Jun 2019

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Kuwait: Reforms long overdue

Source: Middle East Insurance Review | Dec 2018

Kuwait’s insurance sector is crowded and highly fragmented, and the only way for the industry to forge ahead is with an overhaul of outdated regulations.
By Osama Noor
The insurance industry in Kuwait has been facing serious challenges on the regulatory and operational fronts, with outdated insurance law and the lack of an independent insurance regulatory body. The country’s insurance law dates back to 1961 (Law no.24/1961), probably the oldest in the GCC region. Over the years, several amendments and regulations were introduced to update the provisions of the law to respond to the sector’s needs. Despite this, the law remains outdated and there have been several moves to create a new insurance law that would take into account recent developments in the industry.
Almost three years ago, a draft law was prepared and sent to the relevant authorities to review and approve so that it would be passed by parliament, but the process has been deferred. This year, a supreme committee has been formed to look into finding the best means to develop the insurance industry. The committee is headed by representatives from the Ministry of Commerce and Industry (MCI) with partnership from all relevant sectors and governmental entities.
Aside from having a new law, the insurance industry has been calling for the creation of an independent regulatory body with the necessary power and capability to regulate the sector and help upgrade the industry. 
Despite these calls, the government seemingly is in the favour of shifting the tasks of supervision from the MCI (the current regulator) to the Capital Market Authority (CMA). The government’s decision not to create an independent insurance regulatory body is based on its tendency to rationalise spending instead of burdening the public budget with new expenses.
Overall, the lack of proper supervision has been weakening the sector and burdening providers mainly because unhealthy practices are overlooked and regulations, even those promulgated over the past five years, were not yet fully monitored to ensure implementation.
At the Kuwait Insurance Forum which took place last April, among the major challenges which the organising committee of the Forum highlighted were the fact that there are insurers which have not submitted their financial results to MCI for more than a year. 
Another drawback is that some insurers’ financial results are inaccurate and do not reflect their actual financial standing. 
Another disturbing phenomenon is that some insurers are setting up new operations with the same owners and type of activity. Moreover, there are new companies being established without conducting proper feasibility studies and some others have eroded their capitalisation, therefore resorting to price-cutting to generate income.
Overcrowded, fragmented marketplace
There are at least 42 providers in the marketplace, including 28 national, seven Arab and four foreign insurers. This is a large number for a market with premium income of around KWD435m ($1.4bn). 
Despite the overcrowded marketplace, the door is still wide open to new insurers. Last May, a new general insurer, Ahlia National Insurance Co (ANI), entered the arena with a capital of KWD5m. Prior to that, in November 2017, Oman’s National Life and General Insurance Co gained the approval to open a branch in the country. Moreover, there is news that more players will emerge in the coming period.
With this congestion, the market is severely fragmented. The leading five operators in 2017 controlled around 63% of the market GWP, while there are some insurers that write less than 1% of the total business.
Market GWP 2017-2016
Against this backdrop, consolidation is necessary – either by mergers or acquisitions. But there is a slim chance of this happening, especially with the loose regulatory intervention and the fact that the majority of players are tied to larger financial or commercial institutions, making it hard for mergers to take place.
Still, the biggest barrier to achieving consolidation is the lack of proper regulations which would increase capital requirements, enforce tight solvency obligations and encourage M&A. 
Another barrier comes with the old law, which does not specify the regulations needed to enforce sound solvency measures and stipulate actuarial reporting.
Market performance
The growth achieved in the Kuwaiti insurance market is by far the highest in the region where premiums jumped by 25% in 2017 reaching KWD435m. The bulk of the business is from general lines (including medical), which accounted for 87% of the overall pie.
Medical insurance is the largest line of business with premiums reaching around KWD169m, or 39% of the market GWP. This line has been seeing significant growth on the back of the implementation of compulsory healthcare insurance for expatriates around three years ago. Another big boost the market received two years ago was the implementation of health insurance for Kuwaiti retirees (Afya) – premiums from this segment is estimated at KWD82m in 2017.
Motor insurance is the second-largest line with premium income of around KWD92m, followed by fire with KWD31.4m. These lines have been facing tough challenges due to severe competition. The prices for motor policies are said to be one of the lowest in the region, and they do not commensurate with the size of compensations for motor business (both TPL and comprehensive). Paid claims for this line has reached around KWD77m, up from KWD65m in 2016. Attempts to raise the motor insurance prices are still pending.
