arab world competitiveness report 2007. part 8/11

CHAPTER 2.4

Promoting the Growth andCompetitiveness of theInsurance Sector in the Arab WorldPETER VAYANOS, Booz Allen Hamilton, Beirut

MAHER HAMMOUD, Booz Allen Hamilton, Beirut

Insurance is one of the cornerstones of the modern-dayfinancial services sector. In addition to its traditional roleof managing risk, the insurance sector promotes long-term savings and serves as a conduit to channel fundsfrom policyholders to investment opportunities, includingmortgage lending.As such, a thriving insurance sector isnot only evidence of an efficient financial services sector,but it is also a key enabler of a healthy economy.

Insurance in the Middle East and North Africa(MENA) region has traditionally lagged in growth anddevelopment relative to other elements of the region’sfinancial services sector.This is evidenced by the lowlevel of demand as measured by penetration and densitylevels, undercapitalized supply, and generally underdevel-oped legal and regulatory environments.

This paper outlines a set of policy recommendationsto be adopted to promote the growth and competitive-ness of the insurance sector in the MENA region.Webegin by reviewing and assessing the existing state of the insurance sector across the region.Thereafter, weexamine the key enablers that underpin a successfulinsurance sector before recommending policy changesto promote the growth and competitiveness of theMENA insurance sector.

Review and assessmentThe locally admitted insurance market of the MENAregion is small and underdeveloped.According to theSwiss Re Sigma report and other publicly availableinformation, the total gross premium income of theMENA region amounted to around US$9 billion in2005.This compares with US$47 billion for the coun-tries of Middle and Eastern Europe, and US$1,177 bil-lion for the initial 15 countries of the European Union(EU). In terms of share of the world market, the MENAregion accounted for roughly 0.26 percent in 2005.Figure 1 compares the size of the insurance markets ofmajor regions of the world.

A measure of the development of an insurance sec-tor is insurance penetration, defined as gross premiumincome (GPI) as a percentage of gross domestic product(GDP).When comparing the MENA region with otherregions of the world, this measure reveals the extent towhich the MENA market is underdeveloped. In 2005,the level of insurance penetration in the MENA regionwas approximately 1 percent, compared with an averageof 6 to 9 percent in industrialized countries and 2.5 to 4percent in emerging markets. Figure 2 compares GPI asa percentage of GDP for major regions of the world.

To better understand the insurance sector of theMENA region, we assessed the existing state of the mar-ket from a demand-and-supply perspective.This assess-ment revealed a number of findings that are unique tothe region.Although there are differences betweencountries, these findings are present to a greater or lesserdegree in each of the countries of the region.

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North America Western Europe EU15 Central and EasternEurope

Middle East andNorth Africa

1,222 1,2411,177

479

Figure 1: Gross premium income by region, 2005 (US$ billion)

Source: Swiss Re, 2006b; Bahrain Monetary Agency, 2006j.

North America EU15 Western Europe Central and EasternEurope

Middle East andNorth Africa

8.97%8.64% 8.44%

2.66%

1.05%

Figure 2: Gross premium income as a percentage of GDP (2005)

Source: Swiss Re, 2006b; Bahrain Monetary Agency, 2006j.

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The market is growing and has significant potential forfuture growthThe markets of the MENA region, albeit small, areundergoing rapid growth. Many countries in the regionexperienced double-digit growth between 2004 and2005. Furthermore, this growth has not been limited tothe most recent years: between 2000 and 2005, theinsurance market in the MENA region grew at a com-pounded annual growth rate of 12.5 percent. Figure 3illustrates the size of the market by country for 2004and 2005, and its growth rates between 2000 and 2005.

Further growth is expected during the foreseeablefuture, fueled by a combination of factors, including:

• Macroeconomic growth. Above-average levels ofmacroeconomic growth will spur the demand forinsurance. In particular, many countries in theregion, especially the energy-rich countries of theGulf, are witnessing large investments in infrastruc-ture and growing trade internationally and acrossthe region. Both of these factors will create strongdemand for insurance coverage.

• Emergence of compulsory insurance classes.The recent introduction of compulsory insuranceclasses, principally automotive and health insurance,in many countries of the region will drive thedemand for insurance on the retail side and make these the largest classes of insurance in the

marketplace. By way of example, we estimate thatin Saudi Arabia, by 2009, the combined health andautomotive market could represent up to 75 percentof the total insurance market of around US$4 billion.

• Privatization and restructuring of governmentpensions. Government privatization programs willserve as a catalyst for the development of the insur-ance sector, since entities that were formerly self-insured will now require insurance coverage. In thefuture, the expected restructuring of state pensionfunds and the reduced role of the state in providingpensions will also lead to rising demand for lifeinsurance and long-term savings products.

• Growth of financial services. The growth inasset-based financing, such as housing and autoloans, will lead to an increase in the demand forinsurance products to mitigate the risks associatedwith the underlying assets.

From a slightly different perspective, the emergence of the capital markets has provided analternative source of investments for insurance companies.Although the emergence of the capitalmarkets will not in itself drive demand for insurance,the maturing of these markets will provide oppor-tunities for insurance companies to diversify thesources of their investment income.

0.0 0.5 1.0 1.5 2.0

Algeria

Tunisia

Morocco

Egypt

Jordan

Lebanon

Bahrain

Oman

Qatar*

Kuwait

United Arab Emirates

Saudi Arabia

Figure 3: Gross premium income of MENA countries (US$ billions)

Source: Swiss Re, 2006b; Booz Allen Hamilton analysis.

* Qatar CAGR (compound annual growth rate) is for 2003–05, as 2000 data are not available.

CAGR 2000–05 (percent)

11.1

19.6

18.1

16.2

12.4

12.6

7.1

16.0

5.5

8.9

13.1

17.0

� 2005 � 2004

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• Demographics of the region. The population ofthe MENA region is generally very young.As thepopulation matures, the demand for insuranceproducts will increase.

Despite the recent rapid growth of insurance in theregion, the market still has significant potential for futuregrowth.As mentioned above, the level of insurance pen-etration (GPI/GDP) is very low in the region. Figure 4provides a comparison of the countries of the MENAregion with selected other countries and reveals the sector’s future growth potential.

Another indicator of the potential for futuregrowth is the level of insurance density, measured interms of GPI per capita. In 2005, the insurance densityin the Middle East ranged from US$10 to US$440; thiscompares with a range of US$40 to US$1,000 inEastern Europe, US$1,400 to US$5,500 in WesternEurope, and US$2,400 to US$2,900 in North America.Figure 5 presents a comparison of insurance density forcountries in the MENA region against selected othercountries.

Life insurance is significantly underdevelopedLife insurance has historically had limited take-up in theregion, resulting in an average level of insurance pene-tration for life insurance in 2005 of around 0.3 percent

versus 1.4 percent for general and health insurance.Webelieve the reasons for this low level of penetration are:

• Shari’a sensitivity. The purchase of life insuranceproducts is strongly influenced by perceptions ofwhether or not the products are compliant withshari’a. Similar to other conventional financial prod-ucts, life insurance is perceived to have prohibitedelements of uncertainty (gharar), gambling (maiser),and interest income (riba). Uncertainty stems fromthe notion that the outcome of the insurance con-tract is not known at the time it is created andvaries according to the time of death of the insured.Gambling stems from the notion that the insuredmay gain large amounts (that is, profit) from theinsurance coverage if certain events take place.Interest income stems from the notion that the premiums are invested in non-shari’a-compliant,interest-bearing instruments.

• Lack of awareness of life insurance products.A limited awareness of life insurance and its benefitsamong the citizens of selected countries in theregion has limited the take-up of such products.This is partly driven by cultural factors, such as thereliance on the extended family network, and partlyby structural factors, such as the provision of gener-ous benefits by the state in the event of death ordisability.

