Insurance in the GCC

Room for growth in a maturing market

The insurance industry in Gulf Cooperation Council countries

has weathered the global economic crisis, and the potential for
future growth remains intact. However, GCC insurers cannot
afford to rest on their laurels; they will have to undergo a trans-
formation to succeed in a maturing, more competitive market.
Success will require differentiation to take advantage of signifi-
cant changes in four areas — automation, claims management,
distribution and asset management.

While the global insurance market
shrank slightly in 2009, the market in
the Gulf Cooperation Council (GCC)
grew at a rapid pace—6 percent in
non-life and 9 percent in life. These
numbers are down from before the
crisis but, given the conditions, still
represent a positive scenario. Similarly,
profitability remains steady, at least for
the GCC’s major insurers. Improving
financial conditions have helped, but
the swift reactions of management
teams when the crisis hit in 2008 have
also played a large role. The share of
premiums ceded to reinsurers, while
still high, has decreased, improving
profit margins.
Insurance penetration in the GCC
is two times lower than the BRIC coun-
tries (Brazil, Russia, India and China),
and five times lower than the average
of Organisation for Economic Co-
operation and Development (OECD)
countries (see figure 1 on the following
page). To reach the same market pene-
tration as BRIC over the next decade—
a reasonable target—the GCC market The GCC
will have to grow at an annual rate of
15 to 17 percent. insurance industry
In short, there are opportunities
for mid-term growth in the GCC offers opportunity
insurance sector.
for growth. Success
Four Ways to Differentiate
Demand for insurance will rise as will come by tack-
GDP and population growth generate
new infrastructure projects. Inter- ling four areas —
national players are bringing more
expertise to the region. Government automation, claims
regulation is also a factor, as the intro-
duction of compulsory health and auto
management,
insurance has increased demand. The
GCC is also mirroring trends in more
distribution and
mature economies in which insurance
shifts from public welfare to the private
asset management.
sector. As citizens become more aware
of the benefits of insurance, the cul-
tural barriers that hampered market
development are diminishing, and life
insurance and Takaful (Islamic insur-
ance) are growing (see figure 2 on the
following page).
FIGURE 1: Low penetration means strong growth potential for GCC insurers

GDP Average Average

(trillions of US$) of emerging of OECD
economies countries
3% 7%

14,000
United States

Japan

4,000
Germany

France United Kingdom

Italy
2,000

Canada
GCC South Korea
Poland Sweden
Belgium
Malyasia Taiwan
0
0% 5% 10% 15% 20%
Insurance penetration
Sources: Central banks, Swiss Re, A.T. Kearney analysis
Note: OECD stands for Organisation for Economic Co-operation and Development

FIGURE 2: Life insurance and Takaful: from niche segment to growth engine

Segment Market environment Overall attractiveness

• Rising customer awareness

Life • Evolving supply with product innovations
• Improving sales force capabilities

• Rising customer awareness

Takaful • Increasing maturity of existing players
• Fewer opportunities for ceding capabilities

• Compulsory for expats in UAE, Saudi Arabia and soon Bahrain

Health • Profitability pressure
• Regulation uncertainty

• Largest non-life segment

Motor • Compulsory in most GCC countries
• Profitability pressure from competition and claims

• New development projects in GCC

Commercial and
• Recent cancellations and project delays
construction
• Increased competition and profitability pressures

Source: A.T. Kearney analysis

 Despite these prospects, there are
perils. Many insurance companies are
experiencing slower growth and more
intense competition, while new regu-
lations will inevitably lead to increased
capital requirements and higher com-
pliance costs. To meet these challenges
and maintain profitable growth, insur-
ers will have to focus on certain areas
of expertise.
There are four main areas of
differentiation: automation of under-
writing; claims management; sales
effectiveness; and asset management
and asset-liability management (ALM).
Automation of underwriting. GCC
insurers have invested very little in
automating processes, a step that leads
to more sophisticated pricing, increased
revenues, improved productivity and
profits. At the same time, the large
number of premiums transferred to
reinsurers clearly illustrates room for
improvement in terms of underwriting
capabilities (see figure 3). GCC insurers
Training and incen-
tive programs will go
a long way toward
improving a sales
team’s productivity.
still cede more than 50 percent of their
premiums to reinsurers. The volume of
premiums ceded by Takaful insurers is
low but is mainly due to the market’s
limited re-Takaful capabilities.1 Auto-
mating underwriting processes and
introducing more sophisticated pric-
ing tools could significantly increase
profitability.
Claims management. Loss ratios
in segments such as automobile and
health insurance are deteriorating as
they become more mature and com-
petitive.2 As claims represent 70 to 90
percent of total costs, regional insurers
should consider addressing them
through an active claims management
policy that includes fraud management
and network management. Setting up
efficient partnerships with third-party
providers (such as auto body shops)
could improve customer service while
reducing the cost of claims.
Sales effectiveness. Channel mix
differs from one market to the next,

FIGURE 3: Underdeveloped underwriting capabilities limit differentiation

Kept
Ceded

41

60
ceded to reinsurers
Share of premiums

87
92 93

59

40

13
8 7
Conventional Takaful A B C
GCC average Three global leaders
Note: Results are for 2008 and are based on gross premium income Sources: Analyst reports, A.T. Kearney analysis

1
Re-Takaful is the reinsuring of Takaful insurance.
2
The loss ratio is the amount an insurer pays out in claims compared with the amount it collects in premiums.
yet each holds the opportunity to
improve sales effectiveness. We suggest
a more segmented approach to mar-
keting and sales, with a go-to-market
strategy differentiated by client seg-
ment. More cooperation among vari-
ous channels is crucial, especially in
terms of identifying which segment
needs should be addressed by which
channel. Training and incentive pro-
grams will go a long way toward
improving a sales team’s productivity.
Asset management. Asset man-
agement, and more specifically asset-
liability management, is an area with
improvement potential. GCC insurers’
asset allocations have been—and often
still are—focused on regional equity
markets, which exposes them to higher
risk. The need for asset and geographic
diversification is urgent, as is adapting
and developing new ALM capabilities.
While ALM could initially be out-
sourced to experienced third-party
providers, GCC insurers should focus
on developing an internal ALM func-
tion because of the differentiation
advantage it can provide, and because
it strengthens governance and increases
transparency.
Consolidation Looms
Seizing these opportunities will demand
significant investments in technology,
human resources, marketing and sales—
expensive steps that likely will lead
to industry consolidation. The GCC
insurance market remains highly frag-
mented, and new players are still enter-
ing the market—30 Takaful insurers
opened in the past two years. In the
United Arab Emirates, the largest
GCC insurance market, the top five
firms hold only 30 percent market
share. Compare that to the UAE’s
banking sector, in which the five biggest
companies represent 55 percent of the
market, or France’s more mature insur-
ance market, where the top five hold
60 percent market share. Fragmenta-
tion limits economies of scale, and
product and geographic diversification.
With large amounts of capital
needed to diversify and consolidate, the
biggest insurance players in the GCC
will be best equipped to lead the way.
There is no time to waste to bring
operations up to international stan-
dards and gain a foothold for long-term
success in an ever-changing market.

Authors
Cyril Garbois is a principal in the Dubai office and can be reached at cyril.garbois@atkearney.com.
Alexander von Pock is a principal in the Dubai office.

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