governance, code of conduct, and reinsurance
strategies.
• Market data are available mainly through CMA’s publications.
• In late 2006, the Oman Insurance Association was
under formation.
KUWAIT
Legal framework 1
• The insurance law in Kuwait was enacted in 1961. In
2004, FSAP commented on the weaknesses of the
existing law and recommended, as a priority, the need
to enact a new law.
• Overall, the legal framework in Kuwait has significant
limitations. A new framework is required to address
existing limitations.
Regulatory body 1
• The sector is regulated by the Insurance Department
within the Ministry of Commerce and Industry.
• An informal review conducted in 2004 to assess the
observance of IAIS core principles indicated that the
existing regulations and supervision lacked key elements
of a modern supervisory regime. The existing
supervisory processes are mostly focused on administrative
work (such as licensing) in addition to ensuring
the insurers’ compliance with the regulations.
• Overall, the existing regulator’s capabilities are undermined
by the current legal framework.
Nature of competition 3
• The market is served by a total of 21 companies, of
which 11 are local companies and 10 are branches of
foreign insurers.
• he market is led by the private sector.
• The market is largely dominated by local companies,
which hold over 85 percent of market share, including
four large players that hold over 60 percent of the market.
Gulf Insurance Company holds the largest market
share of 25 percent.
• Competition from foreign insurers has been limited by
regulatory restrictions. However, this restriction was
relaxed in November 2003, and the sector has so far
attracted a number of foreign insurers.
Skills and training 1
• At present, there is a significant shortage of skills in the
marketplace, and only a few insurance training programs
are available.
Market-led initiatives 1
• At present, only limited market data are available on
insurance activities in the country.
• In 2006, the Insurance Companies Union was established,
with seven local companies as members.
LEBANON
Legal framework 1
• The insurance sector is governed by the Insurance Law
issued in 1968. The sector was substantially unregulated
until the issuance of an amendment law in 1999 following
the bankruptcy of three companies. However,
the law remains rudimentary, particularly in the area of
solvency requirements; these are fixed at 10 percent of
gross premiums. In addition, there is a lack of regulatory
guidelines for the sector.
• In 2004, the Ministry of Economy and Trade prepared
a draft insurance law and regulations that raise the
regulatory framework to international best practices
and conform to IAIS core principles. The draft law and
regulations are pending review and ratification by the
government.
Appendix A: Country Evaluation of Enablers (cont’d.)
115
2.4: Growth and Competitiveness of the Insurance Sector
• The National Council of Insurance Companies (NCIC) is
an advisory body entrusted with proposing sector regulations
and reviewing license applications. NCIC is
chaired by the Minister of Economy and Trade and consists
of 11 other members from the public and private
sectors.
• Overall, the existing legal framework in Lebanon is
underdeveloped. A new and improved draft law and regulations
have been prepared, taking into account international
best practices; however, it is not clear whether
or when they will be implemented.
Regulatory bodies 1
• The insurance sector is regulated by the Insurance
Control Commission (ICC), which was created in 1999
as an independent entity reporting directly to the
Minister of Economy and Trade.
• There is an overlap and duplication of regulatory activities
between the activities conducted by the ICC and
the Directorate of Insurance Affairs, which is a department
within the Ministry of Economy and Trade.
• The Insurance Arbitration Council, which is similar to a
small claims court, was set up to handle claims disputes
of less than US$50,000, which account for 90 percent
of total claims.
• Overall, the regulator has basic supervisory capabilities
that are mainly focused on ensuring compliance with
applicable regulations and close monitoring of distressed
companies.
Nature of competition 1
• The market is highly fragmented, with more than 60 privately
owned insurers.
• The majority of the insurers operating in the market are
incorporated in Lebanon. However, several foreign insurance
companies are present in the market through
strategic partnerships with local companies.
• The largest 10 insurance companies hold 65 percent
market share in terms of premiums. Only one large
company exists, MedGulf, with 27 percent market
share, followed by nine medium-sized companies each
holding between 3 to 5 percent market share.
Skills and training 1
• There is a lack of accredited local insurance training programs.
Nevertheless, there are a number of training
courses and workshops that are occasionally organized
by professional organizations.
Market-led initiatives 2
• Consumer awareness of insurance is among the highest
in the region, as evidenced by high insurance penetration
rates.
• There is a lack of reliable data to support analysis of
market performance.
• The Association of Lebanese Insurance Companies
(ACAL) is active in representing the interests of insurance
companies.
• The Lebanese Insurance Brokers Syndicate (LIBS) was
set up in 1993 to promote the brokerage profession,
raise the awareness of the role of brokers, and improve
professional standards.
• The Lebanese Actuarial Association (LAA) was set up in
2001. The LAA is a member of the International
Association of Actuaries (IAA).
JORDAN
Legal framework 3
• The insurance sector is governed by the Insurance
Regulatory Act of 1999.