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15

0

5

10

Saudi Arabia


Lebanon

Jordan

United Kingdom

Germany

United States

SpainMalaysia

KuwaitQatarOman Egypt

Morocco

Tunisia

Algeria

Bahrain

Figure 4: Insurance penetration by country (2005)


Premium value (US$ billions)

Small (< 1 billion) Medium (1–10 billion) Large (10–1,000 billion)

Insu

ranc

e pe

netr

atio

n (p

erce

nt)

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• Absence of life insurance in related financialservices. Until recently, there were few relatedfinancial products (such as mortgage lending) thatstipulated the purchase of life insurance to settleoutstanding obligations in the event of the death ordisability of the borrower.

Emergence of takaful as an alternative to conventionalinsuranceIn response to shari’a sensitivity, takaful—a form ofinsurance that complies with the principles of shari’a—emerged as an alternative to conventional insurance.While there is limited information as to the size andpenetration of the takaful market, interviews with marketparticipants and the increase in the number of Islamicinsurance companies point to rising demand for takaful.

Fragmented supply base with a large number of smallcompetitors, limited presence of foreign insurersFrom a supply perspective, many markets of the MENAregion are characterized by a large number of smallplayers when measured by capital employed. Selectedcountries (including Egypt, Jordan, and Lebanon) haverecently introduced legislation to raise the minimumlevel of capital. However, average levels remain very lowwhen compared with international standards.

There is also a limited presence of foreign insurersin the market in terms of market share. Furthermore,many of the international insurers have a narrow focus,particularly on the life side.

Intermediary distribution channels remain informalThe role of intermediaries in developing markets isimportant since they not only increase the distributionof products, but also serve as a means to educate cus-tomers about products.

Across the region, the level of penetration of bro-kers and agents varies. In the cases of Lebanon andSaudi Arabia, brokers are very active, especially on thecorporate side. In other markets, intermediaries are lessactive and the business is driven through sales forces tiedto companies.

The informal conditions under which brokers andagents operate, however, are common across the region.There are a number of reasons for these conditions,including:

• Absence of regulatory frameworks to governintermediaries. Until recently most countries inthe region did not have a regulatory framework togovern the activities of agents and brokers.This inturn undermines the credibility of companies andindividuals acting in this capacity.

• Lack of qualifications, accreditations, andlicensing requirements. The absence of thesestandards undermines the development of interme-diaries since there is no way for customers to inde-pendently verify the quality of the agent or brokerwith whom they are dealing.

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15,0000 30,000 45,000

1,500

3,000

4,500


Lebanon Kuwait

United Kingdom

Germany

United States

Spain

Jordan

Malaysia

Saudi Arabia

Qatar

OmanEgypt

Morocco

Tunisia

Algeria

Bahrain

Figure 5: Insurance density by country (2005)


Insu

ranc

e de

nsity

(US$

)

GDP per capita

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Bancassurance, or the sale of insurance productsthrough a bank, is a similarly informal channel. Specificchallenges facing bancassurance include ensuring adequatetraining and incentive schemes for bank staff to sellinsurance products, implementing systems to facilitatethe processing of policies, addressing regulatory issuessuch as which regulator (banking or insurance) shouldoversee bancassurance activities, and determining whetherconventional banks are able to distribute takaful products.

In summary, our assessment has revealed that themarket is underdeveloped on both the demand and sup-ply sides.That said, there is significant potential forfuture growth. Capitalizing on this potential will requireregulators and policymakers to address gaps in theunderlying enablers of growth.

Evaluation of the enablers of growthThe development of an insurance market is a functionof the underlying enablers of growth, and the existingstate of the market is a reflection of the maturity ofthese enablers.We believe that there are five types ofenablers that shape an insurance market (see Table 1).

In order to develop policy recommendations toaddress the underlying enablers (and consequently pro-mote the growth and development of the market), it isnecessary to evaluate the maturity of each of theseenablers. Since the state of development of the enablersdiffers by country, it is necessary to perform this evalua-tion at the country level.Accordingly, we have reviewedthese enablers for nine of the major countries withinthe MENA region.The results of this evaluation arepresented in Appendix A and summarized below.

Legal frameworkAt the legal and regulatory levels, there is wide variabilityin the maturity of the frameworks that govern regionalinsurance markets. Until recently, almost all MENAcountries had outdated insurance laws and regulations;some countries had no insurance law at all. Over the pastfew years, many countries have initiated serious effortsto upgrade their regulatory frameworks, as evidenced bythe enactment of new laws.They have strengthened theindependence and supervisory capabilities of regulatoryentities in line with the core principles of the InternationalAssociation of Insurance Supervisors (IAIS); they havealso issued sector guidance notes covering, for example,governance, market conduct, and risk management.

That said, there still remains a wide variation in thecomprehensiveness and application of legal frameworksacross the region.At one end of the spectrum, Bahrainhas a well-established and applied legal framework forinsurance activities. In April 2005, Bahrain issued theInsurance Rulebook, which sets out elaborate licensing andoperational regulations for both conventional and takafulinsurance.A recent report by the Financial SectorAssessment Program (FSAP), a joint venture between

the International Monetary Fund and the World Bank,acknowledged the comprehensiveness of this regulatoryframework.1

At the other end of the spectrum are countries suchas Kuwait, Qatar, and the United Arab Emirates (UAE),whose regulations are limited. For example, in the UnitedArab Emirates, regulations do not require companies toadhere to solvency regulations but rather only meetminimum capital requirements. In the case of Qatar, thelaw lacks adequate legislation that lays out the rights andobligations of parties entering into insurance contracts.

The existence of a robust and comprehensive legalframework is one of the core underpinnings of a healthyinsurance market. In addition to building the confidenceof local market participants, an established legal frame-work serves to attract international players and, at aregional level, avoid potential regulatory arbitrage.

Regulatory bodiesRegulatory bodies operate in tandem with legal frameworks. Not surprisingly, the level of maturity ofthese bodies is a reflection of the underlying laws andregulations.

All the countries surveyed in this study have aninsurance regulator, although the form of the regulatorvaries. In some countries, the insurance sector is super-vised by an existing financial services regulator, such asthe central bank or capital markets authority. In othercountries, the sector is supervised by a government ministry.

Our assessment did reveal the existence of morethan one regulator with overlapping responsibilities inselected countries, which leads to inconsistent applicationof the regulations, potential confusion in the marketplace,and unnecessary bureaucracy for market participants. Forexample, in Saudi Arabia there is an overlap in the areaof health insurance between the Council of CooperativeHealth Insurance (CCHI) and the Saudi Arabian MonetaryAgency (SAMA).This is in addition to existing overlapsbetween SAMA, the Capital Markets Authority (CMA),and the Ministry of Commerce. Similarly, in Lebanonthere appears to be duplication between the activities ofthe Insurance Control Commission and the Directorateof Insurance Affairs of the Ministry of Economy.

The comprehensiveness and effectiveness of regula-tory processes, especially supervisory processes, variesconsiderably across the region.As mentioned above, thisis a function of the maturity of the underlying legal andregulatory frameworks. Countries such as Bahrain andJordan, which have well-developed regulatory frameworks,are either applying or developing risk-based supervisionprocesses that comply with the standards of internationalbodies such as International Association of InsuranceSupervisers (IAIS). Other countries, such as Qatar, Kuwait,and the United Arab Emirates, have less-developedsupervisory processes that are more administrative inorientation.

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The effectiveness of a legal and regulatory frame-work is directly correlated to the existence of regulatorybodies to enforce the law.Within the MENA region,there is a need to upgrade the capabilities of selectedregulators to ensure comprehensive and consistentenforcement of regulations.

The nature of competitionThe insurance markets of the Middle East are generallycompetitive.This can be measured by the extent towhich foreign insurers are present in the market, thelevel of state involvement through government-ownedfirms, and the extent to which the market is fragmented.

