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

United States



France United Kingdom


GCC South Korea
Poland Sweden
Malyasia Taiwan
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
• Increased competition and profitability pressures

Source: A.T. Kearney analysis

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

FIGURE 3: Underdeveloped underwriting capabilities limit differentiation



ceded to reinsurers
Share of premiums

92 93



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

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

Cyril Garbois is a principal in the Dubai office and can be reached at
Alexander von Pock is a principal in the Dubai office.

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