For fire, paid claims in 2017 jumped to almost KWD53m from KWD24m in the preceding year. Compensations paid for fire claims have surpassed the generated premiums in the preceding year thereby registering one of the highest loss ratios, if not the highest, in the market. The country saw 4,882 fire incidents in 2017, an increase of 2% over the past year.
Paid claims by line of business in 2017
Life insurance
The progress of life business in Kuwait remains modest, whether in terms of size or growth rates. In 2017, life premiums reached KWD56.5m (or 13% of the market GWP), against KWD56.9m in the past year, showing almost flat growth. The majority of the life business (80%) comes from group life policies, with 85% written by national insurers.
Individual life has always been slow in gaining presence especially since it has mainly been written by one provider, MetLife (previously Alico), said Mr Satish Sharma, senior regional executive – India, GCC, Egypt, Lebanon and Jordan, at LIMRA/LOMA India, Europe, Middle East & Africa. He added that the group life business is being pursued by the property and casualty insurers. “Local insurers have, every now and then, tried to (tap into) the individual life insurance sales, but there had been no sustained effort to promote it.”
Mr Sharma, who has been in Kuwait’s insurance industry since 1976, said his agency – Alico Sharma Agency which he has headed since 1991 was the first to introduce bancassurance to the market in partnership with National Bank of Kuwait (NBK). “The relationship with NBK helped the company penetrate the local population, who never thought much of life insurance. With the introduction of this relationship, the Kuwaiti population got into the habit of structured monthly savings for a future cause like the child’s education, marriage or additional retirement benefits. NBK introduced innovative savings products with life insurance and also introduced products like travel insurance.”
It is worth mentioning that Kuwait is the only GCC state that has not set provisions for bancassurance – which was banned around six years ago. 
Challenges facing life insurance 
According to Mr Sharma, the main challenge facing life insurance in Kuwait is that the local population has been blessed with very generous post-retirement benefits and liberal benefits in the case of death of the breadwinner. “They don’t see any additional value in (getting) a life insurance policy.”
As for the expatriates, they realise that they are going to return to their home country eventually, so they are afraid that they would be unable to maintain their premiums and would end up losing heavily on the premium paid if they were to go back home, he said. This fear restricts them from buying policies with long-term commitments unless they know that the same company has a branch office in their own country and the policies can be transferred.
The only way insurers can grow their business in Kuwait is by making policies more portable to the owners’ home countries and build a product with features that allow the premiums to be flexible when the owner relocates back to his own country, he said. 
“Insurers need to create more awareness in the market and assure the owners that buying a life insurance policy is not a one-way street, which is easy to enter but an exit could cause them a financial loss. Furthermore, with the advent of technology, the buyer today has a lot of options available.”
Missing opportunities in family takaful 
There are 18 takaful operators in Kuwait, four of which are the shariah-compliant arms of big conventional insurers. Despite accounting for a big chunk of the market in terms of the number of players, takaful contributions account for only around 22% of the market GWP, or KWD92m in 2017.
GWP by line of business in 2017
General takaful contributions reached KWD83.4m, making up 87% of the gross contributions. Motor and medical were the largest lines with each controlling 40% and 22%, respectively, of the takaful gross contributions. 
Family takaful accounted for around 13% of the gross contributions in 2017. Group family takaful generated 97% of the family takaful operations. This signifies the great untapped potential in the personal lines and individual family takaful segment which companies can benefit from. On the other hand, it is also an indicator that providers are not doing enough to promote individual policies. Only two takaful providers – First and Hilal – sold individual policies in the past year, while the rest offered group family takaful.
The fragmentation in the takaful sector is more acute than that of its conventional counterpart. The top-five operators control more than 64% of gross contributions, with the remaining 36% divided among the other 13 operators.
Gross contributions of  top five takaful companies in 2017
Takaful vs conventional in 2017
Action needed 
Presently, Kuwait’s insurance industry ranks last among its GCC peers in terms of the size of its market and, more importantly, the level of regulation.
The government’s bold economic projects and reforms offer the insurance industry ample opportunities to thrive. The country’s long-term development plan, the Kuwait Vision 2035, launched last year, aims at transforming Kuwait into a world-class financial and commercial centre with the private sector playing a central role along with the support of a viable public sector. 
Such an ambitious plan would not be attainable without having a healthy insurance sector. But in order to achieve this, a strong and effective regulatory regime is required for the country to grow the sector sustainably. M 
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