Slower economic growth and uncertainty over the compulsory health insurance scheme are threatening to hurt Qatar’s insurance prospects, but imminent regulatory changes might help.
Qatar has been the GCC’s fastest-growing insurance market with a CAGR of 20.7% between 2006 and 2014, thanks to its strong economic performance, infrastructure development and growth in compulsory insurance, particularly the health segment.
But how have these underpinning factors performed recently? And what other factors can drive the development of Qatar’s insurance market?
Projections of slower growth
Late last year, the Ministry of Development Planning and Statistics (MDPS) forecast real GDP growth for 2015 at 3.7%, down from the 4.1% recorded in 2014. This was attributed to the contraction in the hydrocarbon sector, due to falling oil production and shutdowns for operations and maintenance.
Global factors are also posing risks to Qatar. According to a 2015 Columbia University study, the country’s natural gas revenue will likely plateau under an optimistic scenario and could plunge to $37 billion within the next decade, thanks to US shale gas production and alternative natural gas sources for emerging Asian economies that currently buy gas from Qatar.
This will ultimately affect the prospects for non-oil sectors, even as Qatar has been working hard to diversify its economy. In its Qatar Economic Outlook 2015–2017, MDPS further anticipates that the expansion in the non-oil and gas economy will moderate as project activity plateaus, population growth tapers and the government looks to improve the efficiency of public spending.
A discontinued health scheme
Qatar’s national health scheme or SEHA, announced under a new law in 2013, was welcomed as a much-needed boost for the tiny domestic insurance market. The scheme was, in fact, about to enter its final phase of implementation starting 2016, when all residents as well as foreigners and visitors would be covered by compulsory health insurance.
However, towards the end of 2015, it was announced that SEHA would be terminated in line with a Cabinet decision. Health cover for citizens will be transferred to private insurance providers from 1 June this year, but interim health insurance arrangements for citizens in the intervening period until 1 June have yet to be announced.
Although some clinics have reportedly been hit, as they are no longer able to sell some of their packages under SEHA, others have commended the decision to terminate SEHA. “The termination would allow the market to open up further and provide more opportunities for leading insurance companies to enhance and develop their medical insurance plans, which would be beneficial both for the insurer and its beneficiaries,” said Mr Salem Al Mannai, Deputy Group President and CEO of Qatar Insurance Co (QIC) – MENA region.
Mr Ali Ibrahim Abdulghani, CEO of Qatar Islamic Insurance Co (QIIC), views the move as a “challenging opportunity”. He elaborated: “The industry can draw a lot of benefit from it if it manages to control its temptation to undercut pricing. We saw this happening in Saudi Arabia where half of the companies lost half of their capital due to a price war on mandatory health insurance and eventually, the Saudi Arabian Monetary Agency had to introduce tight control measures to let some sense prevail.”
Taking stock of regulatory changes
Last year, the Qatar Central Bank (QCB), which oversees the insurance and other financial services sectors, extended the deadline for insurance, reinsurance and takaful companies to comply with its new regulations by six months to 30 November.
The new rules are intended to tighten control over insurance agencies and representative offices, and restrict the companies and insurance practitioners from getting involved in cross-border activities. The regulations also demand greater transparency, good governance and effective risk management from insurance companies.
According to Mr Ali Ibrahim, the QCB has yet to finalise the regulations. “Last year, they invited public comments on draft regulations and we expect they will be finally promulgated in first half of this year.”
He added: “The new regulations shall fill the long-standing regulatory gap in insurance market and shall create a level playing field for both national companies and QFC-registered companies, the latter being heavily regulated for a long time in contrast to the former. They introduce a risk-based capital regime and focus a lot on internal controls and risk management.
“Most importantly, the new rules disallow composite operations, which we feel shall bring consolidation of life insurance business since the share of life insurance business is not significant enough to justify separate operations by each company currently writing life business. This shall affect all players outside QFC, including QIIC.”
However, Mr Ali Ibrahim pointed out: “The new regulations do not directly cover the regulation of actuaries, insurance consultants, intermediaries, representatives, or loss adjustors. We feel QCB should act fast on this front as well to complete an overall market reform.”
A more proactive regulator
Since the QCB became the primary regulator for the insurance sector in 2013, it has been “more proactive in terms of insurance regulation, especially when it comes to reporting and analytics. At the same time, the QCB has also shown more flexibility in terms and conditions for technical requirements”, said Mr Al Mannai.
Mr Ali Ibrahim added: “There has been increased supervision ever since the QCB took over the role of primary regulator for the insurance industry, which we believe is good for the overall market as it brings resilience.”
Growing influence of brokers
The growing competition in the market has been blamed partly on brokers, who have increased in clout and numbers.
“Brokers used to play a marginal role but with the evolution of Qatar’s insurance sector and the growing complexity of risks and requirements, the role of the brokers – especially international brokers – has become even more significant and pronounced,” said Mr Al Mannai.
“Given that most companies are now tightening belts and are rationalising costs, I would expect more international brokers to enter the market and add value to the chain by sharing international expertise, experience and best practices to mitigate risks in the best way possible,” he continued, adding that the QCB needs to provide “more clarity” on the regulation of brokers and agents due to their growing importance.
This growing influence has been seen mainly in the non-life sector, with life insurance being sold mostly through bancassurance, noted Mr Ali Ibrahim.
Prospects for 2016
Despite economic uncertainties in the broader economy, the insurance industry seems to be well-placed for growth in 2016 if it can count on opportunities in the revamped health sector and regulatory reforms.