Raising the Bar

Insurance Regulator

On the whole, development of the insurance sector in Kuwait has lagged behind those of neighboring countries in terms of insurance penetration, implementation of international industry standards, and regulation. There […]

On the whole, development of the insurance sector in Kuwait has lagged behind those of neighboring countries in terms of insurance penetration, implementation of international industry standards, and regulation. There are reasons for this. With the exception of motor insurance, laws in Kuwait do not mandate insurance in most areas, limiting the potential of growth in insurance lines such as life, health, and even accident insurance. Furthermore, with the government providing safety nets for its citizens for social services such as housing, health, and education, the need for locals to purchase insurance has been relatively low. These factors have led to a fragmented insurance industry and a need for improvement.

One area in which industry players do see potential for development is through the establishment of an independent regulatory body to oversee the sector. General consensus from industry professionals is that the lack of adequate regulatory oversight continues to undermine the operating environment and is a deterrent to potential investment. However, this would all change with the establishment of an independent body regulating the insurance industry in Kuwait—something industry players and the market stand to reap the benefits of if put into practice effectively.

Tareq A. Al Sahhaf, Chairman of the Kuwait Insurance Federation, described the lack of proper regulation in the insurance industry in Kuwait as one of the major challenges the industry is facing. He explained to TBY that “the insurance industry in Saudi Arabia is regulated by the Saudi Arabian Monetary Agency (SAMA), Bahrain is regulated by the Central Bank, and insurance regulation in Egypt is carried out by an independent regulator with full legal control to set and enforce policy. But in Kuwait, the insurance industry is regulated through a department in the Ministry of Commerce and this presents obvious administrative challenges.“

Reforms would strengthen the industry, which is expected to grow considerably in the coming years. Though small, there is growth potential in the country’s expanding Islamic insurance or takaful segment. In addition, increasing awareness of the benefits of insurance and the protection it provides to companies and individuals, coupled with a general rise in incomes, could be a driver of and possible boost for increasing total written premiums within the life insurance segment of the industry, which has historically been one of the segments with the lowest penetration, but which has seen growth over the past few years. As Kuwait continues to increase its expenditure in healthcare, health insurance is expected to remain the second-largest insurance segment leading up to 2017. Non-life insurance will remain the largest with motor insurance the leading category within these areas over the same period to 2017. Reinsurance, both conventional and takaful, also stands to see an increase in demand moving forward. These potential growth areas could each become more attractive if regulation, and thus supervision of their activity, is ramped up.

Kuwait is going through several reforms in the regulation of its financial sector overall, aimed at encouraging capital inflows over outflows, reducing the risks of financial shocks, and raising the overall operating standards to international best practices. Should Kuwait undertake regulatory reform of its insurance industry by means of establishing an independent authority to oversee the sector, the increasing competition could be more closely monitored, and addressing issues such as capital adequacy and other protective measures could lead to an increase in investor interest in Kuwait’s insurance industry. As the sector begins to piece together its fragmented structure, increased insurance penetration may follow suit, leading to greater rewards and ultimately less risk for all.

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