Booz Allen Hamilton says Arab world insurance sector poised for growth (page 1 of 3)

By looking at five key enablers of growth in the industry - legal frameworks, regulatory bodies and processes, the nature of competition, skills and training, and market-led initiatives - the study identified substantive gaps that should be addressed.

"Our main recommendation is for regulators to take immediate action to conduct an assessment of their country's insurance sector against these enablers of growth and chart a course that will address the identified gaps, while taking into account local circumstances," said Peter Vayanos, Vice President, Booz Allen Hamilton, a global management consulting firm with offices throughout the MENA region.

"Our goal with this study is to promote the growth and competitiveness of the insurance industry in the Arab world by identifying the key enablers, assessing them in light of existing market conditions and then offering policy alternatives," Vayanos added.

A summary of the study's findings follows below.

Legal frameworks
At the legal and regulatory levels, Booz Allen's review identified a wide variability in the maturity of the frameworks that govern regional insurance markets. Until recently, almost all MENA countries had outdated insurance laws and regulations; some countries had no insurance law at all. Over the past few years, many countries have initiated serious efforts to upgrade their regulatory frameworks, as evidenced by the enactment of new laws. They have strengthened the independence and supervisory capabilities of regulatory entities in line with the core principles of the International Association of Insurance Supervisors (IAIS); they have also issued sector guidance notes covering, for example, governance, market conduct, and risk management.

That said, there still remains a wide variation in the comprehensiveness and application of legal frameworks across the region. Accordingly, insurance regulators in countries with under-developed legal frameworks should seek to upgrade their legal frameworks and ensure that they reflect international best practices, such as the principles of the IAIS. In addition, policymakers should seek to establish a specialized insurance judicial authority to resolve insurance disputes in countries where such an authority does not exist. Finally, in countries where there is a rapidly growing demand for takaful (Sharia-compliant) insurance, the legal framework should also promulgate adequate legislation to address this form of insurance.

Regulatory bodies and processes
The comprehensiveness and effectiveness of regulatory processes, especially supervisory processes, varies considerably across the region. Countries such as Bahrain and Jordan, which have well-developed regulatory frameworks, are either applying or developing risk-based supervision processes that comply with the standards of international bodies such as IAIS. Other countries, such as Qatar, Kuwait, and the United Arab Emirates, have less-developed supervisory processes that are more administrative in orientation.

"In parallel with upgrading legal frameworks, policymakers in the region should seek to empower their insurance regulatory bodies. The empowerment of the regulatory body should be constituted in the legal framework, which should address the body's legal form, ensure its independence, vest appropriate authorities, and clarify any overlapping responsibilities with other governmental entities," said Maher Hammoud, Senior Associate, Booz Allen Hamilton.