An Overview of Insurance Line in Qatar - Research Paper Example

• Summary

The research work is carried out for conducting an in depth study of a chosen line of insurance in a gulf cooperation council country. For the research, the life insurance sector of Qatar has been selected. This is because, the insurance sector of Qatar is found to have been experiencing phenomenal growth in the recent years and because the life insurance segment is a main sub unit of an insurance sector. Also, because the Qatar insurance sector is the third largest insurance sector in the Gulf Cooperation Council (GCC) after the insurance markets in the United Arab Emirates (UAE) and Saudi Arabia. It can be identified from the study that the life insurance segment in Qatar is a high growth and high potential sector which contributes majorly to the overall investment market premiums in the nation. The market is fragmented in nature and grows in direct proportion with the national economic progress. It is noted that there are several unique challenges as well as diverse opportunities for growth of the life insurance segment in the country. Also, all the players and authorities operating in the insurance sector of Qatar are focusing on combating the challenges in the sector through efficiency enhancement and the development of supportive regulations. This has furthered the optimistic outlook of the life insurance segment of Qatar in the future years. It is also seen that the Qatar insurance industry is being substantially benefited by the enforcement of the revised and more effective regulations, increasing demand for insurance products and resilient economic conditions as the population of the country is growing.

• Abstract

This report is aimed at studying and analyzing a specific segment of the insurance industry in Qatar. The segment chosen for this report is the life insurance segment. The analysis is done by discussing the background of the life insurance segment in Qatar, the current state of this segment and future scopes and challenges of the Qatar life insurance sector. The market structure of the insurance industry, the composition, the key investment products and the leading insurance companies and their gross premiums are mentioned in the report. The report is suitably concluded by summarizing the key findings and providing suitable recommendations for the continued success and growth of the life insurance industry.

• Introduction

Life insurance can be defined as an agreement made between the insurer and the policy owners, in which the insurer agrees to pay a pre decided amount of money to the nominee in case of occurrence of the death, serious illness, terminal infection or in case of the maturity of the life insurance policy. Opting for a life insurance is considered to be necessary because of the various advantages related to it. These include monetary protection in situations of crisis, liquidity of money, tax relief, investment option and access to money in case of need. The insurance industry in Qatar forms a large sub unit of the national financial industry. The insurance industry in Qatar is a heterogeneous sector with a mix of regional, local and international insurance companies.

• Background of life insurance in Qatar

There are approximately 27 insurance providing companies operating in the market. These insurance companies have to function within the boundaries of the two key regulatory environments in the country which are the jurisdictions set up according to the Qatar Financial Centre (QFC) and jurisdictions which lie out of the QFC regulations. All the financial institutions in Qatar have to be mandatorily licensed by the Qatar Central Bank (QCB) which functions as the primary regulating and governing authority for financial institutions and companies in the country. Sharia compliance or the compliance to Islamic laws is enforced for the companies operating in the life insurance as well as non life insurance segments of this gulf country. The key statistical data related to the Qatar insurance industry is given in Table 1.

Table 1: Qatar Insurance industry related statistics

(Source: Qatar Financial Centre, 2015)

The main types of life insurance products sold in the Qatar market are the increasing or decreasing term life insurance policies, the convertible term assurance policies, the level term life insurance policies and the renewable term life insurance policies. Also, permanent or whole life insurance policies like limited payment whole life plan and ordinary whole life plan are other popular life insurance products floated in the market. With increasing awareness regarding insurance coverage and their benefits, the unit linked plans of life insurance are also becoming poplar life insurance options for the population in Qatar.

• Current state of life insurance in Qatar

The life insurance sector in Qatar is a growing and profitable segment in the insurance market. The life insurance segment forms a crucial part of the insurance industry operating in Qatar. Currently, a number of private and public insurance companies in Qatar are providing life insurance for the population in Qatar. There are two main jurisdictions which govern and control the insurance sector of Qatar. These include the Insurance Law and the Qatar Financial Centre (QFC) Law. The Insurance Law of Qatar refers to the laws of the State of Qatar which concerns the control and supervision over Insurance providing agents and companies. The QFC Law refers to the rules and regulations formulated by the Qatar Financial Centre (QFC) for monitoring and regulating the functions of the insurance companies and agents operating in the country (A. M. Best Company, 2016). Like most of the gulf countries, the life insurance sector in Qatar also accounts for a medium level of Gross Written Premiums (GWPs) which are issued in Qatar every year. The life insurance products are primarily marketed as investment products in the country. Currently, the life insurance products are offered by few dominating large international insurance companies operating in Qatar. The market is concentrated in nature and is dominated by a few key players. There are few standalone insurance providing companies and a number of captive insurance companies operating in the life insurance sector of Qatar which hold the maximum market share. The top five insurance companies in Qatar are Qatar Insurance, Qatar General Insurance and Reinsurance, Al Khaleej Takaful, Doha Insurance and Qatar Islamic Insurance. The list f the top five insurance companies operating in Qatar along with their respective gross premiums expressed in Qatari real currency is given in Table 2.