• In 2004, the insurance regulator announced its intention
to draft new and more exhaustive legislation that
improves the consistency of judicial interpretation of
insurance contracts and better reflects existing market
practices.
• The law is complemented by a set of regulations and
instructions papers, issued by the regulator, covering a
wide range of topics—including financial and technical
issues, corporate governance, and market conduct—in
line with IAIS core principles.
• Overall, the legal framework is developed according to
international standards. Ongoing efforts continue to further
strengthen the legal framework and address existing
regulatory gaps.
Appendix A: Country Evaluation of Enablers (cont’d.)
116
2.4: Growth and Competitiveness of the Insurance Sector
Regulatory bodies 3
• The Insurance Commission (IC) was set up in 1999 as
an independent body to regulate and supervise the
insurance sector. Since its establishment, the IC has
played a leading role in driving and reshaping the sector.
• The IC set up an internal Settlement and Inquiries
department to handle inquiries and act as the first line in
handling disputes through mediation.
• Insurance disputes are handled by the Committee for
Resolving Insurance Disputes.
• Overall, although a relatively young regulator, the IC has
made significant progress in developing its capabilities
in line with the core principles of the IAIS.
Nature of competition 2
• There are 26 insurance companies in the local market;
all but one foreign life insurer are locally incorporated.
• No single insurer has more than 10 percent market
share, with the largest 10 companies holding around 60
percent of the market.
• The non–life insurance market, which represents 90 percent
of total market premiums, is dominated by local
insurers. The life market is dominated by one foreign
company, American Life, which has 53 percent market
share.
Skills and training 2
• The IC has announced a plan to foster the development
of local expertise through training programs, and has
been active in organizing training forums and seminars
in coordination with leading local, regional, and international
organizations.
Market-led initiatives 2
• IC annual reports contain detailed market data and
analysis, which facilitate a good understanding of the
market. In addition, the IC is active in conducting market
studies and surveys.
• The Jordanian Insurance Federation (JIF) is an active
organization representing the interests of insurance
companies.
• The IC launched an awareness campaign consisting of
three phases: introducing the role of the IC, raising
awareness of the benefits of insurance, and introducing
various insurance products to the public.
EGYPT
Legal framework 2
• The insurance sector is regulated by the Insurance
Supervisory and Control Act Number 10 issued in 1981,
Act Number 91 of 1995, and Act Number 156 of 1998.
• The Supreme Council of Insurance was established in
1981 with the objective of discussing and approving
sector-related policies. The Council is chaired by the
regulator and includes representatives from the public
sector, private sector, and academic institutions.
• Overall, the insurance legal framework in Egypt has
limitations. It is not clear whether there are plans to
upgrade the existing legal framework.
Regulatory bodies 2
• The Egyptian Insurance Supervisory Authority (EISA)
was set up in 1981 as an independent entity reporting
to the Ministry of Investment. EISA is entrusted with
regulating the insurance sector in addition to government
insurance funds, cooperative societies, and private
insurance funds.
• EISA established the Dispute Settlement Committee to
speed up the resolution of disputes outside of the court
system.
• Overall, starting from an initial focus on ensuring insurers’
compliance, EISA has started a number of efforts to
strengthen its risk-supervision capabilities in line with
international practices.
Nature of competition 1
• There are 20 insurance companies in the market.
• The market is dominated by the state-owned insurers
that command 75 percent of the non–life insurance market
and 60 percent of the life insurance market. In particular,
the state-owned Misr Insurance alone commands
a market share of 44 percent and 29 percent of
the non–life and life insurance markets, respectively.
• In addition to local companies, there are more than 600
private insurance funds (a form of pension fund) in the
market, accounting for 56 percent of life insurance premiums
and 30 percent of total insurance premiums.
• In recent years, foreign players focused exclusively on
life insurance have emerged; this is expected to lead to
the overall development of the market and a reduction
of the state’s dominance.
Appendix A: Country Evaluation of Enablers (cont’d.)
117
2.4: Growth and Competitiveness of the Insurance Sector
Skills and training 2
• The Insurance Studies Institute is a local organization
active in arranging and participating in insurance-related
forums.
• In June 2006, EISA announced an initiative to coordinate
the job requirements of the insurance industry with the
Ministry of Education and develop an educational program
that would meet the sector’s requirements.
• EISA has announced plans to upgrade the knowledge
and expertise of staff of the private insurance funds,
given their large stake in the insurance market.
Market-led initiatives 2
• EISA publishes high-level market statistics. In 2006,
EISA established a publications unit to publish insurance
guidelines, raise awareness, and increase the knowledge
of insurance professionals.
• The Insurance Federation of Egypt is active in supporting
the insurance sector in technical areas such as rating
and loss minimization, promoting the sector through
knowledge dissemination, and cooperating with EISA in
the development of insurance legislation.
Note: See References section in this chapter for sources of this appendix.
Appendix A: Country Evaluation of Enablers (cont’d.)