OVERSIGHT SPELLS UNDERWRITING
Kuwait's crowded insurance sector has been calling for an independent regulator, and it faces a raft of challenges that may yet be somewhat mitigated by state projects.
Despite some upward movement in penetration over the years, the Kuwaiti insurance sector, compounded by the economic fallout of new oil, faces key headwinds, some of which are familiar to other sectors of the economy. Meanwhile, the lack of a regulator has curbed the streamlined and efficient growth of the sector, today largely prone to price competition in a crowded market.
Building Premiums on Infrastructure
"When in doubt, build" seems to be a widespread political response to an economic challenge. And certainly, despite efforts to curb public spending, Kuwait's Vision 2035 foretells investments of around USD100 billion, toward economic diversity. This will no doubt be felt warmly in the insurance sector, notably the non-life segment through vast engineering schemes, while the expatriates arriving to work on them will build life product premiums. Consumer confidence, too, often results, whereby consumption of insurable quantities such as property and cars heads north.
The Paternalist Enigma
While rightly beloved by the citizen with ingrained life-long expectations of the state, Kuwait's welfare system is the bane of the private sector, fundamental to economic diversification. This applies to insurance, too. The country provides all citizens with free medical care, whereby a tiny life segment (one-third of non-life) is largely capped by the comprehensive, and gratis, provisions of the social security system. Nonetheless, the current health insurance policy for expatriate personnel costs a foreigner a minimum of KWD130 per annum, although discounts apply for families. And since the expatriate community comprises two-thirds of the total population, it follows that this is a lucrative proposition for the insurance sector.
Indifference and Concentration...
The insurance sector in Kuwait printed a total gross premiums written (GPW) of USD1.01 billion in 2014, thereby contributing approximately 4.5% to regional GPW. As of that year, insurance penetration and density were respectively at 0.6% and USD291. Life insurance growth, while moderate, has been limited by the above-mentioned public indifference to insurance as a wealth management and savings tool. That said, greater affluence plus an educated workforce are seen as fertile soil to chase policies on, going forward. The insurer, though, is hard pressed to foster public awareness of preparation for the unforeseen. Unsurprisingly, then, Moody's in late 2015 identified the local sector as fractured, where 23 domestic firms, two being reinsurers, and 10 foreign entities chased premiums. Furthermore, the crowd since 2000 had swollen due to the opportunity of 100% foreign ownership of a business. Yet by 2014 the leading five insurers, namely Gulf Insurance Group, Kuwait Insurance Company, Warba Insurance Company, Al Ahleia Insurance Company, and Boubyan Takaful Insurance Company, sat on a combined 63% market share. The remaining smaller players were thus making do with an average premium per insurer of USD13 million.
...But No Consolidation So Far
Moody's noted, too, that Ministry of Commerce and Industry policy to bolster insurers' capitalization by hiking core capital requirements in 2011 to KWD10 million (USD33.1 million) for composite insurers and KWD15 million for reinsurers did curb the entry of new players to some extent, but failed to see smaller existing players hang up their hats, or opt for consolidation. Furthermore, these players are also owned by large liquid businesses, and as such continue to swim the same familiar pond, rather than diversify by product or geography. Indeed, GPW is 80% comprised of non-life policies, chiefly from the motor branch. And so the only partial success of changes made since 2011 to prevailing insurance law, dating back to 1961, prompts the need for...
...Differentiation
Tareq A. Wahab Al Sahhaf is the CEO Gulf Insurance & Reinsurance Company (GIRI), which, established in 2007, is the largest insurance firm by written and retained premiums. He explained to TBY the steps taken to hone human resources and leverage ICT to make precisesly such a difference. The results, he argued, were clear. “Having been upgraded from A- to A by A.M. Best, GIRI is now the fourth insurance company in the Arab world to obtain such a rating.” Furthermore, being a part of Gulf Insurance Group (GIG), a diversified insurance group operating in the Middle East and North Africa, “we can always leverage our sister companies in Egypt, the UAE, Saudi Arabia, Iraq, Syria, Algeria, and Turkey.”
