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The insurance sector in GCC countries is having to adapt to a fast-changing environment and evolving regulatory and governance landscape, says Adeel Mushtaq FCCA

This article was first published in the June 2013 International edition of Accounting and Business magazine.

The insurance sector in the GCC, the six-member regional bloc in the Middle East consisting of Saudi Arabia, Oman, Bahrain, Qatar, United Arab Emirates and Kuwait, is recovering fast since the global financial crisis and gearing up for growth. For most of the GCC insurers, evolving global regulatory and reporting requirements will present challenges to their business models, cost structures and how they communicate with stakeholders.

Key challenges on the minds of GCC insurance CEOs are how to achieve growth in this fast-changing environment, coupled with an equally fast-evolving regulatory and governance landscape in the region.

The GCC insurance sector is taking steps to enhance insurance regulation with a view to developing as a global financial centre and providing an international standard infrastructure, regulatory environment and necessary support for innovative solutions.

This includes a move towards risk-based capital, risk, governance and reporting environment – upcoming Phase 2 of the IFRS 4 insurance contract project. GCC insurance sector CEOs recognise that the changes over the next few years are not only complex, but also broad with implications on underlying system changes, processes for which most of the GCC insurers are not prepared and which raises open questions in the minds of GCC insurance CEOs, including how to prepare and transform their business and embrace the change at the same time as extracting value.

The new state of play is summarised below in four key components.

Regulation and capital management 

The unrelenting pace of regulatory reform across the financial services sector continues and important insurance initiatives, such as the International Association of Insurance Supervisors (IAIS), Insurance Core Principles (ICPs), the insurance contract project of the International Accounting Standards Board, the review of takaful (insurance compliance with Islamic principles) accounting standards of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), will be a key focus for many insurers for the next few years. 

As insurance supervisors in GCC countries begin to examine how best they introduce the new IAIS/ICPs requirements, a growing strategic challenge for insurers is how best to accommodate compliance and reporting requirements and extracting value. It is difficult to remember a time when the region’s insurance firms were facing so many regulatory pressures from so many sources.

Opportunities for growth

  • Proactive discussion with insurance supervisors regarding the timing and plans for incorporation of revised ICPs and impact on local regulatory reporting.
  • Gap analysis to identify areas of improvement and identifying business implications.
  • Identification of eligible capital instruments under new regime and consideration of future capital allocation.
  • Broad review of data and training requirements.

Products and markets

Changing demographics and environment are likely to have a positive impact on demand for insurance and takaful products in the region. Ambitious infrastructure projects are going to be a major growth driver for the region; therefore, a larger role for insurers is expected to support this growth.

Growth opportunities

  • Demand for insurance products will grow with a changing environment, such as urbanisation.
  • Products need to keep pace with shifts in lifestyles and needs.
  • Opportunities arising from the rollback of state support.

Distribution and operations

Customers increasingly expect to access services where, when and how they want, using smartphones and tablets. Forward-looking insurance firms are starting to explore the growing impact of using social media to communicate with customers, cater to evolving buying behaviours and mine a rich source of customer insights.

Growth opportunities

  • Aligning customer interaction with evolving preferences for greater use of mobile technology, including cloud computing.
  • Using social media to enhance interaction with customers, sales agents and intermediaries and other stakeholders through democratisation of information.

Governance and people

The approach of many supervisors continues to build upon the G20 concepts of ‘treating customers fairly and customer outcomes’ and includes some key lessons from recent insurance conduct issues. 

The new approach moves away from the traditional focus on point of sale and places the regulatory lens squarely on product design and customer value; in particular, the product development process and governance, product features and customer needs, and whether products are suitable for the intended consumer market.

Growth opportunities

  • View social media as an opportunity to engage and reach new customers, rather than a damage-limitation tool.
  • Easily understandable and transparent policy terms and conditions to attract customers.
  • Maintaining a strong risk management discipline that helps to identify and address potential challenges to the business, whether operational, credit or financial.
  • Gap analysis to identify areas of improvement and identify business implications, as well impact on existing and future disclosure requirements and alignment of internal management reporting.

New state of play 

The GCC insurance sector is undoubtedly vibrant and well placed for the new state of play. GCC insurance companies that wish to stay ahead need to adopt an international perspective and strategy to build the tools and capabilities to cut through the complexity and to implement a successful strategy for the future.

Good and bad


  • High level of infrastructure development projects.
  • Two-tier onshore/offshore regulatory environment (UAE and Qatar) to support requirements of business with commitment from supervisors for best-in-class regulatory environment.


  • Shortage of reinsurance capacity (in particular sharia-compliant retakaful capacity) for large industrial and speciality risks.
  • Competition in direct insurance.
  • Low-level of retentions within insurance/takaful carriers.


  • Low-level insurance penetration especially life insurance (in particular Saudi Arabia with significant local population).
  • Growing popularity of sharia-compliant products, eg takaful.


  • Customer awareness/understanding of takaful theory is lesser compared to other segments of Islamic finance.
  • Takaful market is not considered ready to adopt fully fledge takaful theory, ie operator is only an agent of the policy holder.

Regulatory changes

Accounting change – insurance and Takaful

  • The IASB’s insurance contract project is ambitious in its final stages, with the aim to develop a single comprehensive measurement model for all types of insurance contracts.
  • The AAOIFI has also taken up a project to review its guidance for takaful contracts to bring existing standards up to speed with the latest international standards within Islamic sharia principles. 

IAIS Insurance Core Principles (ICP)

Revised ICPs were adopted in October 2011 and since the adoption many insurance regulators have spoken about reform agendas that seek to capture and align themselves with the IAIS standards. 

ICPs are in the form of 26 standards with guidance papers covering governance, legal, solvency, valuation and group supervisory requirements.

Risk management framework

Risk management requirements for insurers are evolving with an emphasis on stakeholders, and there is a long way to go to meet the expectations of both CEOs and CROs by sufficiently aligning overall risk appetite with monitoring and enforcement on the ground.

Adeel Mushtaq FCCA is a senior manager within KPMG Assurance and Advisory Services, based in Bahrain

Last updated: 3 Apr 2014