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The opportunities for increased uptake of takaful insurance in the GCC are positive. The considerable economic growth in the region, coupled with a sizable, underinsured population, means that there are substantial prospects for further development of personal lines cover. The ability of the industry to demonstrate the need for and benefits of insurance, as well as to successfully meet customer demands, remains unproven, however.
Over time, if the world average insurance premium of $550 per capita is achieved and applied to the Gulf states, the GCC insurance market has a potential size of $20 billion(currently $4.6 billion). Taking as an example Malaysia, where the takaful market is expected to contribute 20% to the overall market in the medium term, the GCC takaful market has the potential to reach $4 billion at the current level of development (currently $170 million). How much actual premium the takaful sector generates and how quickly it will do so remains to be seen, however, and will depend on the industry's ability to deliver on policyholder expectations.
In terms of credit ratings for the takaful sector, Standard & Poor's Ratings Services will apply the same analytical process as for the traditional market, but will also take into account the sector's positive growth dynamics and high execution risk.
GCC Insurance Markets
The insurance markets in the region are recognized as being underdeveloped, as is shown by the relatively low level of insurance penetration relative to Western or even Eastern Europe.
The economic boom in the GCC, driven by high oil prices, has led to substantial infrastructure investments across the region, with the corresponding need to insure these sizable risks. There are a number of established insurers in each of the GCC markets who are able capable of participating on the new risks arising. Certainly, the development of the non-life insurance market in the region is strong, with premium growth of about 10%-15% on average since 2004. The proportion of personal lines insurance cover, however, and in particular life insurance, remains low.
Opportunities For Takaful
Increasing insurance penetration, raising awareness
Takaful is not a new concept. The idea of cooperative risk sharing is the oldest form of insurance. The Grand Council of Islamic Scholars, Maja-al-Fiqh, only approved takaful as a Sharia-acceptable alternative to traditional insurance in 1985, however. The real opportunity for takaful in the longer term is substantial in our view, as it is able to reach the specific segments of the market that traditional insurance has been unable to attract.
Strong growth relative to traditional insurance market
The GCC takaful market is currently growing at about 40% per year, and gross contributions (equivalent to gross premiums written) amounted to nearly US$170 million in 2005.
This appears impressive relative to the expansion of the world markets, with average premium growth at 2.5% in 2005 (Swiss Re sigma No.
Medilyn Manibo, Assistant News Editor