Over the past few years, countries in the region havelifted restrictions and/or moratoriums on the operationsof foreign insurers.As a result, the markets of thesecountries are now open to foreign insurance companies,which are present to various degrees throughout the

region. However, their share of the local market tends tobe small; this circumstance can be traced to previousrestrictions on market entry, regulations that requireinsurers to invest a large proportion of premiums inlocal markets, and the fact that the individual markets ofthe region may not have been attractive given theirsmall size.With the lifting of restrictions and expectedmarket growth, the level of activity of foreign insurers isexpected to grow significantly.

Additionally, foreign insurers in many cases havefocused exclusively on the life business.This can beascribed to the fact that local insurers have been lessactive in this area due to less-developed capabilities andlimited demand from nationals owing to shari’a implica-tions. International insurers also benefit from the naturalaffinity of expatriates who are more inclined to purchaselife insurance.

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Legal framework

Table 1: Insurance market enablers

ENABLER ROLE SUPPORTING EVIDENCE

• Protect the rights of policyholders, regulatethe activities of market participants, andensure the financial health of the sector

• Existence of an insurance law appropriate toexisting market conditions

• Existence of insurance regulations/implementing guidelines

Regulatory bodies • Oversee and supervise the sector andensure the enforcement of laws and regulations

• Existence of an insurance regulator

• Evidence of regulatory processes beingapplied

• Evidence of an insurance judicial authority

Skills and training • Assess the risks to be insured

• Provide customers with the appropriateproducts/services

• Ensure the availability and development of local skills

• Availability of skilled professionals

• Availability of training programs, traininginstitutes, and accreditations

Market-led initiatives • Drive self-regulation and the development of the industry at the country and regionallevels

• Existence and application of insurance standards

• Availability of insurance statistics and market data

• Existence of professional associations

• Existence of industry-level programs to create awareness

• Existence of regional forums

Nature of competition • Drives innovation, competitive pricing, andthe adoption of best practices

• Evidence of foreign insurers and the extentto which foreign ownership is allowed

• Extent of private- sector involvement—market share of private vs. public insurers

• Extent to which large, well-capitalized insurers exist

Source: Booz Allen Hamilton analysis.

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The insurance sector in the Middle East is charac-terized by a high degree of private-sector involvement.There are notable exceptions, such as Egypt and, untilrecently, Saudi Arabia. In the case of Egypt, the state-owned insurers command around 75 percent of thenon–life insurance market and 60 percent of the lifeinsurance market. However, there are moves afoot toconsolidate the activities of the state insurers with aview to ultimately privatizing the resulting entities.

Although there is significant involvement of theprivate sector in the insurance industry, this is offset tosome extent by a high degree of market fragmentation.In particular, many markets of the MENA region arecharacterized by a large number of small players whenmeasured by capital employed.

There are a number of ramifications of the currentlow levels of capitalization.At an overall industry level,this results either in insurance being placed directly out-side of the region through international brokers or inthe practice of fronting, whereby local insurers retain asmall portion of the risk and transfer the remaining riskto their international reinsurance partners.As a conse-quence of the lack of capacity, risk-management andactuarial capabilities in the region remain underdeveloped,resulting in a disproportionate reliance on internationalreinsurers to assess the risks and provide appropriatepricing guidelines.

At an individual company level, low levels of capi-talization limit the resources available to build therequired capabilities to serve customers efficiently andeffectively.

Encouraging the formation of large (but not domi-nant), well-capitalized insurers is vital to the developmentof the regional insurance sector, since these companiescan invest in the capabilities needed to promote growth.In addition, creating the conditions to attract foreigninsurers is important to ensure the transfer of skills andbest practices to the region.

Skills and trainingAcross the region, the insurance sector is characterizedby a shortage of skills—particularly product development,underwriting, and actuarial skills.The absence of skillsclearly affects the development of the sector, specificallyin the areas of product innovation, risk assessment, andpricing.This situation is exacerbated by nationalizationrequirements in some countries, which extend the timerequired to train and equip staff for key positions, andthe availability of highly attractive positions in otherareas of the financial services sector.

The generally limited number of training institutesand the absence of international accreditations hampersthe development of skills.Again, there is wide variabilityacross the region in terms of training facilities. Bahrainstands out by virtue of the Bahrain Institute of Bankingand Finance (BIBF), which offers 20 insurance programs—including courses in underwriting, risk management,

and information technology that meet the requirementsof four internationally recognized professional designations.

The shortage of skills and limited training facilitiesare perhaps the greatest impediments to the developmentof the insurance sector in the region.

Market-led initiativesMarket-led initiatives refer to initiatives at an industrylevel that seek to develop the sector as a whole.Thisincludes market standards and the availability of statisticsto enable insurers to improve product development andpricing, the existence of industry associations to fostercooperation between industry players, and the existenceof industry programs to create awareness among thepopulation of the concept and benefits of insurance.

Although these initiatives occur at the countrylevel, our assessment also covered efforts to improvecoordination among individual regulators and players atthe pan-regional level.

Across the region, there is a lack of reliable marketdata. In the markets that do collect data, the data areneither comprehensive nor sufficiently granular to pro-vide insurers with the necessary insights to improveproduct development and pricing.

Almost all of the region’s markets either have aninsurance industry association or are in the process offorming such an association.These associations play animportant role in promoting the sector by facilitatingcooperation between insurance companies and profes-sionals.

On the awareness level, there are limited programsin place in the countries of the MENA region. Bahrainand Jordan appear to be the only countries with formalprograms in place to promote such awareness. In thecase of Bahrain, the Insurance Market DevelopmentCommittee (IMDC) initiated its first awareness campaignin 2005, which was aimed at increasing insurance pene-tration using educational messages through a speciallycreated cartoon character,“Taamina.” In Jordan, theInsurance Commission (IC) has launched an awarenesscampaign consisting of three phases: introducing the roleof the IC, raising awareness of the benefits of insurance,and introducing various insurance products to the public.

Similarly, there are limited, if any, programs aimed atraising the profile of the insurance industry and attractinguniversity/college graduates and other professionals.

On a regional level, pan-regional cooperation hasmanifested itself in numerous forums, associations, andstandard-setting organizations. Each of these bodies aimsto foster the development of the regional insurance sec-tor and promote regulatory coordination.

At the regulatory level, the Arab InsuranceRegulatory Commission (AIRC) was established inSeptember 2006 with the participation of 12 countries.ARIC’s objectives are to provide a forum for Arabinsurance commissioners to share expertise and trainingprograms, develop regulatory and supervisory standards,

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and coordinate their activities with those of internationalorganizations such as the IAIS.

At the sector-development level, the General ArabInsurance Federation (GAIF) plays a regional role, withannual recommendations geared toward the developmentof the insurance markets through initiatives led by thepublic and private sectors.

Finally, regional insurance forums play a positiverole by using panels of experts to address issues andemerging trends facing the markets. Key regional forumsinclude the annual Middle East Insurance Forum and,on a Gulf Cooperation Council (GCC) level, the GulfInsurance Forum, which is organized by the UAE-basedCoordination Commission for Gulf Insurance andReinsurance Companies.

However, while there is no shortage of regionalbodies, there is limited evidence of coordination amongpan-regional bodies, leading to overlapping efforts anddiverging priorities.

In summary, our evaluation revealed that there are anumber of gaps to be addressed at the enabler level. Inparticular, there is a need to ensure a consistent level ofmaturity for legal and regulatory frameworks and theconcomitant regulatory bodies, as well as to address theshortage of skills in the marketplace.

