Abu-Ghazaleh: The Future of Insurance in the Gulf is Promising and Markets Growing at High Rate
10 May 2007ALWAQT – Mr. Talal Abu-Ghazaleh, Chairman of the Talal Abu-Ghazaleh Organization (TAGorg), said that insurance entered into the Middle East region somewhat late in comparison with other services, and that it is limited in scope and undeveloped.
Abu-Ghazaleh clarified at the insurance forum that ended its activities yesterday, that the overall income from insurance rates in the Middle East and North Africa reached 9 billion dollars in 2005, representing 26% of international insurance, in comparison with 47 billion dollars for the countries of Eastern and mid-Europe, and 17.1 trillion dollars for the 15 countries of the European Union.
He pointed out that “insurance markets in the region are witnessing an accelerated growth rate that has surpassed 10% in 2004 and 2005, as the regional markets grew at a compounded annual average of 5.12%.”
Abu-Ghazaleh added that “it is expected further growth will take place, due to numerous factors such as the increase in insurance applications in numerous Gulf states as a result of overall economic growth of the infrastructure, the progress in the levels of commerce with other countries in the region and worldwide, the imposition by some nations recently for mandatory insurance in areas like vehicle and health insurance which led to an increase in the demand for insurance coverages.”
He continued stating: “The expected growth in insurance application is also due to the movement of governments towards privatization of pension programs which will lead to an increase in applications for life insurance, and the overall growth of financial and financing services that are based on collaterals like house and car loans which lead to an increase in applying for insurance that minimizes risks. Further, the growth will also be due to the demographic situation, as the increase of the percentage of youth will lead to an overall rise in insurance, even as young people become adults.”
Mr. Abu-Ghazaleh added that despite this rapid growth, the market still has the capability and large potential for future expansion, and that this is apparent from the levels of insurance that are measured by the overall income from individual rates, which is still quite low in the region when comparing it to Eastern Europe for example. This gap is even larger when conducting a comparison with Western Europe.
In 2005, the numbers in question for the Middle East and North Africa were between 10 to 440 dollars, while in Eastern Europe it was 1000 dollars, between 1400-5500 in Western Europe and from 2400-2900 dollars in North America.
As for life insurance, Mr. Abu-Ghazaleh said that it is coming very late to the region for various reasons such as: the idea that a life insurance application is inconsistent with the teachings of the Islamic religion, as some societies view it as being affiliated with potentially forbidden aspects such as gambling and usury.
The shallow awareness related to life insurance and its benefits in some communities of the region led to low numbers of applications. This is affected by cultural factors like dependency on large families and traditional dependency on the benefits of social services from the state.
He pointed out to the opportunity to unleash the hidden potential in the Gulf insurance markets, even though this requires that those states have a conscious political vision that is consistent with the fundamental changes occurring to the global economy. One of the most important elements of this change is the transformation in the pattern of global services economy, from the old model of being an accompaniment of governmental services to the public, to the new model that is led by the private sector and practices its activities in an atmosphere of a competitive market. The insurance sector is no different in this regards.
Abu-Ghazaleh considered the political and organizational reforms to be a major contributor to this sector, and this includes setting up modern organizational frameworks that allows private insurance companies to operate in relative freedom.
At the same time, proper regulations are being implemented to qualify companies. This in turn will ensure the protection of those carrying insurance documents, and other people who have the right to financial reimbursements.
It should be noted that there are large differences in the validity of organizational frameworks throughout the region, and so there is no single model that can be applied across all the region’s nations.
It is necessary to have properly prepared organizing bodies that have the resources to guarantee the availability of proper supervisory roles. These bodies must be independent from any providers of insurance services, and be granted the necessary legal powers.
Ensuring a Competitive Environment
As for the competitive environment in the region, Mr. Abu-Ghazaleh stated that it is a vital issue in the process of growing a sound insurance industry, and this environment must have its growth guaranteed in the future. He elaborated that the negotiations on liberalizing insurance services at the present time are continuing within the Doha negotiations under the auspices of the World Trade Organization (WTO).
As for the legal framework for these negotiations, it is represented in the General Agreement on Trade in Services (GATS), that he said was a tool to ensure gradual liberalization on non-discriminatory bases and reap the fruit of a financial sector that is more efficient, stable, and varied. Yet countries of the region haven’t abided by the agreement entirely. For example, in Bahrain, the government complied with liberalizing the insurance sector for the operations of the private companies’ category only.
Oman basically complied with an open system for direct insurance and re-insurance, yet it still imposes limitations related to a 70% maximum of foreign ownership on services of insurance mediation and other related services.
In Qatar, there was a commitment to preserve the five foreign insurance companies only that existed in the year 1995. In Saudi Arabia, a limit of 60% is imposed on foreign ownership. Kuwait and the UAE however are among the few WTO members that did not provide any commitments to liberalize the insurance sector.
Abu-Ghazaleh called on the Gulf states to abide by the commitments in regards to trade liberalization in the GATS negotiations, because this makes national policies clearer as well as the expectation of developments in this regard. There is the probability that providing commitments in the liberalization of financial services will help in the future to define and formulate comprehensive and organizational reforms.
The commitments resulting from the GATS are a sign of stability in policies and an encouraging sign for potential foreign investors. By providing additional guarantees for foreign investors, countries can ensure the possession of an attractive advantage when trying to attract foreign investment capital. Finally, the desire to provide commitments in multilateral negotiations may encourage other countries to offer similar commitments in a well-intentioned atmosphere in order to fulfill mutual benefits.
Follow us
