Mandatory health coverage to increase insurance uptake in Bahrain

The insurance sector is set to undergo a series of reforms under the government’s Financial Services Development Strategy (FSDS) 2022-26, announced at the end of 2021 and developed in line with the broader Bahrain Economic Vision 2030 to stimulate growth over the course of the decade.

The strategy has five priorities: create job opportunities; develop capital markets; strengthen legislation and regulatory policies; expand the insurance sector; and augment financial services and fintech. It also details eight key performance indicators that the financial services sector hopes to achieve over the four-year period, including increasing the insurance industry’s contribution to GDP to 8% by 2026.

Within the insurance industry, the FSDS 2022-26 outlines four key aims. First, it seeks to issue directives to enhance protections for policyholders. Second, the strategy aims to improve customer awareness of insurance packages and increase insurance premium as a percentage of GDP. Third, it plans to issue regulations for the digital transformation of automotive and medical insurance services; and lastly, it sets out to introduce new insurance products in line with increasing investment in green technology and emissions targets.

The two largest contributors of gross premium, medical and motor insurance, play an important role in the strategy. With a new mandatory health insurance plan slated to be gradually rolled out from the second half of 2022 and the expansion of new products such as electric vehicle insurance, these two segments are likely to remain pivotal to the insurance sector’s growth.

Sector Growth

The kingdom’s insurance industry has expanded steadily since automobile insurance was first introduced in 1950. Indeed, Dubai-based investment banking advisory firm Alpen Capital has projected that the kingdom’s insurance market will grow at a faster pace in 2021-26, at 2.2%, compared with 2015-20, which saw a 0.3% compound annual growth rate (CAGR). While it is the smallest insurance market in the GCC, Bahrain’s insurance penetration rate was the second highest in 2020, at 2.1%, behind the UAE. Insurance density, measured as insurance premium per capita, was also the third highest in the region, at $500.30, exceeding the GCC average of $459.90.

Alpen Capital expects that growth will be driven by the country’s post-pandemic economic recovery and diversification, government infrastructure development plans and healthy population growth. Growth in 2021-26 is expected to be led by the life segment, with a projected CAGR of 4.7%, with the non-life segment forecast to expand at a more moderate rate of 1.4% over the five-year period.

The insurance sector’s contribution to GDP has risen from 1.97% in 2011 to roughly 5.8% in 2021, according to the Central Bank of Bahrain (CBB). In order to reach the target of 8% by 2026, the country will have to expand its reach considerably, but this will be helped by the introduction of new products and mandatory health insurance. For the former, the healthy competition among the kingdom’s 36 licensed insurers could help to spark innovative product development as companies vie for a larger share of the relatively small market. The sector’s strength relative to its peers in the GCC suggests that there is significant growth potential.

Health Insurance

The medical insurance segment is the largest contributor to gross written premium (GWP) and has expanded rapidly in recent years. The health insurance segment increased its share of non-life GWP from 24% in 2015 to 30.9% in 2020. This was largely attributed to growing demand for insurance products from private sector employees. The pandemic has also put a spotlight on health and accessible care and may have encouraged customers to seek out more comprehensive coverage.

Demand is likely to rise further with the introduction of the Social Health Insurance Programme, which is set to be rolled out to expatriates in the second half of 2022 and nationals at the beginning of 2023. The scheme requires both Bahrainis and expatriates to hold mandatory basic health coverage and seeks to encourage competition between public and private operators, in turn fostering an expansion of the services offered. Under the new framework, employers will be required to provide foreign workers with health insurance coverage, which will be funded through increased fees for work permits and their renewal. Visitors will also be required to purchase health insurance coverage. The programme is expected to widen the kingdom’s medical insurance market considerably.

Motor Insurance

The motor sector is another significant contributor to GWP and has been targeted for reform by the CBB, leading the way for digitalisation across the sector. In June 2021 the central bank issued guidelines on the digitalisation of the motor insurance segment, with the aim of accelerating digital transformation and improving client experience. The CBB has required all insurance firms operating in the kingdom to introduce digital channels that do not necessitate the physical presence of the customer on the insurer’s premises. It has asked insurers to ensure their IT infrastructure is upgraded to support this transition and to update their policies and procedures in line with the change.

By July 31, 2021 the CBB issued a statement requiring that insurers have at least one digital communication channel and a secure and approved online payment method. By September 30, 2021 insurers needed to ensure customers could digitally amend or endorse their motor policy. Lastly, by December 31, 2021 they had to digitalise the claims and complaints processes, and make information on fees and charges readily available online.

New Products

In line with the FSDS 2022-26’s aim to introduce new insurance products, insurers have begun providing coverage specifically designed for electric vehicles — an area that is likely to expand as EV ownership increases. In November 2021 Bahrain National Insurance (bni) launched the country’s first electric vehicle policy. In order to promote motor and electric vehicle insurance further, bni partnered with the National Bank of Bahrain (NBB) in April 2022 to provide NBB motor finance customers with reduced rates for insurance coverage and other benefits. While motor insurance is compulsory, the move is designed to encourage customers to take out more comprehensive policies.

In December 2021 Solidarity Bahrain, a local subsidiary of the Solidarity Group, the world’s largest takaful (Islamic insurance) provider, marked another first for the kingdom by launching a solar panel insurance product. The scheme protects both businesses and individuals against damage or failure of their solar panels. As the country seeks to increase its reliance on renewables in order to reach its net-zero emissions target by 2060, renewable energy insurance products could become a lucrative area, opening up a new market for the country’s insurers, in line with one of the key goals for the sector under the FSDS 2022-26.

Mergers & Acquisitions 

The consolidation of Bahrain’s insurance industry through mergers and acquisitions (M&A) is likely to play an important role in strengthening the sector moving forwards and enabling it to reach the goals set out by the FSDS 2022-26. With 36 licensed insurers operating in the market as of June 2022, competition is already high. This may impact the profitability of insurance players unless they are able to attract new customers, and may prompt some companies to seek consolidation as a means to stay competitive. However, despite the high level of competition, ratings agency Standard & Poor’s Global forecast that the market would remain profitable in 2022 thanks to an improvement in investment income linked to rising interest rates.

According to Alpen Capital, greater M&A activity in the GCC insurance market should make existing players more competitive and, to this end, encourage the introduction of new products and services in order to increase profitability. The company’s research suggested that there is likely to be an increase in M&A among insurance players in the GCC as larger firms look to combine with small and medium-sized insurers, as well as tech-focused players that can help more established providers to develop more innovative offerings.

In January 2022 Solidarity Bahrain completed a deal with T’azur, marking the sector’s second tie-up in three years. This came months after the acquisition of AXA Gulf by Gulf Insurance Group (GIG), which was completed in September 2021. According to regional media, the deal will enable GIG to reinforce its presence in Bahrain, as well as expand operations in the kingdom and other GCC markets.