Prospects for foreign insurers deteriorate in MENA

The prospects for foreign insurers in the region of the Middle East and North Africa are deteriorating, despite strong demand and rising confidence in insurance in this part of the world.

That is one of the conclusions of The 2nd MENA Insurance Barometer, published by the Qatar Financial Centre (QFC).

According to the survey, compulsory insurance requirements and continued investments into infrastructure projects will drive demand. Furthermore, the region’s fundamentals continue to be attractive: Insurance penetration is on the rise, demographics are favourable and the economy remains on a steady growth trajectory.

The Barometer is based on 38 in-depth interviews with senior insurance executives and intermediaries operating in the region. Three-quarters of the executives polled expect regional insurance premiums to outgrow gross domestic product (GDP) over the next 12 months.

Opportunities will arise from the large pipeline of major infrastructure and construction projects, the low insurance penetration levels of about 1.3% (premiums as a share of GDP), a mere fifth of the global average of 6.5%, and the population growth, fuelled by a continued influx of expatriates.

But the region’s insurance markets also display weak spots, the report said. Current insurance prices, both in personal and commercial lines, for example, are perceived as insufficient. However, as rates might have hit bottom, an increasing number of executives expect stable to rising prices and hence improvements in profitability, the report suggested.

But despite the weak pricing, only 16 percent of respondents expect MENA insurance markets to consolidate over the next 12 months as improved levels of capitalisation and the family ownership of many regional insurers stand in the way.

Finally, the prospects for foreign insurers in the region seem to be deteriorating, the report said. Only 35% of executives polled expect that foreign insurers will gain market share over the next 12 months, down from 50% a year ago. A number of foreign players have suffered losses and are reviewing their approach to the region.

Takaful is viewed with greater scepticism, too. Only 22% of survey participants expect this market segment to outgrow total insurance premiums in the next 12 months. According to the interviewees, business models still fail to offer genuine product differentiation based on the principle of mutuality.