New mandatory lines support growth in Qatar’s insurance sector

Faced with the changes associated with technological innovation, the global transition towards renewable energy and increasingly unpredictable weather patterns, the dynamics of the global insurance industry are shifting. While Qatar’s insurance market is growing, certain segments remain underdeveloped. The sector has traditionally been hindered by low insurance penetration and therefore has significant room for growth.

Indeed, insurance products are becoming more popular due to several factors, including growing awareness about the benefits of insurance, the introduction of additional mandatory lines of coverage, a burgeoning financial technology (fintech) ecosystem that makes products more affordable and accessible, the likelihood of increased inbound tourism and ongoing infrastructure development. Taken together, these developments have helped position Qatar’s insurance sector for expansion in the coming years.

Structure & Oversight

Qatar’s financial sector has three regulating bodies: the Qatar Central Bank (QCB) regulates financial services activities; the Qatar Financial Centre Regulatory Authority (QFCRA) oversees and regulates entities operating within Qatar Financial Centre (QFC) and operates under independent regulations; and the Qatar Financial Markets Authority supervises Qatar’s capital markets. The three align their activities with directives laid out in the Second Strategic Plan for Financial Sector Regulation 2017-22, which aims to enhance financial regulation; promote regulatory cooperation; develop financial markets; foster innovation; maintain the integrity of, and confidence in, the financial system; promote financial inclusion; and develop the country’s human capital.

Legislation implemented 2012 handed oversight of Qatar’s insurance-related entities to the QCB. The QFCRA’s autonomy is still observed, and regulatory differences do apply. This is most notably seen in minimum capital requirements, which are QR100m ($27.4m) outside and QR10m ($2.7m) inside the QFC, respectively. Until recently, 100% foreign ownership of insurance companies was permitted only in firms with operations in the QFC. Banks and insurance companies were excluded from the introduction of measures that permitted full foreign ownership in almost all sectors through a 2019 law regulating foreign investment. However, there have been moves since to allow full foreign ownership in companies listed on the Qatar Stock Exchange – which includes six domestic insurers – a measure that received Cabinet approval in August 2021.

The QCB issued updated insurance regulations in recent years to bolster transparency and support the sector’s growth. In 2016 the regulatory body laid out business requirements for insurers operating in or from Qatar, as well as instructions for intermediaries and services providers. In 2019 the central bank issued guidelines for managing anti-money laundering and terrorism financing risks. Throughout 2020 the QCB issued various pieces of guidance to insurance and reinsurance companies, including direction for compliance with the General Tax Authority’s Common Reporting Standard and requirements regarding the remuneration of board members. The central bank also released its Regulation Instructions and Standards of Reinsurance aimed at both improving reinsurance companies’ risk management procedures and facilitating better coordination of payments, cash flow and assets between insurance and reinsurance companies.

Size & Performance

In 2020 the GCC’s insurance market was valued at $26.5bn, of which Qatar accounted for $1.5bn, or 5.7% of the total by value. While in 2021 Qatar’s insurance penetration rate was 1.5% – below the OECD average of 9% – in 2019 coverage density measured as the ratio of premiums to the population was $500, a figure that was significantly above the $175 average for emerging markets, according to a 2020 report from Swiss Re.

Qatar’s insurance sector comprises 26 firms under the auspices of both the QFCRA and the QCB, of which 13 are domestic and 13 are foreign, and seven are dedicated takaful (Islamic insurance) providers. These entities proved to be resilient during the Covid-19 pandemic. “There were some doubts at the beginning of the pandemic about whether the deferral of payments was going to impact insurers’ bottom line, but that did not materialise. The sector did experience an uptick in missed payments in the early months of the health crisis, but the situation soon stabilised and companies worked with clients to restructure policies,” Abdullah Ali Al Assiri, CEO of Al Khaleej Takaful, told OBG.