Policy recommendations to promote growth and competitivenessPolicymakers in the MENA region have the opportunityto play a central role in unlocking the growth potentialof their respective insurance markets.We have identifieda set of recommendations to be adopted by policymakersor regulators that builds on our evaluation of growthenablers and takes into account best practices from othermarkets.The recommendations will not apply in theirentirety to all the countries of the region, given the var-ied state of development of individual markets.Therefore,we encourage policymakers to select the recommenda-tions that are most applicable to their respective markets.

We have grouped our recommendations within thesame framework adopted for the evaluation of growthenablers.

Legal frameworkEnacting a modern legal framework and designating aspecial judicial authority to handle insurance-relatedcases are key requirements to enable market developmentby protecting the rights of policyholders and regulatingthe activities of market participants.

As noted earlier, there is wide variability in thematurity of legal environments across the region, and anumber of countries have underdeveloped legal frame-works. Insurance regulators in such countries shouldseek to upgrade their legal frameworks and ensure thatthey reflect international best practices, such as the prin-ciples of the IAIS. In addition, policymakers should seek

to establish a specialized insurance judicial authority toresolve insurance disputes in countries where such anauthority does not exist.

A modern legal framework should regulate allinsurance market participants, including insurance com-panies, intermediaries, and professionals.The regulationscovering insurance companies should address a numberof areas, including, among others, licensing, productapproval, financial reporting, investments, reinsurance,and solvency margins. In addition, and in line with IAISprinciples, the regulations should stipulate the minimuminternal capabilities of market players, such as governanceand risk management.The regulations covering inter-mediaries and insurance professionals should entail, at aminimum, qualifications criteria, licensing requirements,and a code of conduct.

In countries where there is a rapidly growingdemand for takaful insurance, the legal framework shouldalso promulgate adequate legislation to address this formof insurance.There are three main challenges in takafulregulation: capital requirements, corporate governance,and consumer protection from misinterpretation.

Although the underlying risk is the same, the riskprofiles of conventional and takaful insurers are differentbecause the latter has higher operational risk. It isuncertain whether this leads to increased capital require-ments for takaful insurance, especially in the Al-Wakalahstructure that is predominant in the Middle East.Asound governance system, including risk managementand internal control processes, is crucial for meetingthese capital requirements. Furthermore, the regulationhas to ensure that the shari’a compliance claim of atakaful insurer is valid.To do so, the operations of theshari’a board have to be scrutinized by the regulator.

There are two different approaches to the regulationof takaful insurance.While some countries have establisheda special takaful law, others have modified their existingregulatory frameworks and adjusted them to the specificneeds of Islamic insurance.Whether or not there needsto be a separate takaful regulation should depend on thedefinition of the term insurance in the conventional reg-ulation. Separate takaful-specific regulation is notrequired where takaful can be interpreted as a subset ofconventional insurance.

In implementing a legal framework, countries inthe region should start from a compliance-based legalframework that involves setting prescriptive rules andguidelines to be complied with by the market.This is amodel that is commonly adopted by newly regulatedand underdeveloped markets. In such a model, forexample, insurance products are subject to form and rate approval by the regulator prior to being sold in themarketplace.

In time, and as the market matures, the regulatoryframework can move toward a principle-based modelthat allows regulated entities more flexibility in meetingregulatory requirements. In contrast to the example

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above, this model would allow insurance products to besold in the marketplace immediately after the regulatoryfiling has been completed. Regulators then would havethe authority to intervene at their discretion.

A critical component of the legal framework is theestablishment of minimum capital requirements to givereasonable assurance that policyholders’ interests will beprotected, and capital adequacy requirements (a solvencymargin), to ensure that insurers are able to absorb signif-icant unforeseen losses.2

In setting minimum capital requirements, regulatorsshould consider an appropriate amount based on thecharacteristics of their markets and the insurance classesbeing regulated. In the case of solvency margins, regula-tors are encouraged to adopt risk-sensitive approaches.At present, there are two regimes that govern solvencyrequirements: Solvency I and Solvency II.

Countries in the region can pursue a two-stageplan to adopt risk-sensitive solvency margin require-ments. Initially, regulators should adopt an easy-to-applysolvency model (for example, Solvency I) and use collected market data to fine-tune the risk factorsapplied to premiums or claims by insurance class. Overtime, regulators can apply more risk-sensitive formulas(for example, risk-based capital) after developing therequisite internal capabilities (in terms of data availability,advanced staff skills in risk assessment, and understandingof key risks in the marketplace) and after fostering thedevelopment of insurers’ capabilities (especially in termsof risk measurement).

In addition to the above, MENA countries thathave not established a dedicated insurance judicialauthority should do so.This would require a competentjudicial authority staffed with experienced insurancestaff and legal professionals who have proficient knowledgeand expertise in the field of insurance legislation.

The chosen judicial authority can be in the form of a special court or committee that deals with insur-ance disputes and litigations. Such a court should beindependent from the regulatory body.The court shouldaim to build public confidence through efficiency inhandling cases, consistency in interpreting the legislation,independence, and fairness.

Regulatory bodiesAn empowered insurance regulator with well-developedcapabilities enables market development by ensuringappropriate market oversight and enforcement of enactedlaws and regulations.

In parallel with upgrading legal frameworks, policy-makers in the region should seek to empower theirinsurance regulatory bodies.The empowerment of theregulatory body should be constituted in the legalframework, which should address the body’s legal form,ensure its independence, vest appropriate authorities, andclarify any overlapping responsibilities with other gov-ernmental entities.

In addition, regulators should seek to enhance theircapabilities, especially in the area of supervision (includingstaff and IT). In upgrading supervisory capabilities, regu-lators should take into account the guidelines set out aspart of the IAIS core principles.

In general, there are two approaches to supervision:an audit-based (or data-focused) model, under whichthe regulator focuses on data collection and ensuringcompliance with the rules and requirements; and a risk-based model, under which the regulator focuses on earlyidentification of risk, systematic prioritization of risk toallocate supervisory resources to the highest areas ofrisk, and timely and proportional intervention to helpreduce insolvencies.

In practice, most international regulatory regimesfall within these two approaches, with developed marketsgravitating toward the risk-based model.The choice ofthe appropriate supervisory approach should be alignedwith the development stage of the regulatory body andthe legal framework, insurers’ risk-management capabili-ties, the qualifications of insurance professionals, and thestage of development of the overall financial market.

From an implementation perspective, MENA coun-tries should devise and pursue a medium-term plan toapply a risk-based supervision approach.The adoptionof such an approach consists of building advanced competencies in five integrated areas, which collectivelyprovide the regulator with a risk-based view of thehighest-risk insurers and the areas of greatest concernwithin such insurers.These areas include financialreporting, solvency monitoring, financial analysis,on-site inspection, and market analysis.

In addition to the above capabilities, supervisorsshould design an intervention framework with clearstages that link the legal framework, supervisoryapproach, supervisory conclusions, enforcement powers,and actions of the regulator under various marketevents.The stages of intervention serve as a primary toolto ensure the consistency of supervisory actions and,when they are communicated to the market, they setmarket expectations in terms of supervisory responsesunder certain conditions.

The nature of competitionFostering a competitive environment drives innovation,competitive pricing, and the adoption of best practices,and is a key enabler for the development and growth ofinsurance markets in the MENA region.

The ultimate objective from the standpoint of marketgrowth should be to have a profitable sector adequatelyserving market demand, with local insurers equipped towithstand the competitive pressures of increasingly liber-alized markets.

Although the insurance markets in the region aregenerally competitive, regulators should seek to raise the competitive bar further through higher capitalrequirements and the introduction of governance and

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risk-management requirements. In highly fragmentedmarkets, regulators should investigate the option ofincreasing capital requirements to stimulate market consolidation and increase the level of risk-retentioncapacity.This in turn would result in larger local companies with the resources to invest in capabilities,and would also reduce the level of fronting.

