Change in the Air: The Arab Insurance Industry Is in Turmoil Torn between Demands to Maintain Islamic Strictures on Risk Coverage, and Pressure from the World Trade Organisation to Open the Potentially Lucrative Sector to Global Competition. at Stake Is the Future Shape of a Multi-Billion Dollar Industry. (Business & Finance)

By Martin, Josh | The Middle East, April 2003 | Go to article overview

Change in the Air: The Arab Insurance Industry Is in Turmoil Torn between Demands to Maintain Islamic Strictures on Risk Coverage, and Pressure from the World Trade Organisation to Open the Potentially Lucrative Sector to Global Competition. at Stake Is the Future Shape of a Multi-Billion Dollar Industry. (Business & Finance)


Martin, Josh, The Middle East


At first, it seems a simple matter: You can buy most kinds of insurance in any Arab country, whether it is life insurance in Morocco, car insurance in Egypt, health insurance in Saudi Arabia, or commercial policies in the UAE. But the choices are often limited, and the premiums are steep. By some American and British estimates, an Arab will pay anywhere from 30% to 100% more than a person or company in the West, for identical coverage.

In part, this reflects the region's unique high risk factors. But it is also an indicator of the low level of consumer awareness of the Arab insurance industry as a whole.

According to industry sources, Arab insurance premium flows are far less, measured against underlying assets, than almost any other region globally. Last year, for example, the 183 Arab insurance companies collected instalments of almost $7bn, but these represented less than 0.5% of the global total, although Arab economies hold 5% of the world's total measurable economic assets.

The lack of a developed insurance sector has wide ramifications, having particularly negative effects on investment inflows and domestic economic expansion. Businesses are, as the industry would put it, "risk averse."

For Arabs, the situation is made more intolerable because most of the $7bn in annual regional premiums flow north and west, to major insurance companies in Europe and North America. That premium flow equals the total assets of all 183 Arabs companies combined.

Government and industry sector officials have argued that a major liberalisation is now long overdue, to enable the insurance sector to meet the needs of Arab consumers and businesses. Creating an open insurance market is widely seen as a key step to developing a healthy financial sector. At the same time, government and private sector experts increasingly agree that the promotion of the insurance industry is indispensable to elevate the quality of life.

Developing a successful insurance sector is not just a matter of money: Market demand has to be fostered with affordable and practical products offered by skilled service providers.

Many Arab businesses and consumers have traditionally found it easier (and cheaper) to buy their insurance overseas, in London or New York--thus contributing to the region's chronic outflow of capital. Any reform of the insurance sector is likely to force a wave of mergers, to enable insurers to realise economies of scale. Economists point out that even insurers in relatively developed markets like Jordan will need to reconsider mergers in order to upgrade the quality and quantity of their different policies.

Marketers note that Arabs are becoming more sophisticated--often comparing prices and services through Internet websites. There is also now a clear "generation gap", with younger members much more eager to have life and car insurance. Health insurance is popular among all market segments. For businesses, availability of insurance is closely linked with accounting. The more accurate the accounting, the more likely an insurance company will provide coverage. Companies invest in improved accounting methods because such records, and insurance coverage, are often necessary in order to do any business in the global economy.

Will they find the policies they need from Arab insurers? When the 24th conference of the Arab Federation for Insurance (AFI) met in Oman, it took place under the telling slogan: "Arab Insurance: service and competition."

A survey of the current market reveals a direct link between a country's insurance and financial sectors. The highest concentrations of insurance companies--with the most diverse and complete policy menus--are found in Jordan, Lebanon and the UAE, all of which are strongly promoting themselves as regional financial centres. But there are heated debates within the Arab community over what kinds of insurance should be encouraged. …

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Change in the Air: The Arab Insurance Industry Is in Turmoil Torn between Demands to Maintain Islamic Strictures on Risk Coverage, and Pressure from the World Trade Organisation to Open the Potentially Lucrative Sector to Global Competition. at Stake Is the Future Shape of a Multi-Billion Dollar Industry. (Business & Finance)
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