Dubai: Takaful (Islamic insurance) is experiencing rapid growth in the GCC and some regulators have recently responded by proposing a host of new takaful-specific regulations that are expected to boost the market access of these companies.
The Central Bank of Bahrain’s (CBB) recently proposed regulatory framework for Islamic insurance, amongst other areas, may enforce the use of capital injections from shareholders to finance any policyholders’ fund deficits.
“In our view, this would ensure that the capital buffer for takaful policyholders is preserved, aiding policyholder security. We also note that following the draft takaful law of Oman CMA, companies wishing to operate as a takaful entity in Oman were required to be listed on the Muscat Securities Market (MSM). We believe that this over time will improve access to capital markets and is thus a credit positive,” said Mohammad Ali Londe, an analyst at Moody’s.
Many of the new regulations relate to the implementation of more stringent corporate governance requirements such as board level investment committees, internal audit departments and approved actuaries. Although many insurers already have such mechanisms in place, these requirements are expected to enhance the corporate governance levels of the industry.
Transparency, a key deficiency in the GCC insurance markets, will also improve with periodic (quarterly, bi-annual and annual) and early warning reporting as proposed by some regulators. In many GCC countries, authorities have sought to protect consumer rights through the mandatory purchase of certain insurance covers, with for example mandatory motor third party insurance across the GCC jurisdictions, medical cover in Saudi Arabia, Qatar, Abu Dhabi and the recently introduced mandatory medical cover in Dubai.With respect to health insurance, the rest of the region is also follow suit and implement mandatory health cover in the near future.
Mandatory cover is also required for GCC nationals with regards to unemployment insurance in Saudi Arabia, Kuwait and Bahrain. Saudi Arabia also has plans to introduce mandatory third party liability cover for organisations carrying out hazardous activities in residential areas.
Such mandatory covers have also helped to increase consumer awareness and insurance penetration whilst also opening avenues for insurers’ product diversification. “We expect the increasing regulation of the insurance market will help to stabilise this volatility and further encourage market growth, although additional regulatory intervention may still be required in certain scenarios to ensure well-functioning markets,” said Londe.