On the governance side, regulators should introduceminimum governance requirements such as the estab-lishment of internal functions (for example, an internalaudit), the definition of fit and proper criteria for boardmembers and senior management, the development ofpolicies and procedures manuals, and the formation ofan investment policy subject to review and approval bythe board.

In countries where there is a rapidly growingdemand for takaful insurance, regulators should identify,develop, and disseminate risk-management best practicesthat take into account the contractual relationships ofIslamic insurance products.

Skills and trainingCultivating the growth of a pool of skilled local insur-ance professionals is paramount to the development ofthe insurance sector, given the existing acute shortage of skills. Policymakers and regulators should act as cata-lysts in the development of professional knowledge inthree ways:

• Setting qualification and accreditationrequirements for the insurance profession.In general, it is customary to set minimum requirements for insurance professionals that gobeyond general educational attainment and includespecialized insurance qualifications. Regulators caninfluence the market in raising the standards oftraining programs by adopting internationallyaccredited programs and selectively approving local programs that meet minimum criteria.

• Organizing specialized training programs.Training programs can be organized by the regulator,the industry itself (such as associations of insurancecompanies and the companies themselves), and bythe private sector as the demand for such trainingincreases. In the absence of market-led training pro-grams, regulators should bridge this gap by organiz-ing accredited training programs through affiliationswith specialized training institutions (for example,institutes of banking), general academic institutions(such as universities), or leading training institutionsin more developed markets.

In countries where the demand for takafulproducts is growing rapidly, regulators need toensure the availability of training programs to edu-cate the market on these relatively new products.

• Encouraging companies to build up theknowledge of their staff. Regulators can requirecompanies to take a more active role in developingthe expertise of their employees by mandatingtraining budgets and staff training programs.Theseprograms would be subject to audits by the regula-tor to ensure companies’ compliance.As an incen-tive, regulators can consider subsidizing part of the training budget through a reduction of annualregulatory fees.

Market-led initiativesPromoting the involvement of industrywide bodies,whether at a local or regional level, is a valuable enablerfor the development of the market by providing forumsfor the harmonization of standards and activities, and forthe sharing of best practices. By definition, market-ledinitiatives lie outside the boundaries of regulators’ directcontrol. Nevertheless, insurance regulators can play a keyrole in bridging market gaps while stimulating theemergence of more-effective industry-led market devel-opment initiatives.

In particular, policymakers and regulators can play avaluable role in promoting more active involvementfrom industry associations, encouraging the adoption ofmarket standards, fostering the availability of granularmarket statistics, generating consumer awareness ofinsurance, and raising the profile of the industry toattract new talent. Policymakers and regulators shouldencourage the formation of industrywide associations asa way to harmonize the representation of market partic-ipants. In countries where associations exist, regulatorsshould emphasize the role of the association by channel-ing regulatory consultation efforts through these bodiesor adopting industry standards endorsed by associations.

Regulators can also mandate the adoption of inter-nationally accepted accounting standards—such as IFRS4 issued by the International Accounting StandardsBoard in 2004—to ensure consistent treatment of insur-ance contracts and appropriate disclosure.

Fostering the availability of insurance market data isa requirement for promoting better understanding ofthe market and supporting informed decision making.By virtue of their access to market data, regulatorsshould support the publication of accurate, consistent,and up-to-date information on the market. Some coun-tries in the region have made significant improvementsin this regard; however, the lack of good market dataremains a visible weakness in many MENA markets.

In addition to sector-level data, granular statistics(for example, pricing, claims, and loss statistics) arerequired to support product development and pricing.The private sector can fill this gap by collecting andproviding such statistics. For example, a private companyin the United States—the Insurance Service Office(ISO)—provides statistical, actuarial, and claims data.TheISO gathers information from insurance companies on

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hundreds of millions of policies, including the premiumscompanies collect and the losses they pay. In the MENAregion, regulators should encourage the establishment ofsuch specialized data services organizations and mandatethat product pricing decisions be based on relevant mar-ket data and statistics.

Creating consumer awareness of the advantages ofrisk coverage provided by insurance products and servic-es is a key enabler to stimulate the demand side.Promoting awareness among retail consumers is particu-larly important in the GCC countries, where awarenessof the benefits of insurance is considered low.

Insurance regulators can increase awareness bylaunching public communication initiatives, publishingeducational material, setting up a function to handleinquiries (whether telephone- or Web-based), andencouraging insurance companies to launch informativepromotional programs geared at raising consumerknowledge.

The programs to raise the level of awareness of lifeinsurance in Malaysia are a good case in point. In 2003a joint initiative, InsuranceInfo, was launched by BankNegara (the Central Bank and insurance regulator ofMalaysia) and other industry players. InsuranceInfo covers topics such as standard life insurance, annuities,investment-linked insurance plans, and child educationplans. InsuranceInfo disseminates this information pri-marily through its website, as well as through bookletsmade available in branches of selected insurance compa-nies and articles published in major newspapers.Thisprogram has contributed to the development of the lifeinsurance market, which generated premiums of US$4.8billion in 2005—more than three times those in theentire MENA region.

Furthermore, policymakers should seek to promotethe industry as a whole to attract talent.This can best beachieved by industry associations targeting universityand college graduates through career days, internships ininsurance companies, and similar initiatives.

At a regional level, it is important that a standardizedregulatory and compliance framework exists across theregion before attempts are made to create a regionalmarket.As such, policymakers should seek to harmonizethe efforts of the many pan-regional bodies to ensureconsistent attention on the key issues. Specifically,regional cooperation should focus on promoting finan-cial stability, participating in the global trend towardcooperation and harmonization (for example, SolvencyII), improving risk management and corporate governancepractices, protecting the integrity of the financial systemsfrom illegal activities, and preventing regulatory arbitrage(that is, offshore entities that seek out the least restrictiveregulatory environment from which to operate locallyand cross-border).

Cooperation among regional insurance regulatorswould create significant economic advantages for their respective insurance markets. Primarily, active

coordination would accelerate the development of astandardized regulatory framework and harmonize theregulatory compliance requirements, which in turnwould enhance the attractiveness of the regional insur-ance market to international insurance groups and facili-tate the formation of regional insurers. In addition,active cooperation among insurance regulators wouldfacilitate the transfer of acquired supervisory knowledgeand expertise, and improve the efficiency of supervisoryactivities by avoiding duplication of supervisory effortsacross the region.

ConclusionThe insurance markets of the MENA region show significant potential for future growth. Realizing thisgrowth, however, will require policymakers and regula-tors to address the existing gaps in the underlyingenablers of growth.

Specifically, selected countries in the region need toupgrade the existing legal and regulatory frameworksand improve the capabilities of regulators. Similarly,there are opportunities to improve the competitive land-scape and thereby drive innovation, competitive pricing,and the adoption of best practices by mandating highercapital levels and introducing governance and risk-management requirements.Across the region there is aneed to address the skills shortage by introducing mini-mum qualification levels and fostering internationallyaccredited training programs.And finally, at a marketlevel, the use of industry associations, improvements inmarket data, and the introduction of consumer awarenessprograms will go a long way toward the overall develop-ment of the sector.

In the end, each country will need to chart its owncourse and take into account local circumstances.Thespeed of development of individual insurance marketswill be a function of how rapidly policymakers and regulators are able to address the individual enablers of growth.

Notes1 See IMF (2006).

2 AIS core principle number 23.

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Bahrain Institute of Banking and Finance. Available atwww.bibf.com/home.html.

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Emirates Institute for Banking and Financial Studies. No date.“Insurance Diploma Program.” Available atwww.eibfs.com/EIBFS/insurancediploma.aspx.

Emirates Insurance Association. No date. Available atwww.eia.ae/index.html.

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including Reports on the Observance of Standards and Codes.”Financial System Stability Assessment, Financial SectorAssessment Program (FSAP). Washington, DC: IMF.

