The winds of change are blowing through Qatar’s insurance market – often felt and sometimes not so visible. There are signs of regulatory reforms and industry collaboration to raise premium retention, even as companies are calling for more to be done to improve market discipline.
The cranes are hovering over Doha’s skyline, reflecting the looming changes in Qatar’s insurance market. The Qatar Rail is under construction, as is a range of other infrastructure projects leading up to the FIFA World Cup 2022. The value is worth some US$100 billion until 2022 according to MEED, and the projects are requiring an array of insurance services.
But the cranes dotting Doha also point to the risks besides the opportunities facing the insurance market.
Retention improving, but still low
Retention rates, although showing an increase from 35% in 2006 to around 50% in 2011, are generally still low on average. “Given Qatar’s insurance market is focussed heavily on the energy and construction sectors, insurers must manage high-value and volatile risks. This leads to low retention levels and a dependence on international reinsurance markets for support, which can lead to significant levels of counterparty credit risk and potentially higher costs driven by international market forces,” said A.M. Best in a report.
Some market observers argue that the type of accounts available in Qatar, by their nature, do not allow local insurers to have a bigger retention, usually because of the need for specialised insurance covers. However, a recent initiative undertaken by the industry has shown that higher retention levels are possible if players have the necessary gumption.
Last year, Qatar Rail – which is building the country’s integrated railway network – awarded the single-project tunneling and rail construction contract to a six-member national insurers consortium led by Qatar Insurance Company (QIC), the market’s largest insurer.
“QIC has had a long standing history of insuring mega projects and we were happy to share this knowledge and experience with other national companies,” Mr P E Alexander, CEO of QIC Qatar told Middle East Insurance Review. “The rail project was the first such project which brought us together as an industry to retain as much premium as possible within the market. We feel that sharing knowledge will surely help us develop as we learn from each other’s experience.”
The idea took root a couple of years ago, when a major project insurance was substantially placed outside without providing the opportunity for the local insurers to participate to their optimum capacity, he recalled. “That prompted us to think about how we could maximise retention within the country. The Government of Qatar has been supportive of this initiative and concurred that the pool of experience within the country needs to be acknowledged and supported.”
The insurers consortium led by QIC managed to successfully retain 80% of premiums within the country while sharing knowledge and support from long-standing international partners. However, there is still more to be done in this area. Mr Alexander said: “I would like to see companies retaining more risks and relying less on reinsurance. But this will happen gradually as one develops the right risk appetite and confidence to expose one’s capital. QIC has gradually increased its retention, to about 77% today.”
The growth in personal lines, particularly in health, is also expected to push retention upwards as retention levels in this area are relatively high.
Little room for more players
Qatar’s insurance market can be summed up as overcrowded, with 26 insurance companies generating $1.5 billion in premium income in 2013 and serving a population of roughly two million.
Mr Majed Akel, General Manager of General Takaful, sees competition as the main obstacle facing all players in the industry. “The Qatari market is a ‘premium-driven market’, and our biggest challenge is to convert this into a more valuable insurance coverage market and educate our clientele not to stagnate at premium levels but rather, focus on wider coverage of insurance and the importance of the coverage they purchase for the premiums they pay.”
Mr Ali Ibrahim Al Abdulghani, CEO of Qatar Islamic Insurance Company, said that in view of falling rates and rising operating and acquisition costs, players are struggling to hold on to technical profits. “With this perspective, we feel allowing new insurance/ takaful companies would add to the struggle of all players, including the new entrants, with no real benefit to the economy.
“Very often, the low insurance penetration rate is presented as a case for market potential and thus a case for room to allow more players to tap the said potential. We believe it’s a flawed premise as we have seen that this has not worked and the penetration rate is still extremely low despite the number of players having reached 26. We believe the number is sufficient; all that is missing is a serious concerted effort at industry level to increase insurance awareness among the masses. We need an insurance association to serve as a platform for this.”
The role of intermediaries
Mr Ali Ibrahim blames the rising competition on the increase in number of brokers, “which has pulled the rates down and pushed acquisition costs up with more and more business being placed through brokers that takaful operators were previously writing directly”.
Mr Alexander hopes that the Qatar Central Bank (QCB), which has taken on the role of the primary regulator for the sector, will give attention to capital adequacy and financial stability of insurers as well as intermediaries. “The qualifications and capabilities of intermediaries should also be looked into. Every intermediary is claiming to be a professional advisor while focusing only on premium reduction. Barring a few, actual risk review and assessment are not considerations that feature in their review process.”
He added that though the market is facing unhealthy competition, it still does not call for a corrective measure such as consolidation. “All companies, both national and foreign, have a significant role to play and each company is growing at its own pace.”
Behind-the-scenes reforms
One of the most anticipated changes in the market are those expected to come from the regulator, especially since the QCB Law of 2012 was passed, providing the QCB with the objective of ensuring stability in the banking and financial services sector.
Building on the Law, three regulators – the QCB, the QFC Regulatory Authority and the Qatar Financial Markets Authority – launched the Strategic Plan for Financial Sector Regulation in 2013. Since then, it has been mostly quiet on the insurance reform front. Mr Akel, however, has witnessed “tremendous changes in financial reporting, auditing and other areas. We are about to see the regulation of the brokers and the decrees to be adhered to”.
For Mr Ali Ibrahim, there has been “a high level of uncertainty in the operating environment due to the looming regulatory changes that would mostly affect the still-loosely regulated takaful operators outside QFC”. While welcoming the Strategic Plan, he said “the real impact on the sector shall only be seen once the much-anticipated new insurance regulatory framework by QCB is implemented”.
The introduction of the QCB Law is “very suitable to Qatar’s needs”, said Mr Akshay Randeva, Director of Strategic Development with the Qatar Financial Centre (QFC) Authority. “The Law envisages a more integrated regulatory system in Qatar and, accordingly, the QCB as the primary regulator is taking the necessary steps. This is a natural progression that had to happen to have regulatory policy joined at the hips and avoid the possibility of situations with overlaps in some places and gaps in other places.”
The Strategic Plan, he added, “has given a lot of clarity on how the regulatory system will evolve. We haven’t yet seen a large number of changes on the ground, but it’s like a duck on the water. It may look calm but underneath, the legs are paddling furiously. It’s the same with the regulatory system in Qatar currently –there’s a lot of work happening, plenty of which may not be evident, but I am sure we will see results in due time”.
Moving quietly but surely
Qatar’s insurance landscape is moving with the times, although unlike Doha’s skyline, it seems that many changes – like regulatory developments and collaborative efforts to retain premiums – are taking place quietly behind the scenes. Watch this space, as Qatar has showed time and again that its size and pace of development will prove to be little hindrances to its progress.