Gulf Cooperation Council insurance sector’s long-term prospects positive

The long-term prospects of the Gulf Cooperation Council’s (GCC) insurance sector remains positive and the market is projected to grow at an annualised growth rate of 3.2% from $26.5bn in 2021 to $31.1bn in 2026, according to Alpen Capital.

In its latest GCC insurance industry report, Alpen Capital says the sector has seen moderate growth in recent years amid macroeconomic concerns, constrained fiscal and business spending, as well as intensifying competition within the industry. But it adds that digitalisation initiatives by insurers in the region are helping to transform the entire value chain and have helped in forming a strong base for the GCC insurance market, which is set to steadily grow during the next five years.

According to Alpen Capital, the non-life insurance segment in the GCC is estimated to expand at a compound annual growth rate (CAGR) of 3.1%, from $22.7bn in 2021 to $26.5bn in 2026. “Sustained increase in population, economic recovery, reopening of the tourism sector and strong pipeline of infrastructure development projects are among the leading factors that will facilitate growth in the sector,” the report states. Life insurance gross written premium (GWP) is projected to grow at a CAGR of 3.8%, from $3.8bn in 2021 to $4.6bn in 2026.

Looking at individual territories, the report notes that the UAE has the largest market share in the GCC with 43.7% of the region’s GWP in 2020, and is expected to grow at a CAGR of 4.1% between 2021 and 2026. Expansion of compulsory business lines, growing standards of regulation and supervision as well as favourable immigration policies are likely to support its growth, says Alpen.

The second-largest market, Saudi Arabia, is expected to grow at a CAGR of 1.6% led by massive infrastructure development as part of its Vision 2030, health and motor insurance lines, and expected recovery in business activity.

Kuwait, with a share of 4.3% in 2020, is expected to register the fastest growth at 5.3% CAGR, primarily driven by reforms by the Insurance Regulation Unit, a growing population base and increased government investments in infrastructure projects, says the report.

“Growth of the GCC insurance industry, which slowed down since the onset of the pandemic, is expected to pick up on the back of a projected rebound in the economy, reviving business confidence and robust diversification plans adopted by the GCC nations,” said Sameena Ahmad, managing director, Alpen Capital (ME). “Moreover, reopening of the tourism sector and mega events such as the Expo 2020 and the FIFA World Cup 2022 are likely to provide additional boosts to growth going forward.”

She added: “The pandemic has brought a shift in consumer behaviours, leading to demand for innovative, customised and convenient solutions. This is likely to compel insurance firms in the region to either develop in-house technological capabilities or collaborate with insurtech companies that can deliver improved customer experience.”

The report says that the strengthening regulatory environment and higher operating costs are making it increasingly difficult for smaller players to sustain the same level of growth and profitability. Alpen believes this is likely to lead to higher consolidation through increased M&A across the market, as the insurance companies are compelled to renew their focus on building resiliency and rethinking their risk management strategies.

“M&A activities across the GCC insurance sector remained buoyant during 2020, amid a downturn in activities due to the Covid-19 pandemic,” said Krishna Dhanak, managing director at Alpen Capital. “As economies reopened, 2021 witnessed some revival in businesses – leading to M&A activities stirring up again in the region. Going forward, focus is likely to be directed towards value-creating opportunities, with larger players targeting small to mid-sized players as well as tech-enabled operators and aggregators. This will not only strengthen the competitive capabilities of the players in the market but also encourage the creation of newer products and services in the sector, amid weakening profitability.”

The report notes, however, that low awareness regarding the importance of insurance products and a relatively underdeveloped life insurance market continue to pose a challenge for the sector. But it concludes: “Premium growth prospects remain resilient and regional insurance companies are now focusing on developing new business models, introducing innovative products, while also re-conceptualising services and pricing strategies for prioritised segments. Such dynamics, backed by the governments’ initiatives to improve compliance to ensure sustainability, will enable the GCC insurance industry to emerge from the crisis.”