The GCC insurance market is projected to grow at a CAGR of 10.9% from US$26.2 billion in 2016 to $44.0 billion in 2021, said Alpen Capital in a report. This projection is based on existing fundamentals of the industry and economic outlook despite challenges such as lower oil prices and reduced public and business spending.
The forecast growth rate indicates that the GCC insurance industry is stepping into the next phase of growth. Growth is fuelled by rising insurance awareness, economic revival and infrastructure developments and an expanding consumer base. Economic diversification efforts, mandatory health insurance and favourable demography also present a bright outlook for the sector.
The report said growth in GWP is likely to be moderate in 2017, as the industry players are adapting to the new regulations amidst increasing competition and recovering economic activity. Increased capitalisation requirement and actuarial pricing are improving the financial performance of insurers, and regulations are encouraging consolidation activity.
During the forecast period, the non-life market is expected to grow at a CAGR of 11.7% between 2016 and 2021, and reach $39.8 billion in 2021, having a 90.4% total market share, an increase of 2.8 percentage points from 2016. Life insurance GWP is projected to grow at an annual average rate of 5.3% to $4.2 billion.
Insurance penetration in the region is forecast to expand from 1.9% in 2016 to 2.5% in 2021. The expansion is driven by an improvement in penetration of non-life insurance to 2.3%, while that of life insurance is expected to remain low at 0.24%. Both penetration rates continue to remain below the international averages, presenting immense scope for growth.
Insurance density in the region is anticipated to increase at a CAGR of 8.4% to $729.6, of which life insurance density is projected at $69.7 and non-life density at $659.9.
Country forecast
Between 2016 and 2021, insurance markets in the UAE and Oman are both anticipated to grow at the fastest annualised average pace of 12.1% each, followed by Saudi Arabia at 10.5%.
The premium growth in Oman is likely to be driven largely by the introduction of mandatory health insurance and that in the UAE by new motor insurance pricing regime. Additionally, macro factors like population growth, infrastructure developments and revival of business activity will aid growth across the countries. While the market rankings of the countries are not expected to change through 2021, the share of the UAE and Oman are likely to expand and that of others may contract, said the report.
Challenges persist
Though the GCC insurance sector is on a sustainable growth path, it is not devoid of challenges. The fall in oil prices and the ensuing austerity measures have disrupted economic activity in the GCC and subsequently the underwriting business.
The GCC insurance sector is intensely competitive as well as concentrated, with the top-five insurers in each GCC country, barring Bahrain, accounting for over 60% of the market. Moreover, a less diversified product portfolio has led to price competition in motor and medical insurance lines and hence, high loss ratios.
In addition, the GCC insurers are challenged by a shortage of skilled workforce as well as high staffing cost and attrition rates. The inability to hire the candidates with requisite skills could affect the growth of the sector.
Insurance firms in the UAE, Qatar and Kuwait have high exposure to equity and real estate investments, making them prone to economic shocks. As a result, the investment income of many such insurers has declined in recent years.
The insurers are likely to face an increase in operating costs in the short term as they will have to make operational changes to comply with new regulations.
Each GCC country is making an attempt to improve regulations; however, there is a dire need for the regulations to be homogenous. To facilitate a level playing ground for insurers, GCC countries need to harmonise and modernise their insurance regulations by adopting best international practices.
The diplomatic rift between Qatar and other GCC states leading to severance of trade and economic ties is likely to have a negative impact on the insurance sector, said the report. M