Kuwait: Room for growth in insurance

Despite new state investments in infrastructure and a steadily rising population, the insurance sector in Kuwait is expected to grow more slowly than elsewhere in the Gulf.

According to a report released by regional investment bank Alpen Capital on July 1, the insurance industry as a whole across the GCC is set to expand at an average annual rate of 18.1% between 2012 and 2017, led by non-life products, while Kuwait is projected to grow at a more moderate 7%, a decline from recent years. This slowdown will be a result, the report says, of more restrained economic activity, a forecast weakness in oil prices, the small size of the market in comparison to some of its neighbours and uncertainty regarding regulatory changes.

Kuwait is one of the smaller insurance markets in the GCC region, both in terms of gross written premiums (GWP) and penetration. As of year-end 2012, GWP stood at around $970m, with most activity driven by coverage for state spending on infrastructure, the motor segment and medical care. Despite the compulsory nature of some products and higher-than-average coverage in the life segment, total penetration, as measured by the ratio of GWP to GDP, stands at about 0.6%, compared to 1.1% for the Gulf as a whole.

The industry is regulated by the Insurance Department, a unit of the Ministry of Commerce and Industry. In May 2012, Anas Al Saleh, the minister of commerce and industry, announced officials were preparing draft legislation to establish an independent insurance regulator, and to reorganise and equip the sector to better operate in a modern economy. While discussions are still taking place, final draft legislation has yet to emerge, and it may be well into the latter half of 2013 or beyond before the necessary measures can be enacted.

There are 35 insurers in Kuwait, of which around two-thirds are local firms. About 60% of business is accounted for by five major providers. A large number of smaller operations compete at the lower end of the market, where less well-capitalised operators often engage in price cutting to attract more clients.

Yvette Essen, a director with insurance ratings agency AM Best, said many of these smaller policy writers will struggle in the tight market.

“Too many conventional insurers and takaful (Islamic insurance) operators lack scale and are servicing a small, highly competitive insurance market,” Essen said in a statement in late May. “The larger, top-tier companies benefit from strong technical performances, branding and recognition, while medium-sized insurers struggle to create a presence. Pricing pressures also raise doubts as to the profitability and sustainability of the small and niche insurers.” A new regulator could mean stricter capital requirements and other rules with which lower-tier insurers might find it difficult to comply.

Looking ahead, AM Best noted that it did not foresee a sharp rise in activity in the sector in the medium term, despite a rise in construction projects that would support insurance demand.

“AM Best expects insurance market growth to be modest,” said Mahesh Mistry, the company’s director for analytics. “There are no plans to introduce new compulsory lines of business in Kuwait, and AM Best does not see any impetus for an increase in life insurance penetration.”

One factor that could spur growth would be efforts to educate Kuwaitis on the benefits of insurance, whether on a personal level or in a commercial setting, Nasser Sulaiman Al Omar, managing director at Gulf Takaful Insurance, told OBG. “Since the government provides a safety net for Kuwaitis, the population is gradually developing toward an insurance culture,” he said.

Whether undertaken by the government or private sector players, such educational efforts could go some way toward boosting growth, while regulatory changes could help ensure stability in the sector.