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Elias R Chedid, director Chedid Corporate Solutions, LLP considers the recipe for success for insurers looking to expand their presence in the region.

At the time when business potential is looming in the Middle East, central Asia and north Africa (MCA), there is a definite need for continuous re-strategising and managing for growth. Managing for growth can not relate to managing the past, it is naturally managing for the future. This requires vision and vision needs people with reliable information at hand. Unfortunately in the MCA region there is a challenge in fulfilling these two main requirements, “human capital” and “information”.

Growth is at every note, since 2001, developing countries and MCA countries have witnessed continuous GDP growth. MCA moved from below four percent in 2001 to more than 6.5 percent in 2007. GCC countries had the lion’s share and this was reflected in every aspect of the economic activity. We witnessed population growth, especially due to the imported workforce, consumer spending due to rising income and liquidity, government spending as a result of increased oil prices, credit as a direct result of reduced political risks and increased reserves.

Obviously the risks associated with such activities led to potential growth in the risk business. The extent to which the insurance industry is geared to match the requirements for growth is not clear. Although between 2004 and 2007 in the Middle East and north Africa more than 20 new insurance companies emerged to exceed 355 by early 2008, we continue to see some shortages in growth ingredients in the market, such as product innovation at the personal lines level, shortage in applying technology in the distribution systems and a conservative approach towards risk retention.

However, this growing number of insurance companies may be perceived positively, considering the fact that an efficient way to grow is to be present in a growing market. The challenge is to be well positioned at the time when demand calls for expert delivery in a market that may move against you if you are not ready for it.

For some companies it’s a call for change, which under evolving regulatory regimes may eventually lead to healthier competition and possibly some needed M&A activity that was zero in 2006 and 2007. Every new entrant to the market has its own impact, positively or negatively, and would be received differently in different markets. It is the balance of weighing the internal factors within the insurance organisation with those of the market behaviour and regulatory environment.

In the Middle East, the market has always calls for improved performance at every level. In fact there are some good examples in the region. In Jordan, a highly competitive market, some relatively small size insurance companies, whether in market share or capital, have risen to produce extremely strong leading results within a period of two or three years. On the Other hand, in certain Gulf countries, while success stories are well recorded, it is yet realized that certain companies still venture into high-risks line such as medical insurance, notwithstanding the importance of underwriting for profit, and were later forced to cease acquiring new business following writing millions of US Dollars at high-loss ratios.

This counts into the equation of applying on the one side, total internal management control and a clear positive vision, and on the other, measuring the market need and its regulatory support.

The positive surge in the insurance industry in the region is ahead of GDP growth rate, but is not exceptionally sweeping as it could be. Premium income grew from US$4.9 billion in 2004, to almost US$10 Billion in 2007 at a rate of 16 percent to 21 percent per annum, with US$ 12 bn estimates for 2008. Real GDP increased from US$1,048bn in 2004, of which GCC represented 45.8 percent to US$1,721 bn in 2007, of which GCC represented 45.97 percent at an average growth rate of 5.6 percent where the GCC GDP grew at an average of 6.35 percent.

The population has grown at a tremendous rate paving the way for a wide personal lines market. According to the UN population division, Mena population 1950 was 104 million, 50 percent of these in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the UAE and Yemen. In 2007 the population grew to 432 million with 50 percent still dominated by the same countries, where incidentally, it is those same countries that are dominating the largest share of GDP growth. The estimates for 2050 are 692 million people at nearly a similar split.

Observing the population rise and sectoral contributions to GDP growth should assist decision makers to prepare for upcoming opportunities in addition to those at hand.

Since 2003, the Middle East and central Asia real GDP growth in the non-oil sector has been increasing at the expense of the oil sector: In 2003, the contribution ratio of oil to non-oil was nearly1:1, while in 2005 it was 3:7 and in 2007 1.5:8.5 in favour of the non-oil sector. This is a long call for insurers to line up high-quality customer service, strong products, highly qualified human capital and proper organisational structure.

It is also a call for governments to apply robust intelligent regulatory policies that can help mould advanced insurance practices and present tools to allow fair market practice, increased performance quality by enforcing corporate governance compliance and, most importantly, assist in publishing high-quality reliable information. This observation necessities the focus on personal lines such as motor, life, medical, personal accident and others, whether Takaful or conventional insurance.

Decision-makers need to apply continuous internal performance reviews and market research with the role of the consultant becoming much more demanding due to the changing market needs and times scale constraints. Decision-makers need to make use of the existing regulatory environments such QFC, DIFC, SAMA… and prepare for a change in the operational role play from localisation to regionalisation and ultimately multi-nationalisation. The MCA insurance market is not a single market, neither is the Middle East or even the GCC. There is no single Middle East insurance market at present; it is several markets operating according to different rules. This may not be the case for a long time.

However, the regulatory trends in certain GCC countries form an important force in the direction of common market practice in the GCC and neighbouring countries. Many decision makers already realised the upcoming changes in the GCC financial sector that may necessitate a single unified insurance regulatory framework within the next 10 years.

Insurance companies can not survive the economic cycle without strong management. Three hundred and fifty five companies require a similar number of general managers, financial controllers and senior underwriters but the human capital supply does not meet the job market demand. With the deficit in the number of qualified senior insurance professionals, more insurers would have to explore the advisory potential of consultancy firms in the region, to prepare the company to advance into the market. The repair list could be anything from human resources, distribution techniques, operational processes, actuarial assumptions. But one thing is certain to maintain leadership – an insurance firm would need to attain pole position in its extended markets. This requires strong internal structure and repositioning and reconsiderations in terms of partnerships, JVs, mergers or acquisitions.

The region may have ingredients for success: we’d better have the right recipes.

