GCC Insurance Market

A. T. Kearney sees room for growth in maturing markets

Dubai, September 7, 2010 — After five years of tremendous growth and the evolution of regulation, now is the time of transition for the GCC (Gulf Cooperation Council) insurance market.  Before the global downturn, reported annual growth of premiums of over 20 percent, were not unheard of and the market had impetus. But like many industries, GCC insurers need to undergo a transformation to succeed in a more competitive market post global crisis according to A.T. Kearney, one of the world’s leading management consulting firms.

While the global insurance market has shrunk slightly, the market in the GCC grew at a rapid pace of six percent in non life insurance and nine percent in life insurance in 2009 and is expected to continue to grow. Insurance penetration in the GCC is two times lower than the BRIC countries (Brazil, Russia, India and China) and five times lower than the average of OECD countries (Organisation for Economic Cooperation and Development). To reach the same market penetration as BRIC over the next decade, the GCC market will have to grow at an annual rate of 15 percent, which according to A.T. Kearney is achievable.

The GCC insurance market remains highly fragmented and new players are still entering the market. In the United Arab Emirates, the largest GCC insurance market, the top five firms hold only 30 percent market share, compared to the banking sector where the five biggest companies represent 55 percent of the market.

“In order for the market in the GCC to continue to develop at a rapid pace, insurance companies will have to overcome some of the obvious challenges,” said Cyril Garbois, principal, A.T. Kearney Dubai.  There are four main areas of differentiation which insurers should focus on, according to Garbois. He lists those as; automation of underwriting, improved claims management, sales effectiveness and asset and asset-liability management.

According to A.T. Kearney GCC insurers have invested very little in automation processes, a step that if implemented could lead to more sophisticated pricing, increased revenues, improved productivity and profits. At the same time the large number of premiums transferred to reinsurers clearly illustrates room for improvement. GCC insurers today still cede more than 50 percent of their premiums to reinsurers.

“Automating underwriting processes and introducing more sophisticated pricing tools could significantly increase profitability of the sector,” commented Alexander von Pock, principal, A.T. Kearney Dubai. “But seizing these opportunities will demand considerable investments in technology, human resources, marketing and sales.”

According to A.T. Kearney the necessary investments to enhance insurers’ capabilities and the need to diversify their risk portfolio – both from a geographic and a product point of view – will drive the consolidation of the sector.

“In the medium term, consolidation will strengthen the GCC insurance sector. Customer service and ability to deliver the right product at the right price will also improve”, commented Mr. Garbois.