Insurance of Arabia
By admin • Dec 30th, 2008Ajmal Bhatty of HSBC Amana said in a research study that the takaful industry had passed the stage of being perceived as a new insurance product, and that the industry has moved into the area of realization. “The industry is now at the critical point of having understood the values of a takaful system and is beginning to work with real numbers and underwriting profits for providing good and durable returns to both customers and shareholders alike.”
That growth has been spectacular. Bhatty’s research estimates that global takaful premiums in 2002 reached $2.1 billion, including those from Iran. About 40 percent of that was accounted for by family takaful. The total business was handled by 41 companies in 23 nations. Only about 5 percent of business was handled through Islamic windows.
Since then, business has soared. By 2006 the takaful industry had more than doubled to 87 companies in 29 countries, and, today, it still continues to rise.
This has been partially helped by Islamic windows, which constituted 36 percent of that number and indicated that there were a growing number of conventional insurers wishing to enter the market. That indeed has proved to be the case.
Market ripening. It seems that Saudi Arabia was ready for the arrival of Islamic compliance. Such services grew by 33 percent between 1999 and 2004.
The entry of a joint venture involving Bank al-Jazira and the UK’s Prudential insurance company was a major development in takaful offerings. Market analysts believe that it’s a sign the insurance market is becoming very attractive. The SAMA report on the industry released in mid-2008 seems to confirm that belief. Bank al-Jazira moved rapidly to consolidate its position, opening offices in Riyadh, Dammam, Mecca, Medina and Hofuf that will offer a wide range of products.
“The joint venture will be headquartered in Jeddah and there is also an international agreement for crossborder regional offices at a later stage,” says Dawood Taylor, assistant general manager and head of Takaful Ta’awuni, the insurance arm of Bank al-Jazira.
Another prominent takaful company that has been raising its profile is Salama/Islamic Arab Insurance Company, which last year established a Shari’a syndicate at Lloyd’s of London. Salama, which has a presence in Saudi Arabia, was recently assigned a BBB+ rating for its counterparty credit and insurer financial strength. Salama also has a presence in Algeria, Senegal, and Egypt and is carefully positioning itself to capitalize on the growing size of the takaful market.
The increasingly youthful profile of the Gulf States – 60 percent of people in Saudi Arabia are under 25 years of age for instance – will become a heavy drain on the public purse. This applies particularly to countries where the state has traditionally been the biggest employer soaking up the increasing numbers of graduates from local universities.
Bahrain, Saudi Arabia and the UAE have introduced compulsory health insurance for foreign workers and it will most likely apply to nationals as well. In November 2005 for example, the Saudi Minister of Health, Hamad bin Abdullah Almanea’ announced that the compulsory application of the Cooperative Health Insurance System for medium and small companies employing at least 100 expatriates would be applied to Saudis in the beginning of 2007.
During that year, Saudi Arabia’s insurance market grew by 24 percent in gross written premiums (GWP), which reached 8.6 billion Saudi riyals ($2.3 billion) compared with 6.9 billion Saudi riyals ($1.8 billion) in 2006. The growth was driven by favorable economic conditions and the expansion of compulsory motor insurance and health insurance.
The Saudi Arabian Monetary Agency issued a report in mid-2008 that detailed the surge in insurance within the kingdom and augured well for development of the industry in the GCC. It stated that the overall insurance Gross Written Premium reached 8.6 billion Saudi riyals ($2.3 billion) in 2007, compared to 6.9 billion riyals in 2000, which equates to an overall growth rate of 24 percent.