	Room to grow in insurance market Elias R Chedid, director Chedid Corporate Solutions, LLP considers the recipe for success for insurers looking to expand their presence in the region. At the time when business potential is looming in the Middle East, central Asia and north Africa (MCA), there is a definite need for continuous re-strategising and managing for growth. Managing for growth can not relate to managing the past, it is naturally managing for the future. This requires vision and vision needs people with reliable information at hand. Unfortunately in the MCA region there is a challenge in fulfilling these two main requirements, “human capital” and “information”. Growth is at every note, since 2001, developing countries and MCA countries have witnessed continuous GDP growth. MCA moved from below four percent in 2001 to more than 6.5 percent in 2007. GCC countries had the lion’s share and this was reflected in every aspect of the economic activity. We witnessed population growth, especially due to the imported workforce, consumer spending due to rising income and liquidity, government spending as a result of increased oil prices, credit as a direct result of reduced political risks and increased reserves. Obviously the risks associated with such activities led to potential growth in the risk business. The extent to which the insurance industry is geared to match the requirements for growth is not clear. Although between 2004 and 2007 in the Middle East and north Africa more than 20 new insurance companies emerged to exceed 355 by early 2008, we continue to see some shortages in growth ingredients in the market, such as product innovation at the personal lines level, shortage in applying technology in the distribution systems and a conservative approach towards risk retention. However, this growing number of insurance companies may be perceived positively, considering the fact that an efficient way to grow is to be present in a growing market. The challenge is to be well positioned at the time when demand calls for expert delivery in a market that may move against you if you are not ready for it. For some companies it’s a call for change, which under evolving regulatory regimes may eventually lead to healthier competition and possibly some needed M&A activity that was zero in 2006 and 2007. Every new entrant to the market has its own impact, positively or negatively, and would be received differently in different markets. It is the balance of weighing the internal factors within the insurance organisation with those of the market behaviour and regulatory environment. In the Middle East, the market has always calls for improved performance at every level. In fact there are some good examples in the region. In Jordan, a highly competitive market, some relatively small size insurance companies, whether in market share or capital, have risen to produce extremely strong leading results within a period of two or three years. On the Other hand, in certain Gulf countries, while success stories are well recorded, it is yet realized that certain companies still venture into high-risks line such as medical insurance, notwithstanding the importance of underwriting for profit, and were later forced to cease acquiring new business following writing millions of US Dollars at high-loss ratios. This counts into the equation of applying on the one side, total internal management control and a clear positive vision, and on the other, measuring the market need and its regulatory support. The positive surge in the insurance industry in the region is ahead of GDP growth rate, but is not exceptionally sweeping as it could be. Premium income grew from US$4.9 billion in 2004, to almost US$10 Billion in 2007 at a rate of 16 percent to 21 percent per annum, with US$ 12 bn estimates for 2008. Real GDP increased from US$1,048bn in 2004, of which GCC represented 45.8 percent to US$1,721 bn in 2007, of which GCC represented 45.97 percent at an average growth rate of 5.6 percent where the GCC GDP grew at an average of 6.35 percent. The population has grown at a tremendous rate paving the way for a wide personal lines market. According to the UN population division, Mena population 1950 was 104 million, 50 percent of these in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the UAE and Yemen. In 2007 the population grew to 432 million with 50 percent still dominated by the same countries, where incidentally, it is those same countries that are dominating the largest share of GDP growth. The estimates for 2050 are 692 million people at nearly a similar split. Observing the population rise and sectoral contributions to GDP growth should assist decision makers to prepare for upcoming opportunities in addition to those at hand. Since 2003, the Middle East and central Asia real GDP growth in the non-oil sector has been increasing at the expense of the oil sector: In 2003, the contribution ratio of oil to non-oil was nearly1:1, while in 2005 it was 3:7 and in 2007 1.5:8.5 in favour of the non-oil sector. This is a long call for insurers to line up high-quality customer service, strong products, highly qualified human capital and proper organisational structure. It is also a call for governments to apply robust intelligent regulatory policies that can help mould advanced insurance practices and present tools to allow fair market practice, increased performance quality by enforcing corporate governance compliance and, most importantly, assist in publishing high-quality reliable information. This observation necessities the focus on personal lines such as motor, life, medical, personal accident and others, whether Takaful or conventional insurance. Decision-makers need to apply continuous internal performance reviews and market research with the role of the consultant becoming much more demanding due to the changing market needs and times scale constraints. Decision-makers need to make use of the existing regulatory environments such QFC, DIFC, SAMA… and prepare for a change in the operational role play from localisation to regionalisation and ultimately multi-nationalisation. The MCA insurance market is not a single market, neither is the Middle East or even the GCC. There is no single Middle East insurance market at present; it is several markets operating according to different rules. This may not be the case for a long time. However, the regulatory trends in certain GCC countries form an important force in the direction of common market practice in the GCC and neighbouring countries. Many decision makers already realised the upcoming changes in the GCC financial sector that may necessitate a single unified insurance regulatory framework within the next 10 years. Insurance companies can not survive the economic cycle without strong management. Three hundred and fifty five companies require a similar number of general managers, financial controllers and senior underwriters but the human capital supply does not meet the job market demand. With the deficit in the number of qualified senior insurance professionals, more insurers would have to explore the advisory potential of consultancy firms in the region, to prepare the company to advance into the market. The repair list could be anything from human resources, distribution techniques, operational processes, actuarial assumptions. But one thing is certain to maintain leadership – an insurance firm would need to attain pole position in its extended markets. This requires strong internal structure and repositioning and reconsiderations in terms of partnerships, JVs, mergers or acquisitions. The region may have ingredients for success: we’d better have the right recipes.