Small market, big potential

Source: Middle East Insurance Review | Mar 2014

Qatar’s insurance market has been under-performing compared to its exponential economic growth. But that could change with a new regulated environment, under the guidance of a single regulatory body and its strategic plan for the industry.

By Wong Mei-Hwen

Qatar has been bracing itself for a new regulatory environment, with its Central Bank slowly but surely affirming its role as the primary regulatory body for the country’s financial sector.

The winds of change began in December 2012 with the passing of Law number 13 of 2012, hailed by the industry as heralding a new regulated era. “The lack of a regulator was deeply felt,” said Mr Majed Akel, General Manager of General Takaful Company. “With the Qatar Central Bank’s (QCB’s) support and guidelines, we could see a regulated insurance market in Qatar.”

Prior to Qatar’s transformation into a single-regulator environment in early 2013, “SEIB, like other Qatar Financial Centre (QFC)-regulated companies, was subject to strict rules that acted as a deterrent to growth within a competitive landscape that permitted non-QFC companies to enjoy controls of a smoother nature,” said Mr Farid Chedid, CEO of SEIB Insurance & Reinsurance.

He added although it will take time for the single regulatory body to set “equal standards” for the market, “it should calculate the impact on those firms that already adhere to the strong rules of the QFC.”

Regulatory impetus

Regulatory development was given fresh impetus in December 2013 with the launch of the Strategic Plan for Financial Sector Regulation by the QCB, the QFC Regulatory Authority and the Qatar Financial Markets Authority (QFMA).

The Plan emphasises the role of the QCB as the primary regulator of the insurance sector in the State, said Mr Peter Hodgins, Partner, MENA Insurance Practice with Clyde & Co. “This is a welcome development as, historically, there has been relatively limited oversight of the sector outside of the QFC and it is expected that detailed regulations of the sector will be issued by the QCB.”

The regulator could assist the market in several ways, said Mr Chedid. For example, it could complete all the measures needed to be the single reference to insurance regulation, encourage firms to innovate by developing policies that promote competition, impose mandatory insurance for specific risks, and provide the necessary requirements for firms to cooperate with the authorities on issues related to market development.

New wave of growth?

The regulatory changes are expected to usher in a new wave of growth into Qatar’s insurance market. Qatar is ranked as the world’s fastest-growing economy, yet overall GDP growth has outpaced the expansion in the insurance industry, said a report by Alpen Capital.

Insurance penetration in Qatar was only 0.63% in 2012, one of the lowest in the Middle East, while density was the second highest after UAE’s, at US$696, Swiss Re sigma figures show. The favourable showing is due to Qatar’s sizeable non-life insurance sector, overshadowing its life market which only evolved to a perceptible size since 2009, Alpen Capital added.

Industry players are upbeat about non-life prospects, based on upcoming developments worth billions of dollars. “Big contracts are in the pipeline. We are very hopeful that things will kick off in the second half of this year on the engineering side, especially with Qatar Rail and all the other major infrastructure projects gearing up,” Mr Bassam Hussein, CEO of Doha Insurance Company was quoted as saying in Gulf Times. “It is an exciting time; all around Doha, we see major construction activities.”

Exciting times ahead

In personal lines, life remains largely under-developed, with the main market for conventional life products coming from the large composition of expatriates, noted Alpen Capital. In 2012, life premiums amounted to $58 million, dwarfed by non-life premiums of $1.2 billion – although both sectors recorded the same growth rate, sigma figures have shown.

The compulsory National Health Insurance Scheme, rolled out since July 2013, is expected to push the health sector to take greater prominence and at the very least, raise the awareness of insurance. However, given the structure of the scheme, it remains to be seen whether it will become a new cash cow for private insurers.

Qatar’s insurance market is still way below its full potential, but if regulations take off as planned, there could be more exciting times ahead.

Strategic Plan – a legal perspective

By Mr Peter Hodgins, Partner, MENA Insurance Practice, Clyde & Co

On 8 December 2013, the Qatar Central bank (QCB), the Qatar Financial Centre (QFC) Regulatory Authority and the Qatar Financial Markets Authority (QFMA) jointly launched the “Strategic Plan for Financial Sector Regulation” (the Strategic Plan).

The Strategic Plan is an integral part of the Qatar National Vision 2030 (QNV 2030) and sets out the basis on which the financial sector will help to achieve the aims of the Qatari government for QNV 2030. The Strategic Plan builds upon two recently enacted laws, Law number 13 of 2012 – the Law of the Qatar Central Bank and the Regulation of Financial Institutions (the QCB Law) and Law number 8 of 2012 – the Law of the Qatar Financial Market Authority, and reflects the drive to harmonise the regulatory regimes of the State and the QFC.

The QCB Law provides that the QCB shall have the objective of ensuring stability in the banking and financial services sector and therefore provides the QCB with authority to establish and implement policies in relation to the regulation, control and supervision of all financial services in State and the QFC. It is expected that there will be even greater cooperation between the QCB, the QFC Regulatory Authority and the QFMA in the future.

Greater harmonisation

From the perspective of the insurance sector, the Strategic Plan is noteworthy. Consistent with the QCB law, it emphasises the role of the QCB as the primary regulator of the insurance sector in the State. This is a welcome development as, historically, there has been relatively limited oversight of the sector outside of the QFC, and it is expected that detailed regulations of the sector will be issued by the QCB. These regulations will likely result in greater harmonisation of the regulatory regime for insurers so as to reduce the distinction between the QFC Regulatory Authority rulebook requirements and the State regulations.

The Strategic Plan also emphasises that a new department at the QCB will be established with responsibility for the supervision of insurers and insurance service providers. The focus on compliance with international standards (specifically, the standards set by the International Association of Insurance Supervisors) will result in increased emphasis on governance, prudential standards and group supervision as well as focussing with other goals in respect of consumer protection.

Challenges

Inevitably, there will be challenges associated with the implementation of the Strategic Plan in the insurance sector.

Insurers established outside of the QFC have not previously been exposed to risk-based regulations. Considerable time and effort will be required by the QCB in order to educate the market as to any requirements introduced in respect of governance and prudential requirements. These requirements will likely require fundamental changes to the operations of Qatari insurers and insurance service providers. These entities will need to invest time and effort in familiarising themselves with the new regulations and ensuring that their internal systems and controls are developed and adapted to enable them to comply with the new regulations.

In addition, there will be greater focus on preventing unlicensed entities operating in Qatar. Such an aim, whilst entirely consistent with strengthening regulation and integral to the concept of creating a “level playing field”, will be challenging to implement in practice. The life insurance sector, for example, is characterised by expatriate consumers seeking to purchase products from providers in their home territory. This can create an environment where there are significant issues in relation to mis-selling, particularly if the protections available in that home territory do not extend to sales to expatriates. The detection of such breaches of the regulations by any regulator is difficult, especially as the sale of products via the internet becomes more common place.

The implementation of the Strategic Plan squarely places the burden on the QCB to ensure that there is effective supervision of the insurance sector. This will require the QCB to invest in suitably qualified staff who have a genuine understanding of the insurance sector. Whether there is sufficient human capital in Qatar at the present time, or if the QCB will need to recruit staff from other jurisdictions for these purposes, remains to be seen. It is to be hoped that these changes will create greater opportunities for Qatari nationals, both with the QCB and in the private sector, as the implementing regulations are introduced.

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