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———. 2006b. “A Step Forward to Enhance Insurance Regulation.”Press Release. Available at www.irc.gov.jo/doc/press/2005/press-releaseno.4.pdf.

———. 2006c. “Insurance Business in Jordan: Financial Report 2005.”Annual Report. Available at www.irc.gov.jo/doc/Annual2005.pdf.

Jordinvest. 2006. “Takaful Insurance in the UAE.” Sector Report.Amman: Jordinvest.

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Life Insurance Association of Malaysia. 2005. “Life is Precious, TakeCare.” Insurance News and Events. Available atwww.liam.org.my/cms/general.asp?whichfile=Activities&produc-tid=320&catid=13.

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The evaluation of growth enablers at a country levelwas based on publicly available information. In evalu-ating the enablers, we adopted the following symbolsto reflect the performance of each enabler:

0 Nonexistent

1 Below-average performance/underdeveloped

2 Average performance/basic development level

3 Above-average performance/intermediate development level

4 High performance/advanced development level

SAUDI ARABIA

Legal framework 2

• Until recently the Saudi insurance market was unregu-lated. In 2002 the Cooperative Heath Insurance Lawwas enacted, which sets mandatory health insurancerequirements for expatriates. An independent govern-ment body, the Council of Cooperative Health Insurance(CCHI), was established to regulate the health insurancemarket.

• In 2003 the Cooperative Insurance Companies Law wasenacted, which requires all insurance companies tooperate under the Shari’a-compliant Takaful insurancemodel. The insurance law is complemented by theimplementing regulations. In October 2006, the Councilof Ministers approved the licenses of 13 insurance com-panies under the new law.

• At present the market is in a transition phase wherebyexisting players are allowed to operate under a graceperiod ending in the first quarter of 2008. At that point,insurers must either have a license or exit the market.

• Overall the insurance legal framework in Saudi Arabia isin its early stages and has yet to be fully implementedand tested.

Regulatory bodies 1

• The Saudi Arabian Monetary Authority (SAMA) has beenentrusted with regulating the insurance sector. SAMAhas established a dedicated unit, the InsuranceSupervision Directorate (ISD), to carry out its regulatoryand supervisory mandate.

• At present there is an overlap with respect to healthinsurance between CCHI and SAMA; this is expected tobe clarified in 2007.

• A special court has been established to settle insurancedisputes: the Committee for Resolution of InsuranceDisputes & Violations.

• Overall, as a new regulatory body, ISD is in the processof building up its supervisory capabilities and is expect-ed to become fully operational in 2007.

Nature of competition 1

• There are more than 70 insurers in the market, all ofwhich are in the private sector except for the state-owned National Company for Cooperative Insurance(NCCI).

• NCCI dominates the market with over 35 percent ofmarket share, focusing mainly on general insurance.This dominance will come under pressure as newlylicensed companies will be able to tap public-sectorbusiness, which was traditionally accessible only toNCCI.

• The majority of existing insurers are based in othercountries, mostly Bahrain. In addition, most have lowcapitalization, relying extensively on reinsuring a signifi-cant portion of their risk portfolios.

• The recently enacted insurance laws and regulations areexpected to stimulate market consolidation (by settinghigh capital requirements) and foster the developmentof improved insurers’ risk-management capabilities (bylimiting reinsurance levels).

• As a result of the new legal framework, which allowsforeign insurers to operate in Saudi Arabia, severalmultinational companies have applied for licenses toestablish a local presence. This is expected to bring ininternational expertise and raise the competitive playingfield to a new level.

Skills and training 1

• There is a significant shortage of skills within the indus-try, and the Saudization requirements mandated by thenew law are likely to compound this situation.

• At present, there are limited training programs available.The Institute of Banking offers some insurance training,but the programs are not accredited.

Market-led initiatives 1

• At present, the market lacks reliable market statistics,professional associations, and consumer awareness pro-grams needed to develop the market at an overall level.

Appendix A: Country Evaluation of Enablers

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UNITED ARAB EMIRATES (UAE)

Legal framework 1

• The UAE insurance market is regulated by the 1984 fed-eral law on Insurance Companies and Agents andExecutive Regulation, issued by the Ministry ofCommerce.

• The existing legal framework is in need of significantupgrading in light of the evolution and rapid growth ofthe insurance market. For example, the regulations donot require insurance companies to adhere to solvencymargins but only to meet a minimum capital require-ment. In addition, the regulations require insurers toinvest in the local market without putting clear limita-tions on risks and asset classes.

• The United Arab Emirates has initiated work to upgradethe regulatory framework. A special committee, theUAE Insurance Committee, is entrusted with developingand proposing the regulations for the insurance sector.

• There is no dedicated insurance judicial authority in theUnited Arab Emirates.

• Overall, the insurance legal framework in the UnitedArab Emirates has significant limitations that are expect-ed to be addressed in the planned regulations.

Regulatory bodies 1

• The sector is regulated by the Insurance CompaniesDivision of the Ministry of Economy.

• Existing supervisory processes are undermined by theunderdeveloped regulatory framework.

• In line with the new regulatory framework, an insurancecommissioner position is expected to be established in2007.

• Overall, the capabilities of the regulatory body areunderdeveloped as a result of the gaps in the existingregulations. The regulator’s capabilities are expected tobe enhanced through the establishment of a commis-sioner post and the updating of the legal framework.


• There are 49 insurers serving the UAE market, including5 foreign insurers.

• Overall, local insurers are privately held although severallarge players are partially state-owned.

• Local companies hold around 75 percent of the non–lifeinsurance market, while foreign insurers are morefocused on life insurance. Recently, some foreign insur-ers have announced their intention to focus on expand-ing their non–life insurance business.

• The market is competitive with several large local com-panies in the market. The largest 10 insurers accountfor around 50 percent of market premiums.


• There is a shortage of qualified staff, especially amongnationals. The law requires that 15 percent of total staffbe nationals; at present it is only 6.2 percent.

• To support Emiratization, the Supreme InsuranceCommittee and National Human Resource DevelopmentCommittee in the insurance sector are implementing anumber of insurance training programs to develop thecapabilities of nationals.

• The Emirates Institute of Banking and Financial Studiesalso offers a one-year insurance diploma program.


• The Ministry of Economy publishes high-level marketdata. However, there is a significant shortage of granularstatistics that would improve the understanding of mar-ket performance and profitability.

• The Emirates Insurance Association (EIA) plays anindustrywide role in promoting the insurance sector byfacilitating cooperation between insurance companies,setting standards, providing training to insurance profes-sionals, and promoting insurance awareness.

• The Coordination Commission for Gulf Insurance andReinsurance Companies is a UAE-based entity that pro-motes coordination among GCC insurance companies.

BAHRAIN

Legal framework 4

• In an effort to strengthen its position as a center forIslamic finance operations (including takaful and re-taka-ful), Bahrain issued the Insurance Rulebook in April2005. The rulebook sets out elaborate licensing andoperational regulations for both conventional and takafulinsurance.

• A recent report by the Financial Sector AssessmentProgram (FASP), a joint venture between theInternational Monetary Fund and the World Bank,acknowledged the comprehensiveness of this regulato-ry framework.

• Overall, Bahrain’s insurance legal framework is welldeveloped and is one of the most-established legalframeworks in the region.

Appendix A: Country Evaluation of Enablers (cont’d.)

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Regulatory bodies 3

• Since 2002, the insurance sector has been regulated bythe Bahrain Monetary Agency (BMA). In September2006, the BMA was succeeded by the Bahrain CentralBank (BCB) which is mandated with carrying out theactivities previously undertaken by the BMA, but withstronger operational independence and wider enforce-ment powers.

• A recent FASP report indicated that prudential supervi-sion is generally effective. However, the report alsohighlighted the limited resources available to the BCB toimplement the supervisory activities promulgated underthe Rulebook.