Table 2: Top 5 insurance companies in Qatar by gross premium

(Source: Qatar Financial Centre, 2015)

• Challenges and concerns of life insurance in Qatar

The insurance sector in Qatar has expanded steadily and swiftly over the recent years. The main driving factors which have driven the growth and popularity of the insurance sector including the life insurance segment include accelerating economic growth and development, increasing awareness regarding the benefits of insurance policies, government spending and the rapidly growing population in the country. From the first quarter of 2005 to the last quarter of 2015, the life insurance sector of Qatar has reported a Compound Annual Growth Rate (CAGR) of 22%. Also, it was published that the insurance sector in Qatar was the third biggest insurance market in the world. The insurance sector of Qatar accounts for 10% of the total insurance premiums collected by all the Gulf Cooperation Council (GCC) countries. Since the economy of the country is largely driven by the state, therefore, the boost in insurance activities is likely to continue till 2022 because in this year the country is supposed to host the FIFA World Cup. The economy of Qatar has demonstrated a spectacular rate of average annual real gross domestic product growth from 2007 to 2014. The annual real GDP growth of the economy has been found to be 14% from 2007 to 2014, thereby placing Qatar as one of the fastest growing economies in the world (Oxford Business Group, 2016). The accelerating momentum of the economic progression was primarily driven by the expansion in the Liquefied Natural Gas (LNG) production and export capacities. The development of a number of hydrocarbon projects planned till 2018 are likely to further boost the expansion of the economy and in turn make Qatar the most vibrant economy in the Gulf Cooperation Council (GCC) region. In addition to this, it can be forecasted that the insurance market of Qatar would increase at a compounded annual growth rate of 18% from 2014 to 2020 (Oxford Business Group, 2016). This would make the Qatar industry sector one the fastest growing insurance industry in the Gulf Cooperation Council (GCC). The commitment of the state to improve social spending levels is another main factor which will support the growth of the life insurance industry of Qatar.

A diverse range of potentials is identified across various segments of the Qatar insurance market. The life insurance segment of Qatar is likely to hold the largest premium contribution record among the gulf countries in the future as well. There exist a number of unique challenges faced by the local insurance industry of Qatar. The fragmented structure of the market is one such challenge. The insurance industry has been developed in a divided format with two distinct segments operating simultaneously. The national insurance companies are regulated by the Qatar Central Bank (QCB) while the other insurance companies function under the auspices of the Qatar Financial Regulatory Authority (QFCRA). The two distinct segments are governed by varied and contrasting regulations. The disparities and dissimilarities existing between the regulations enforced act as a challenge for the harmony and growth of the life insurance as well as non life insurance segments of the market. However, in 2015, a new draft of regulations has been formulated and published by the Qatar Central Bank (QCB) to change the regulatory constructs governing the national insurance sector. This regulation related proposal is aimed at bringing about better uniformity and harmony in the insurance segment of Qatar through the establishment of nationalized regulations which have to be followed by all the companies functioning in the Qatar insurance sector, irrespective of whether these companies are national, international or state level in origin and nature (Qatar Financial Centre, 2015). The absence of any centrally managed insurance statistics database also acts as a significant challenge for the growth and sustainability of the life insurance segment in Qatar. The lack of any such statistical records makes it difficult for the enterprises to run business related analytics and track long term patterns and trends of the industry. In addition, the insurance penetration rate in Qatar is low which can be taken up both as an opportunity and a challenge for the insurance companies functioning in this sector. While the low penetration suggest that there is opportunity in the form of a large untapped market and potential customer base, it may also be viewed as a challenge because widening the awareness level among the population may take a long time and considerable efforts on the part of the insurance companies. The main authorities regulating the Qatar insurance sector like the Qatar Central Bank, The Qatar Financial Regulatory Authority (QFRA) and the key players in the market are working towards addressing these challenges (Schanz, 2013). The effective mitigation or negation of these challenges should be done to encourage and support the ongoing expansion of the sector.

• Recommendations

The ongoing population growth in Qatar and the recent changes made in the regulatory environment are likely to support the continued growth and success of the life insurance sector including insurance and reinsurance segments. The growth of the insurance market in a country tends to move in direct proportion with the economic growth of the nation. Since the economy of Qatar is largely driven by economic progression and advancements, therefore, it is forecasted that the insurance sector of the country will achieve more growth and popularity in the coming years. The upcoming regulations in the economy are aimed at achieving harmony and uniformity in the sector and also make the sector less concentrated in nature so that suitable entry and growth opportunities and propositions can be provided to the new companies as well. The harmonization of the financial and regulatory environment of Qatar is a much needed step which would support the growth and development of all types of insurance segments in the country (The Gulf Times, 2016). The overall outlook for the life insurance segment in Qatar seems to be highly optimistic and promising. The life insurance segment of Qatar is forecasted to experience rapid growth and progress in the foreseeable future. The state of the market of insurance products is very strong and the new regulatory reforms introduced in the country are likely to make the insurance sector stronger and more established. Also, there is a considerable chance that with an improvement in the management practices of the insurance companies competing on an international scale, the overall management and performance of the insurance sector will improve. This would also enable more number of insurance companies to retain higher risk levels which can contribute positively to the insurance industry as well as the national economy as a whole.

• Conclusion

It can be inferred that the insurance industry in Qatar is marked by both opportunities and challenges. However, if the positive performances and the functioning patterns of the sector in the recent years are considered, it can be forecasted that the life insurance sector as well as the non life insurance sector in the country have high growth potentials. Low market penetration and awareness about insurance coverage, market fragmentation, disparities exiting between governing regulations and over dependence on reinsurance are identified to be the key hindrances in the path or growth of the sector. On the other hand, organic expansion within the industry, support provided by the reviews made on the regulatory environment, combined efforts of national authorities and insurance companies and the accelerated economic growth of the country are identified as the key growth drivers for the insurance industry of Qatar.