The GCC insurance industry is transitioning from being a protected industry into a globally competitive sector, said financial advisory firm Alpen Capital.
With governments realising the importance of efficient and stringent regulatory requirements to foster growth, the industry is seeing several reforms to combat challenges such as slowdown in profitability and premium growth resulting from intense competition, the firm said.
“Soaring valuations and limited market share are discouraging consolidation in the industry; however, stricter solvency and capital requirement regulations may push small players to consider the M&A route to sustain and grow in the industry,” said Mr Sanjay Vig, Managing Director of Alpen Capital. He made the comments in conjunction with the release of the firm’s “GCC Insurance Industry” report.
Among the trends in the GCC insurance market noted in the report are:
Regulatory changes aimed towards consolidation
The GCC governments have introduced several regulations aimed at consolidation. Some of the new regulations, particularly those pertaining to increased capital requirement and solvency, may become a limiting factor for the region’s smaller insurers. Such companies could consider the M&A route as a lucrative option to sustain and grow in scale. In addition to stringent minimum capital requirements, the regulators’ policy of restricting new entities to enter the region’s insurance industry is also likely to stimulate consolidation in the market in the future.
Emphasis on a risk-based pricing model
With regulatory reforms on the cards, the GCC insurance industry is required to adapt to a fast-evolving regulatory and governance landscape. The industry is undertaking measures to alter its regulations, with a view to emerge as a global financial centre to provide necessary support for innovative solutions as well as infrastructure and regulatory environment that meet international standards. This includes a move towards a risk-based environment in terms of capital, governance, and reporting. Insurance companies foresee broad changes over the next few years, with implications for underlying systems and processes.
Move towards digitisation and customisation
Insurance companies in the region are making investments to further improve the efficiency of their operations through enhanced data analytics, modelling capabilities, and other digital solutions.
Increasing focus on Enterprise Risk Management (ERM)
Having recognised the need for a more robust and systematic risk management process for the future, insurance companies are concentrating on ERM, which remains in its development phase in the region.