• Overall, the regulator is experienced and appears tohave well-developed capabilities.


• As of 2005, there were 19 insurance companies servingthe local market, comprising 11 that are locally incorpo-rated as well as 8 branches of foreign insurers.

• The market is led by private-sector insurers.

• Local insurers dominate the non–life insurance marketwith 87 percent market share, whereas foreign insurersdominate the life insurance market with 82 percent mar-ket share.

• There are three local large insurance players controlling45 percent of the market. The largest insurer is BahrainNational Insurance with 22 percent market share. Nextare the Bahrain Kuwait Insurance Company and GulfUnion Insurance and Reinsurance, with market sharesof 12 percent and 10 percent respectively.


• Bahraini nationals account for 63 percent of the insur-ance workforce, one of the highest figures in the GCC.

• The Bahrain Institute of Banking and Finance (BIBF)offers 20 insurance programs, including courses inunderwriting, risk management, and information tech-nology that meet the requirements of four international-ly recognized professional designations. These designa-tions are: Associate of Risk Management of theAmerican Institute for Chartered Property CasualtyUnderwriters (USA); Associate of the CharteredInsurance Institute (UK); Certificate in IT for InsuranceProfessionals (UK); and the Professional InsuranceCertificate, which is jointly awarded by UK’s CharteredInsurance Institute and BIBF.

• In 2006, BIBF signed an agreement with London-basedChartered Insurance Institute (CII) to be the exclusiveprovider of CII training courses in the Middle East.


• Bahrain is reinforcing its role as a leading center fortakaful by fostering the development of industry associ-ations and professional organizations. For example, theBahrain-based International Takaful Association (ITA) iscurrently being formed. It aims to play a leading role inpromoting the takaful industry, encouraging cooperationamong members of the association and educating thepublic about the unique features and benefits of takaful.Another example is the Bahrain-based Accounting andAuditing Organization for Islamic Financial Institutions(AAOIFI), which is responsible for developing standardsfor the international Islamic finance industry, includingtakaful.

• The Bahrain Insurance Association (BIA) plays an indus-trywide role in developing the sector. For example, theBIA facilitated the Insurance Rulebook public consulta-tion process by putting in place industry teams thatliaised with the BMA to finalize draft modules of theRulebook.

• In 2003, the BMA established the Insurance MarketDevelopment Committee (IMDC) to undertake programsto raise awareness about insurance in the market andenhance the image of the Bahrain insurance industry atan international level. In 2005, IMDC initiated its firstawareness campaign aimed at increasing insurance pen-etration using educational messages through a speciallycreated cartoon character, “Taamina.”

QATAR

Legal framework 1

• Qatar enacted an insurance law in 1966 that has notbeen amended since.

• The existing law lacks adequate legislation laying outthe rights and obligations of parties entering into insur-ance contracts. An effort is underway to issue a newinsurance law in the near future.

• Overall, the insurance legal framework in Qatar has seri-ous limitations that are expected to be addressed by thenew insurance law.


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Regulatory body 1

• The market is regulated by the Ministry of Economy.

• The regulator’s capabilities are undermined by the exist-ing legal framework.


• There are nine companies serving the market, compris-ing five local companies and four foreign insurers.

• The market is led by the private sector.

• The market is largely dominated by the few local insurers.The two largest companies, Qatar Insurance and QatarGeneral Insurance & Reinsurance, hold around 45 per-cent and 20 percent of market premiums respectively.

• Foreign insurers represent a fraction of the marketplaceand are estimated to command less than 5 percent mar-ket share.

• Overall, competition from foreign insurers is expectedto remain low and be limited to life insurance, given thestrong position of local firms and the relatively smallmarket size.

• In 2004, the government amended the Foreign CapitalInvestment Law to allow foreign investment in theinsurance sector. However, it is not clear whether multi-national insurers will be attracted, given the size andcompetitive characteristics of the local market.


• At present, there is a significant shortage of skills in themarketplace, and only a few insurance training pro-grams are available.


• At present, there is a lack of adequate market data andno existing insurance industrywide entities or profes-sional associations. However, Qatar has indicated plansto set up an association of insurance companies.

• The Qatar Financial Center is indirectly leading the effortto foster the development of the insurance sector. Forexample, as part of its efforts to establish itself as aregional financial center, it has mandated a senior officerwith the role of raising awareness of the Middle East’simproved regulatory environment and identifying higherstandards for the insurance industry.

OMAN

Legal framework 3

• Insurance companies in Oman are governed by theinsurance law issued by Royal decree in 1979. The lawhas been updated in 1987, 1995, and 2002.

• In addition to the law, the sector is governed by regula-tions, guidelines, and instruction papers issued by theregulator. These cover corporate governance, code ofconduct, and reinsurance management strategies. Theregulations were significantly upgraded following thecollapse of a local insurance company in 2001.

• In 2006, the regulator announced a major update of theinsurance law and executive regulations. The draft lawand regulations have been sent to insurance companiesfor their feedback prior to final approval.

• Overall, the legal framework in Oman has been upgrad-ed in recent years, and is undergoing an extensivereview to better reflect international best practices andaddress regulatory gaps.

Regulatory bodies 2

• The sector is regulated by the Capital Markets Authority(CMA).

• The CMA is in the process of implementing the IAIScore principle of supervision.


• There are 17 insurance companies serving the market,comprising 9 local insurers and 8 foreign players.

• The market is led by the private sector.

• The market is largely dominated by local companies,which collectively command 80 percent market share.

• There are three large local insurers in the market.Dhofar Insurance is the largest insurer with 30 percentmarket share, followed by ONIC and Oman UnitedInsurance, each holding around 15 percent marketshare.

• Overall the market is characterized by overcapacity,which has spurred price competition and negativelyaffected sector profitability.

• Recently a few multinationals, which previously operat-ed in the market through agency agreements, enteredthe market through joint ventures with local partners.


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• There is a significant shortage of skills within the indus-try; Omanization requirements mandated by the lawcompound this situation.

• There are no specialized insurance institutes offeringtraining programs in Oman.

• In response, the CMA is playing a key role in identifyingtraining needs and organizing training programs to buildthe skills of nationals by coordinating training workshopswith local and international academic and training insti-tutes.


• The CMA is leading the effort in setting and fosteringthe adoption of sectorwide best practices through theintroduction of guideline papers covering, for example,corporate governance, code of conduct, and reinsurancestrategies.

• Market data are available mainly through CMA’s publica-tions.

• In late 2006, the Oman Insurance Association wasunder formation.

KUWAIT

Legal framework 1

• The insurance law in Kuwait was enacted in 1961. In2004, FSAP commented on the weaknesses of theexisting law and recommended, as a priority, the needto enact a new law.

• Overall, the legal framework in Kuwait has significantlimitations. A new framework is required to addressexisting limitations.

Regulatory body 1

• The sector is regulated by the Insurance Departmentwithin the Ministry of Commerce and Industry.

• An informal review conducted in 2004 to assess theobservance of IAIS core principles indicated that theexisting regulations and supervision lacked key ele-ments of a modern supervisory regime. The existingsupervisory processes are mostly focused on adminis-trative work (such as licensing) in addition to ensuringthe insurers’ compliance with the regulations.

• Overall, the existing regulator’s capabilities are under-mined by the current legal framework.


• The market is served by a total of 21 companies, ofwhich 11 are local companies and 10 are branches offoreign insurers.

• he market is led by the private sector.

• The market is largely dominated by local companies,which hold over 85 percent of market share, includingfour large players that hold over 60 percent of the mar-ket. Gulf Insurance Company holds the largest marketshare of 25 percent.

• Competition from foreign insurers has been limited byregulatory restrictions. However, this restriction wasrelaxed in November 2003, and the sector has so farattracted a number of foreign insurers.