The total assets of the 14 companies under QCB’s jurisdiction rose to QR61.2bn ($16.8bn) in 2020, up 6.7% from QR57.3bn ($15.7bn) in 2019. Gross written premium (GWP) came to QR17.4bn ($4.8bn) in 2020, up 5.6% from the previous year. Local companies accounted for the bulk of that figure, at QR16.9bn ($4.6bn), while foreign firms accounted for QR486m ($133.4m). Even as GWP rose, net written premium declined 15% from QR12.9bn ($3.5bn) in 2019 to QR11.2bn ($3.1bn) in 2020, indicating a drop in the retention rate from 78.2% in 2019 to 64.4% in 2020. Meanwhile, QFC-based insurers’ GWP came to QR833m ($228.6m). For insurers authorised by the QFCRA, health and accidents accounted for the largest portion of GWP, at 65%, followed by long-term (14%) and motor (6%) insurance. The remaining 15% came from property, construction and engineering, liability and other lines.

Insurers’ combined ratio, measuring total costs against revenue, improved in recent years, from 107% in the first quarter of 2019 to below 90% throughout 2020, reflecting strengthening performance in terms of premium exceeding claims. Indeed, aided by strong investment incomes, the QCB-governed insurers remained profitable during the most disruptive year of the pandemic. Meanwhile, reinsurance receivable and payable recorded growth in 2020, illustrating that companies were cautious and underwrote less risk in response to the uncertainties of the pandemic. Reinsurance receivable and payable were QR10.5bn ($2.9bn) and QR5.4bn ($1.5bn) in 2020, respectively, up from QR9.1bn ($2.5bn) and QR4.8bn ($1.3bn) in 2019. “Overall, the pandemic registered a neutral impact on Qatar’s insurance industry,” Muhamed Ashraf Siddiqui, executive risk manager at Qatar Islamic Insurance Company (QIIC), told OBG. “While the profitability of assets was impacted by the initial restrictions on movement, those same factors resulted in lower claims, particularly for motor insurance – one of the most popular lines.”

Regional Heavyweight

Qatar Insurance Company (QIC) is the MENA region’s largest insurer in terms of GWP, and provides insurance, reinsurance, and real estate and financial advisory services. QIC’s market capitalisation of $4bn placed it among Qatar’s 30 most valuable companies in 2021, according to Forbes Middle East. QIC reported net profits of QR511m ($140.3m) for the first nine months of 2021, representing a yearon-year (y-o-y) increase of 491%. The company attributed the sizeable growth to the successful de-risking of its international operations, the expansion of its low-volatility activities, the diversification of its business portfolio and digitalisation efforts. GWP that quarter rose approximately 4% y-o-y from QR9.6bn ($2.6bn) to around QR10bn ($2.7bn), with QIC’s international operations and subsidiaries accounting for QR7.9bn ($2.2bn) of that figure. The company closed 2021 with QR43.9bn ($12bn) in assets and QR1.5bn ($411.7m) in income, while GWP reached QR12.6bn ($3.5bn).

Business Lines

In 2020 Qatar’s highest-grossing segment was property and casualty, which recorded $13.3bn in GWP that year. Health insurance and motor insurance, certain areas of which are compulsory, are also among the most widely purchased lines. Specifically, expatriate health, engineering, workers’ compensation, third-party motor and construction insurance are all compulsory for relevant individuals or entities in Qatar, as are coverage for insurance consultants and some types of marine insurance.

In October 2021 officials announced amended expatriate health insurance laws, which were set to come into force in May 2022 to mandate a minimum level of health insurance for all expatriates and foreign tourists (see Health chapter). Previously only those over the age of 60 were mandated to have insurance. Under the new law, employers must purchase health insurance for expatriate workers and their families from companies registered with the Ministry of Public Health, and those that do not comply will be fined. Qatar’s new health insurance mandate should boost GWP, given the country’s large expatriate population, and the significant number of tourists expected for the 2022 FIFA World Cup in November and other upcoming sporting events.

Market Dynamics

In 2021 the contributions of the life and non-life segments to total GWP were estimated to be around 10% and 90%, respectively, reflecting a regional trend. For example, in 2020 GCC non-life insurance business was valued at $22.8bn compared to $3.6bn for life. The lagging maturation of the life segment is attributed to a lack of awareness of the benefits of life insurance, but this is changing. Many Qatari labour-oriented companies are now offering group life insurance to cover work-related accidents.

