11 March 2014 Insurance

GCC countries must diversify to continue growth

The Gulf Cooperation Council (GCC) countries must diversify if they are to continue experiencing high growth rates, according to a recent report by AM Best.

The rating agency’s special report found that Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates are now growing as fast as Brazil and China, but with much of that growth coming from compulsory covers, the region must find other alternatives.

According to the report “premium growth is likely to be more subdued than the historical highs in the current market, which in turn puts more pressure on insurers to segment the market and identify strategies for growth”.

Companies within smaller, emerging markets tend to operate across all segments and product lines, creating broad-based, intense competition.

Currently, premium volumes in GCC markets are heavily skewed to non-life business. In Western Europe 58 percent of premiums come from life business. The opposite is true in the GCC, where life business has among the lowest penetration rates of any emerging market, accounting for only 14 percent of premiums.

The report states that around 59 percent of most non-life business premiums consist of medical and motor insurance. Both of these lines have experienced the greatest impact from the introduction of compulsory coverage in the region.

However, the report suggests that for most GCC companies these two product lines are underperforming, producing either unprofitable or marginal results.

Overall, the report suggests that non-life business will continue to dominate the GCC insurance market, with life business continuing to be marginal over the next three to five years as companies fail to focus on the business or attempt to change the attitudes of a population that sees life insurance as unnecessary.

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