• At present, there is a significant shortage of skills in themarketplace, and only a few insurance training pro-grams are available.


• At present, only limited market data are available oninsurance activities in the country.

• In 2006, the Insurance Companies Union was estab-lished, with seven local companies as members.

LEBANON

Legal framework 1

• The insurance sector is governed by the Insurance Lawissued in 1968. The sector was substantially unregulat-ed until the issuance of an amendment law in 1999 fol-lowing the bankruptcy of three companies. However,the law remains rudimentary, particularly in the area ofsolvency requirements; these are fixed at 10 percent ofgross premiums. In addition, there is a lack of regulatoryguidelines for the sector.

• In 2004, the Ministry of Economy and Trade prepared a draft insurance law and regulations that raise the regulatory framework to international best practices and conform to IAIS core principles. The draft law andregulations are pending review and ratification by thegovernment.


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• The National Council of Insurance Companies (NCIC) isan advisory body entrusted with proposing sector regu-lations and reviewing license applications. NCIC ischaired by the Minister of Economy and Trade and con-sists of 11 other members from the public and privatesectors.

• Overall, the existing legal framework in Lebanon isunderdeveloped. A new and improved draft law and reg-ulations have been prepared, taking into account inter-national best practices; however, it is not clear whetheror when they will be implemented.

Regulatory bodies 1

• The insurance sector is regulated by the InsuranceControl Commission (ICC), which was created in 1999as an independent entity reporting directly to theMinister of Economy and Trade.

• There is an overlap and duplication of regulatory activi-ties between the activities conducted by the ICC andthe Directorate of Insurance Affairs, which is a depart-ment within the Ministry of Economy and Trade.

• The Insurance Arbitration Council, which is similar to asmall claims court, was set up to handle claims disputesof less than US$50,000, which account for 90 percentof total claims.

• Overall, the regulator has basic supervisory capabilitiesthat are mainly focused on ensuring compliance withapplicable regulations and close monitoring of dis-tressed companies.


• The market is highly fragmented, with more than 60 pri-vately owned insurers.

• The majority of the insurers operating in the market areincorporated in Lebanon. However, several foreign insur-ance companies are present in the market throughstrategic partnerships with local companies.

• The largest 10 insurance companies hold 65 percentmarket share in terms of premiums. Only one largecompany exists, MedGulf, with 27 percent marketshare, followed by nine medium-sized companies eachholding between 3 to 5 percent market share.


• There is a lack of accredited local insurance training pro-grams. Nevertheless, there are a number of trainingcourses and workshops that are occasionally organizedby professional organizations.


• Consumer awareness of insurance is among the highestin the region, as evidenced by high insurance penetra-tion rates.

• There is a lack of reliable data to support analysis ofmarket performance.

• The Association of Lebanese Insurance Companies(ACAL) is active in representing the interests of insur-ance companies.

• The Lebanese Insurance Brokers Syndicate (LIBS) wasset up in 1993 to promote the brokerage profession,raise the awareness of the role of brokers, and improveprofessional standards.

• The Lebanese Actuarial Association (LAA) was set up in2001. The LAA is a member of the InternationalAssociation of Actuaries (IAA).

JORDAN

Legal framework 3

• The insurance sector is governed by the InsuranceRegulatory Act of 1999.

• In 2004, the insurance regulator announced its intentionto draft new and more exhaustive legislation thatimproves the consistency of judicial interpretation ofinsurance contracts and better reflects existing marketpractices.

• The law is complemented by a set of regulations andinstructions papers, issued by the regulator, covering awide range of topics—including financial and technicalissues, corporate governance, and market conduct—inline with IAIS core principles.

• Overall, the legal framework is developed according tointernational standards. Ongoing efforts continue to fur-ther strengthen the legal framework and address exist-ing regulatory gaps.


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Regulatory bodies 3

• The Insurance Commission (IC) was set up in 1999 asan independent body to regulate and supervise theinsurance sector. Since its establishment, the IC hasplayed a leading role in driving and reshaping the sector.

• The IC set up an internal Settlement and Inquiriesdepartment to handle inquiries and act as the first line inhandling disputes through mediation.

• Insurance disputes are handled by the Committee forResolving Insurance Disputes.

• Overall, although a relatively young regulator, the IC hasmade significant progress in developing its capabilitiesin line with the core principles of the IAIS.


• There are 26 insurance companies in the local market;all but one foreign life insurer are locally incorporated.

• No single insurer has more than 10 percent marketshare, with the largest 10 companies holding around 60percent of the market.

• The non–life insurance market, which represents 90 per-cent of total market premiums, is dominated by localinsurers. The life market is dominated by one foreigncompany, American Life, which has 53 percent marketshare.


• The IC has announced a plan to foster the developmentof local expertise through training programs, and hasbeen active in organizing training forums and seminarsin coordination with leading local, regional, and interna-tional organizations.


• IC annual reports contain detailed market data andanalysis, which facilitate a good understanding of themarket. In addition, the IC is active in conducting marketstudies and surveys.

• The Jordanian Insurance Federation (JIF) is an activeorganization representing the interests of insurancecompanies.

• The IC launched an awareness campaign consisting ofthree phases: introducing the role of the IC, raisingawareness of the benefits of insurance, and introducingvarious insurance products to the public.

EGYPT

Legal framework 2

• The insurance sector is regulated by the InsuranceSupervisory and Control Act Number 10 issued in 1981,Act Number 91 of 1995, and Act Number 156 of 1998.

• The Supreme Council of Insurance was established in1981 with the objective of discussing and approvingsector-related policies. The Council is chaired by the regulator and includes representatives from the publicsector, private sector, and academic institutions.

• Overall, the insurance legal framework in Egypt has limitations. It is not clear whether there are plans toupgrade the existing legal framework.

Regulatory bodies 2

• The Egyptian Insurance Supervisory Authority (EISA)was set up in 1981 as an independent entity reportingto the Ministry of Investment. EISA is entrusted withregulating the insurance sector in addition to govern-ment insurance funds, cooperative societies, and privateinsurance funds.

• EISA established the Dispute Settlement Committee tospeed up the resolution of disputes outside of the courtsystem.

• Overall, starting from an initial focus on ensuring insur-ers’ compliance, EISA has started a number of efforts tostrengthen its risk-supervision capabilities in line withinternational practices.


• There are 20 insurance companies in the market.

• The market is dominated by the state-owned insurersthat command 75 percent of the non–life insurance mar-ket and 60 percent of the life insurance market. In par-ticular, the state-owned Misr Insurance alone com-mands a market share of 44 percent and 29 percent ofthe non–life and life insurance markets, respectively.

• In addition to local companies, there are more than 600private insurance funds (a form of pension fund) in themarket, accounting for 56 percent of life insurance pre-miums and 30 percent of total insurance premiums.

• In recent years, foreign players focused exclusively onlife insurance have emerged; this is expected to lead tothe overall development of the market and a reductionof the state’s dominance.


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• The Insurance Studies Institute is a local organizationactive in arranging and participating in insurance-relatedforums.

• In June 2006, EISA announced an initiative to coordinatethe job requirements of the insurance industry with theMinistry of Education and develop an educational pro-gram that would meet the sector’s requirements.

• EISA has announced plans to upgrade the knowledgeand expertise of staff of the private insurance funds,given their large stake in the insurance market.


• EISA publishes high-level market statistics. In 2006,EISA established a publications unit to publish insuranceguidelines, raise awareness, and increase the knowl-edge of insurance professionals.

• The Insurance Federation of Egypt is active in support-ing the insurance sector in technical areas such as rat-ing and loss minimization, promoting the sector throughknowledge dissemination, and cooperating with EISA inthe development of insurance legislation.

Note: See References section in this chapter for sources of this appendix.


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arab world competitiveness report 2007. part 8/11

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