Demographic changes along with the growing interest in shifting the burden of social welfare to the private sector in the GCC should encourage insurers to expand their offerings in end-of-service plans and savings schemes, said speakers at the 16th annual Gulf Insurance Forum in Dubai last week.
Government burdens in the GCC are shifting towards the private sector, as seen in the case of healthcare insurance, said Mr Fareed Lutfi, secretary general of the Gulf Insurance Federation (GIF) and Emirates Insurance Association (EIA). He said that pension assets under management in MENA are expected to exceed $1tn by 2020 from a start of $600b in 2012. “This points to the potential around us. All we require are solutions to be adequately designed, regulated and proactively launched around pension and retirement schemes.”
Having the pension and social security systems of the GCC launched in the 80s and 90s might be the reason why they trailed behind international standards, said Mr Lutfi. “Obviously it is time to adjust pensions systems, corporate savings and retirement schemes reform in the GCC before it is too late.”
UAE fosters pensions and retirement protection
The Insurance Authority (IA) is keen on the development of pension and retirement insurance coverage in the country and supports the development of insurance awareness for this type of protection, said Mr Ebrahim Obaid Al Zaabi, director general of the IA, delivering a speech on behalf of the Minister of Economy.
He noted that the total written premiums for pension and retirement insurance have reached AED117m ($32m), equivalent to around 1% of the life insurance branch.
He added that the IA is considering launching a project to establish innovation centres in all insurance companies to promote and develop the innovation ecosystem in the insurance sector.
Towards creating sustainable pension schemes
The sustainability of the GCC pension funds has an impact on economic growth, especially in light of the political, economic and investment challenges along with the actuarial deficit, said Mr Mohammed Mazhar Hamadeh, EIA board member and GM of Al Ain Ahlia Insurance, in a speech delivered on behalf of the chairman of the EIA.
He added that the successful development of pension systems will contribute to the development of the GCC financial markets. “The development of government-sponsored retirement programmes for residents is a real benefit (….) Establishing government-sponsored pension funds (would) provide more social and financial stability to workers, boost confidence and stability in the local economy and labour market.”
The GCC countries have a real chance to reform their pension systems to strengthen the financial basis of these systems and maintain their role as a financial safety net, added Mr Hamadeh.
Improving end-of-service benefits in the Arab region
Arab states have an unusually low proportion (around 3-4%) of persons aged above 65, compared with around 15% in North America and 20% in Europe. Accordingly, expenditure on old age pensions in the region is modest (2.6% of GDP) compared to other countries (6.8% for North America and 10.7% for Europe), said Mr Charles S. Shamieh, chairman of General Re.
He added that low effective coverage for old age pension in Arab states (at 31%) is because coverage is often limited to workers with regular contracts and due to the low female labour market participation rate. Another reason is that over 35% of workers in Arab states are migrants, remitting over US$11bn annually to home countries.
Mr Shamieh noted that the GCC countries have attractive replacement rates but very low minimum retirement ages.
In the same vein, Mr Yassir Al Baharna, vice President of FAIR, noted that GCC states must raise the retirement age. He said that the challenge is to create effective, affordable and sustainable pension systems while the insurance industry’s role is to find ways to plan proper saving plans. He also recommended addressing the major imbalances in the pension and social security systems in the GCC and consider involving expats in the future.
The 16th annual Gulf Insurance Forum was organised by EIA and GIF, with the theme “How Insurance Correlates with Social Welfare, End of Service Indemnity & Retirement.”. Around 200 delegates attended the annual gathering.
For more on the exciting discussions held at the Gulf Insurance Forum, please read our forthcoming November 2019 edition of the Middle East Insurance Review.