UAE-based investment banking advisory firm, Alpen Capital, launched its latest GCC Insurance Industry report on Tuesday, 8th February. The report provides a comprehensive overview of the GCC insurance sector and outlines the outlook, recent trends, growth drivers and challenges in the sector. It also profiles some of the renowned insurance companies in the region.

The report was launched over a webinar followed by a panel discussion featuring Krishna Dhanak, Managing Director, Alpen Capital; Fareed Lutfi, Secretary General, Gulf Insurance Federation; and Aftab Hasan, Chairman, Risk Exchange DIFC Limited. Sameena Ahmad, Managing Director, Alpen Capital moderated the webinar.

The GCC insurance industry has witnessed moderate growth in recent years amid macroeconomic concerns, constrained fiscal and business spending as well as intensifying competition within the industry. The outbreak of COVID-19 since the start of 2020 has also weighed on the growth prospects of the broader industry. However, long-term prospects of the GCC insurance sector remains positive and digitization initiatives by insurers in the region are not only helping in transforming the entire value chain but also providing an opportunity to stay ahead of competition. These have helped in forming a strong base for the GCC insurance market, which is set to steadily grow over the next five years.

According to Alpen Capital, the GCC insurance market is projected to grow at an annualized growth rate of 3.2% from US$ 26.5 billion in 2021 to US$ 31.1 billion in 2026. The life insurance gross written premium (GWP) is projected to grow at a CAGR of 3.8% from US$ 3.8 billion in 2021 to US$ 4.6 billion in 2026. Growth rates across each country vary based on their projected population increases. On the other hand, the non-life insurance segment in the GCC is estimated to grow at a CAGR of 3.1% from US$ 22.7 billion in 2021 to US$ 26.5 billion 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.

Having the largest market share with 43.7% of the region’s GWP in 2020, UAE is expected to grow at a CAGR of 4.1% between 2021 - 2026. Expansion of compulsory business lines, growing standards of regulation and supervision as well as favorable immigration policies are likely to support its growth. 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, which is a relatively smaller market 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 (IRU), a growing population base and increased government investments in infrastructure projects.

“Growth of the GCC insurance industry which slowed down since the onset of the pandemic is expected to pick up on the back of projected rebound in the economy, reviving business confidence and robust diversification plans adopted by the GCC nations. 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 boost to growth going forward.

The pandemic has brought a shift in consumer behaviors leading to demand for innovative, customized 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.” says Sameena Ahmad, Managing Director, Alpen Capital (ME) Limited.

The COVID-19 pandemic has compelled regional insurers to create a new ecosystem in accordance with consumer driven digitalization preferences. At the same time, regulators across the GCC have introduced reforms as part of their broader FinTech strategy, including the adoption of InsurTech. Strengthening regulatory environment and higher operating costs is making it increasingly difficult for smaller players to sustain with the same level of growth and profitability. 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 downturn in activities due to the COVID-19 pandemic. 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 amidst weakening profitability.”, says Krishna Dhanak, Managing Director at Alpen Capital.

The report highlights that low awareness regarding the importance of insurance products and relatively underdeveloped life insurance market continues to pose as a challenge for the sector. Lower revenues due to slump in oil prices, coupled with COVID-19 induced travel restrictions, job losses, business closures, and a subsequent fall in per capita income have put the regional insurance industry under increased pressure and impacted overall demand for related insurance products. Moreover, the rising uncertainty due to the pandemic has led to re-evaluation or delays in infrastructure projects which is likely to affect the growth of valuable insurance assets such as property.

Despite challenges premium growth prospects remain resilient and regional insurance companies are now focusing on developing new business models, introducing innovative products, while also re-conceptualizing services and pricing strategies for prioritized 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.

Please click here to access Alpen Capital’s latest report on GCC Insurance Industry.