Qatar’s five best-performing insurance companies in 2020, measured by turnover, were QIC with QR1.2bn ($329.4m), Doha Insurance Company with QR902.7m ($247.8m), Qatar General Insurance and Reinsurance Company with QR579.3m ($159m), QIIC with QR400.6m ($110m) and Damaan Islamic Insurance with QR326.2m ($89.4m). QIC and Doha Insurance Company recorded turnover growth of 9.4% and 37.6%, respectively, while the remaining three companies posted contractions. These players accounted for 63.9% of turnover that year.

Takaful

In 2019 the GCC accounted for 41.3% of the $51bn global takaful industry, with the growth of mandatory health insurance across the region being key to recent expansion. According to Alpen Capital, that year Qatar’s takaful market was valued at $1bn. Motor is Qatar’s top-selling takaful line, while increased credit life uptake has also driven growth.

The takaful market still faces challenges, such as the lack of capital among several players to expand into higher-grossing lines such as property. The fact that takaful accounted for 1% of Qatar’s $145m Islamic finance market at the end of 2020 underscores this challenge. Nevertheless, takaful providers registered a surplus of $41m in 2020. “Qatar’s takaful market is distinct in the region in that many companies distribute surpluses back to policyholders,” Siddiqui told OBG.

Digitalisation and insurance technology (insurtech) could help propel future takaful expansion. Sharia-compliant platforms could provide takaful companies with access to broader consumer bases and – particularly in light of the funds-pooling nature of takaful – enhance convenience for clients through communication, payment and claims tools. Moreover, digitalisation can help cut costs, which could be passed to customers. For example, in 2019 five leading global takaful providers joined a blockchain network designed by UAE insurtech start-up Addenda. By streamlining business processes, the platform has afforded cost savings of up to 30%.

Tech Evolution

Insurtech is being implemented throughout the industry to enhance customer service and distribution. This dimension has gained traction due to pandemic-induced restrictions on physical interaction, accelerating an already visible shift in distribution, payment and claims procedures.

Advances in the fields of artificial intelligence and data analytics are prompting insurance companies to work with insurtech firms throughout their value chains. Due to those advances, insurtech could become central to underwriting strategies, as data-informed risk assessment offers a more efficient and accurate means for tailored policy pricing. This could be of particular benefit in insuring against both cyber- and climate-related risk – two areas that have caused significant uncertainty for international insurers in recent years due to their multiple, inherent risk-increasing variables. In addition, alternative data-driven behavioural analytics are becoming more reliable in detecting potential misrepresentation and fraudulent claims, leading to further savings for firms. That being said, the nature of the business means that insurance firms are weighing how to balance innovation with interaction.

Both the QFC and Qatar Fintech Hub (QFTH) play key roles in enriching Qatar’s insurtech ecosystem, providing incubator and accelerator services for fintech start-ups – an expanding proportion of which focus on insurance. The government invites and incentivises international investment in both zones, collaborating with venture-building firms in order to develop insurtech and broader fintech ecosystems. Facilities offered in QFC and QFTH help stimulate start-up growth, then once they reach maturity those companies – and their products and innovations – can be exported to the Middle East and beyond, with some industry players envisaging a central role for Qatar in the international development of insurtech. There has already been movement towards that end: in 2020 QIC was named by US-based standards-setting body the Association for Cooperative Operations Research and Development as one of the 10 firms most capable of influencing the global advancement of insurtech.

Outlook

The introduction of compulsory expatriate and visitor health insurance is likely to positively impact the sector’s bottom line and penetration rate. Likewise, Qatar’s industrial diversification and economic transformation agenda could open up additional avenues for growth, such as higher cyber and export insurance uptake. Additionally, increasing awareness of the benefits of life insurance could stimulate development and contribute to further expansion. Prospects are also bolstered by insurtech’s ability to simplify long- standing challenges; an attractive regulatory framework that facilitates fintech growth; and Qatar’s determination to cement its status as a prominent player in this field.