Regulation-The Virtue of Checks and Balances
The government has been petitioned to provide an independent industry regulator, staffed by those, professionally speaking, in the know, in the interests of realizing larger plans for Kuwait's financial universe. GIRI's Al Sahhaf adds that “You simply cannot install a regulator that does not have a background in insurance.” Moreover, with the right oversight, “(the) regulator would be able to impose ratings for companies, as well as solvency margins, capital adequacy, reserving, and actuarial studies, (paving the way for) products that cannot be sold in the market without approval by the regulator.” Those calling for such a regulator talk of the lack of reliable sector data needed to analyze market trends and draft strategy, where results, collected quarterly, appear up to a year later. They argue that only then could the sector gradually shift away from margin-eroding price competition. In their defense, they cite the regional and local measures taken to foster a leaner and more robust industry, such as the 2015 doubling of minimum capital requirements in Oman and stiffer liquid asset requirements in Kuwait and the UAE. Yet, in October 2016 Kuwait's Ministry of Commerce and Industry decided not to appoint a separate insurance industry watchdog, although adjustments would follow subsequent developments in the industry. The country is in the throes of public spending austerity, and this need to slim down a vast state apparatus could in part have been behind the decision.
Tank Half Takaful
Al Sahhaf points out that these players, again, are also competing with conventional companies with one perceived advantage. “When it comes to the takaful license, it is better than the traditional one, as a takaful license allows for both (activities).” Accordingly, “GIRI is labelled a conventional insurer, but Islamic insurers can cover both conventional and Islamic businesses. They are not supposed to, but this happens.” Yet their performance, regardless of this would-be head start, is limited by their obligation to distribute excess profits to policy holders, rather than turning profits like conventional counterparts. Where a deficit is experienced, takaful entities end up funding payments via interest-free loans, with shareholders taking the brunt of the loss. Ultimately, too, takaful players, while increasingly sophisticated, have fewer products green-lighted by sharia rulings, and therefore rely heavily on deposits at the central bank, curbing innovation.
By way of a conclusion, we may look to the 2017 prognosis of the Middle East Insurance Review. It, too, notes that regional economic reform in support of diversification will reduce business concentration in the insurance sector. Indeed, as the economy chapter reveals, Kuwait is working to stimulate its SMEs, which will eventually require more diverse coverage given sufficient awareness and incentive. And, meanwhile, global security concerns are seeing businesses across all sectors working to protect themselves against all eventualities, such as cancelled contracts or instability. Those same concerns, and the realities of price competition, too, are bringing risk management into sharper relief among the insurers themselves.

TABLE OF CONTENTS
Guest Speaker
Dato’ Sri Haji Mohammad Najib bin Tun Haji Abdul Razak, Prime Minister , Malaysia
TBY talks to Dato' Sri Haji Mohammad Najib bin Tun Haji Abdul Razak, Prime Minister of Malaysia, on the growing contribution that Islamic countries are making to the global economy and how Islamic financing can offer new opportunities to industry and academia.
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HE Khaled Nasser Abdullah Al-Roudan, Minister, Commerce and Industry (MoCI)
TBY talks to HE Khaled Nasser Abdullah Al-Roudan, Minister of Commerce and Industry (MoCI), on tools and strategies for diversifying the economy, the role of international players in supporting a wider range of sectors, and the rapidly developing food industry.
read articleInterview
HE Yousef Al-Ebraheem, Advisor , Al-Diwan Al-Amiri
TBY talks to HE Yousef Al-Ebraheem, Economic Advisor to the Al-Diwan Al-Amiri, on the need for a rejuvenation of Kuwait's infrastructure to support an economy that has come a long way and the role education will play in delivering the expertise required by the society.
read articleInterview
Dr. Khaled A. Mahdi, Secretary-General , Supreme Council for Planning & Development (GSSCPD)
TBY talks to Dr. Khaled A. Mahdi, Secretary General of the Supreme Council for Planning & Development (GSSCPD), on the breakdown of Kuwait's long-term economic plan, the KPIs that will benchmark its success, and what Vision 2035 means for the nature of the economy.
read articleInterview
Sheikh Dr. Meshaal Jaber Al Ahmed Al Sabah, Director General, Kuwait Direct Investment Promotion Authority (KDIPA)
TBY talks to Sheikh Dr. Meshaal Jaber Al Ahmed Al Sabah, Director General of the Kuwait Direct Investment Promotion Authority (KDIPA), on launching an investment promotion conference, attracting the right partners for PPP, and expectations for the year ahead.
read articleInterview
HE Dr. Mohammad M. Al-Zuhair, Executive Chairman, Kuwait National Fund for Small and Medium Enterprise Development
TBY talks to HE Dr. Mohammad M. Al-Zuhair, Executive Chairman of the Kuwait National Fund for Small and Medium Enterprise Development, on empowering young Kuwaitis, IT and entrepreneurialism, and the growth of fintech.
read articleFocus: Still all in the family?
