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MARKET OVERVIEW QATAR
August, 2013
 

What are the recent trends in the insurance sector within Qatar and the wider MENA region?

Mahdi AttyaCountry Manager – SEF, AXA Insurance (Gulf) BSC

Attya: In the last few years the Qatar and GCC insurance markets have grown at an incredible pace. With insurance penetration to GDP still lower than one percent, the potential remains high and we predict very strong growth in the years to come, driven by upcoming international events and public spending programmes.

AXA’s leading position in Qatar has allowed us to benefit from this acceleration. Over the last two years however, we have noticed that market rates in Qatar have significantly dropped and reached very low levels which cannot be sustainable in the future. This is mainly due to increased competition from new comers from one side and discounts offered from insurers to retain existing business on the other. The long-term implications are that the insurers with the most cost efficient business model will resist much better than their less-efficient competitors.

The above constitutes a challenge/ additional barrier for new insurance companies to enter the market and acquire new business in order to grow their portfolio profitably. It is therefore very important to have risk management teams and implement a technical underwriting strategy based on segmentation to ensure growth is not favoured at the cost of risk.
We have also noticed increased customer awareness towards insurance products. Plus, they are shopping around more, looking for better value for money from companies with a large product range and a quality of service that matches their expectations. This implies that more and more, companies with excellent quality of service and a great product offering will differentiate in the market and be able to gain greater market share.
Al-Emadi: The insurance sector is expected to show strong double digit growth over the next four years. Qatar in particular is expected to show faster growth among the GCC countries, exceeding a Compound Annual Growth Rate of 25 percent over the same period. The reason is increased insurance awareness, a young population, and economic diversification with a particular emphasis on the infrastructure sector.

Ahmed Al-EmadiCEO, Al Koot Insurance & Reinsurance Company


Other drivers include increased product offerings within conventional insurance, growth in areas such as Takaful and Bancassurance, and increased government action. The latter includes more reforms in regulations governing the insurance industry, the standardisation of rules and regulations and the forming of regulatory bodies. All stakeholders including insurance companies, insured parties and intermediaries, stand to gain.

Takaful, a Sharia-compliant conventional cooperative insurance, is steadily gaining popularity in the GCC, including Qatar, and is leading to increased insurance penetration. However, it has its own challenges. More players are emerging in the Takaful market, leading to aggressive pricing strategies. This sector has good growth potential, provided it strengthens its regulatory requirements. Islamic insurance needs to address the issue of skilled manpower, reinsurance capacity and capital issues in order to grow strongly.

Expanding compulsory insurance lines such as mandatory health cover and motor insurance will be an enormous benefit to the market. The higher retention of premiums in the local and/or regional market will lead to strong players taking over the weaker insurance companies, as the capital required should be sufficiently high. There is also an increased strengthening of underwriting capabilities in terms of skills, resources such as capital, emphasis on training or the opening of institutions offering specialised courses in insurance.

What are the emerging developments in the risk management sector, and how have aspects such as security and natural disasters changed the industry’s outlook to risk assessment as a result? Attya: Today, insurance awareness in the region has increased. Customers and companies understand insurance products more fully and tend to ask only for what they need. In this environment and today’s competitive market, strict risk management and underwriting guidelines will become the backbone of the insurance business.

At AXA, we continue to apply the same underwriting philosophy and approach. Until now our risk assessment and acceptance strategy have been successful. We will follow the same long-term strategy never to favour growth at the cost of risk. This will ensure we continue to grow in a profitable way. Our own underwriting philosophy varies from one line of business to another. It mainly relies on risk management and customer segmentation, along with regular audits.

Al-Emadi: Risk Management is evolving over time. Improvements in enterprise risk management (ERM) and effective capital management have contributed to the success and strength of the industry. Even though the insurance industry is facing issues such as natural disasters in markets which are not considered as a weak spot, it is able to manage the risk by various measures –pricing, capacity decisions, adoption of aggregate covers, and CAT models, tightening reserves and strict adherence to Solvency II.

Based on the assessment of the risk under consideration, there are options to tailor new kinds of policies to control risks such as climate and weather events, human health, crop yields and animal diseases.

Examples are the Caribbean Catastrophe Risk Insurance Facility, Weather Insurance in Malawi, and Index-based Insurance to Promote Climate Resilience in Bolivia.

What are the issues regarding sector regulation in Qatar and the wider Middle East – and in what ways is the region addressing, or not addressing, regulatory aspects? Attya: The regulators in the region are proactive and making huge efforts to regulate and protect the customer. These include Qatar and QFC. QFC is a strong and dynamic regulator and has managed to do in just a few years what other mature markets have taken decades to do.

I think QFC also offers an adequate level of protection and we look forward to the steps being taken towards a single regulated environment across the State. I am sure QFC will continue its great job and AXA is happy to offer them its international experience whenever they require it.

Al-Emadi: There are certain areas which need to be addressed. First is the establishment of insurance regulators and strengthening of insurance regulatory frameworks in line with international standards – compared to now where there are two regulators in Qatar with differing rules. There is a need to set up a minimum capital requirement in compliance with the latest solvency requirements, and to strengthen reporting requirements in line with international standards such as those of the IFRS. There is also a need to improve adequate enforcement of claims provisions and premium levels for MTPL insurance.

Other areas to be addressed are early intervention and enforcement actions at industry and insurer levels, improved corporate governance and ensuring consumer protection mechanisms.
 

 
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