“Potential of Takaful within the GCC Insurance Market”

On 2-3 February 2016, Kingdom of Bahrain is hosting the 12th Middle East Insurance Forum. Being a member of the Gulf Cooperation Council (GCC) which is a region with predominantly Muslim population located in the Middle East, talking about the region’s insurance landscape and its potential during the forum is obviously very relevant topic. 

Economically, the region has been showing positive growths over the last decade. However, the insurance market in the region is still far from grasping its immense potential. In general, the insurance penetration rate is still relatively low in most of the Muslim majority countries including countries within the GCC region. According to available literature, one of the reasons for the low penetration rate is due to the lack of market driven or market oriented product innovation. In fact, many studies have empirically found a positive correlation between market orientation, innovation and a firm’s performance. In other words, Market driven firms are able to quickly respond to the market needs by producing innovative products and services that fit the market needs and at the same time meet the firms’ commercial and financial objectives. As a result, those firms will achieve better operational performance.

Actually, the GCC insurance market has some characteristics that are somewhat different from the other regions. First, the insurance penetration rate in the region is still relatively lower than other regions and other emerging markets. For example, Malaysia has 4 times higher insurance penetration rate than the GCC countries. Second, life insurance still remains far from its potential. This is mainly due to the misconception about life insurance which is perceived to be questioning the religious values as well as the lack of awareness among public on the potential benefits of the life insurance. Third, with significant number of high worth individuals within this region, insurance products for this segment becomes very important. However, it is still relatively less explored. Fourth, energy is a major sector and contributing big chunk of premium to the region insurance industry. Last, lack of talents has been attracting foreign professional to the regions insurance industry, but it is still inadequate to support the industry growth.  In other words, knowledge and expertise deficit and skill mismatch exist.

Based on the above characteristics, insurance market in the region needs to build a better authoritative value proposition in order to move forward. One way to achieve it is by linking up offered solutions with region’s needs, culture and values. In this regard, Shariah compliant alternatives namely Takaful, Re-Takaful, Bancatakaful and Microtakaful that are tailored to the specific needs of the customers in the region are believed to be the key success factor for insurance companies operating in the region. However, review of the literature reveals that the intensity of public awareness on Takaful concept and principles is still relatively low. In addition, despite of the importance of product innovation, there have been inadequate studies worldwide (including in the GCC region) about the product innovation for Takaful products. Therefore, In order to move forward the insurance market in the region needs to create more knowledge, expertise and talents, educate public on the benefits of Takaful, tackle religious issues related to insurance through public awareness campaign on Takaful concept and principles, improve regulation policies which are not only investor friendly but also ensure customers protection, and conduct more aggressive research and development (R&D) on Shariah compliant alternatives. With that,  it is expected in the years to come the insurance market in the GCC will develop into one of the most promising insurance markets in the world.

The author is Assistant Professor, Head of Business Administration and Humanities Department, University College of Bahrain