Merchant families in Kuwait
Family-owned businesses play a major role in the Kuwaiti economy. However, with many approaching the third generation of management, they are starting to come across unique problems that may pose issues for the greater economy.
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HE Sheikh Abdullah Ahmad Al-Humoud Al-Sabah, Director, Environmental Public Authority (EPA)
TBY talks to HE Sheikh Abdullah Ahmad Al-Humoud Al-Sabah, Director of Environmental Public Authority (EPA), on how oil companies can contribute to Kuwait's vision on sustainability and the various projects that are coming to fruition.
read articleInterview
Dr. Samira S. Omar Asem, Director General, Kuwait Institute for Scientific Research (KISR)
TBY talks to Dr. Samira S. Omar Asem, Director General of the Kuwait Institute for Scientific Research (KISR), on commercializing the green innovations coming from R&D initiatives, the role of collaboration across multiple sectors, and projects that we should expect to see more of in the future.
read articleInterview
Khaled Abdulrazzaq Al Khaled, Vice-Chairman and CEO, Boursa Kuwait Company
TBY talks to Khaled Abdulrazzaq Al Khaled, Vice-Chairman and CEO of Boursa Kuwait Company, on the takeover of the Kuwait Stock Exchange and the role the bourse plays in both the privatization of government entities and as a source of capital for family businesses.
read articleInterview
HE Essam Abdul Mohsen Al-Marzouq, Minister, Oil & Minister of Electricity and Water
TBY talks to HE Essam Abdul Mohsen Al-Marzouq, Minister of Oil & Minister of Electricity and Water, on cooperation with other ministries, the private sector's role in energy, and upcoming regulations.
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Ghalib Shlash Safouq, Assistant Undersecretary for the Construction Projects Sector, Ministry of Public Works
TBY talks to Ghalib Shlash Safouq, Assistant Undersecretary for the Construction Projects Sector at the Ministry of Public Works, on Kuwaiti companies, the country's healthcare facilities, and the role of international companies.
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Khaled K. Al Mashaan, Vice-Chairman & CEO, ALARGAN International Real Estate Company
TBY talks to Khaled K. Al Mashaan, Vice-Chairman & CEO of ALARGAN International Real Estate Company, on drivers of growth, operating throughout the region, and real estate prices in Kuwait.
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Tawfiq Ahmed Bin Sultan, Chairman, Middle East Telecommunications Company (METCO)
TBY talks to Tawfiq Ahmed Bin Sultan, Chairman of the Middle East Telecommunications Company (METCO), on e-government potential, the future of the economy, and the state of technology uptake in Kuwait.
read articleInterview
Sheikh Yousef Abdullah Sabah Al-Nasser Al-Sabah, Director General, Kuwait Ports Authority (KPA)
TBY talks to Sheikh Yousef Abdullah Sabah Al-Nasser Al-Sabah, Director General of Kuwait Ports Authority (KPA), on his operational plans for the near future and turning Kuwait into a regional logistics hub.
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HE Khaled Nasser Abdullah Al-Roudan, Acting Minister, State for Youth Affairs
TBY talks to HE Khaled Nasser Abdullah Al-Roudan, Acting Minister of State for Youth Affairs, on e-platforms and blended learning programs, developing ICT skills, and preparing young people for tomorrow.
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Eng. Ali Hussein Al Youha, Secretary-General, National Council for Culture, Arts and Letters
TBY talks to Eng. Ali Hussein Al Youha, Secretary-General of the National Council for Culture, Arts and Letters, on the activities of the Council and works to preserve and enhance Kuwait's cultural heritage.
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