Despite ongoing efforts to improve the financial services industry in the region, there still appears to be a lack of understanding of financial products and fairly low trust levels of financial advisers among consumers in the GCC.
This is one of the findings of a report from research consultancy Insight Discovery based on a roundtable with experts from the Financial Services Association (FSA) UAE, Amundi, ING Investment Management, Fidelity Worldwide Investment, Zurich International Life, HSBC Global Asset Management, Friends Provident International and Morningstar.
Experts agreed that consumers sometimes view financial advice as complicated and unsuitable, and that certain issues, such as the practice of cold calling customers, need to be addressed.
The disconnect between consumers and financial advisers is evidenced by the low levels of life insurance density and penetration in the GCC countries. While residents in the UAE seem to save more than their counterparts in other markets, the life insurance density in the country accounts for only $200 per capita, compared to $2,400 in the United States or across the G7 countries.
“Penetration (i.e. premiums as percentage of GDP) is also low in this part of the world, at less than 2 per cent across the GCC. What is less well understood is that there is a high savings rate here,” noted Nigel Sillitoe, CEO of Insight Discovery.
He cited a recent report by Alpen Capital that showed that people across the region save about $37 out of every $100 that they earn, and only four per cent of these savings are directed towards formal insurance vehicles.
“By way of international comparison, in North America the savings rate is $10 from every $100 earned, but 86 per cent of these savings are directed toward insurance,” Sillitoe pointed out.
Part of the problem could be that advisers themselves don’t really know their consumers. Sillitoe said that in order to build trust in their products, advisers should take the lead in the education process.
“It is apparent that manufacturers of the products – the international life companies and their partners, the international asset managers – do not yet have a sufficiently clear understanding of consumers. What do consumers want? How much do consumers understand? How much trust do consumers have in the various organisations that are involved in their purchase of life insurance or another product?” Sillitoe added.
Some sources, on the other hand, noted that the low life insurance figures in the region may be due to the fact that some expatriates choose to put their money elsewhere. Steve Gregory, managing partner at Holborn Assets, noted that certain specific tax advantages that apply in many countries do not apply in the UAE due to the absence of income or capital gains tax.
“In the UAE, across the people from the USA and G7 countries, I am certain the spending on insurance and investments is at least four times the equivalent of their counterparts back home. This is because the offshore marketplace is where they insure and invest, not just the local market,” Gregory pointed out.
“Here, many people are making their own provision for benefits such as medical insurance, income protection, life and critical illness insurance and funding for pension provision and education costs.”
According to Arwa Hamdieh, co-founder of FSA UAE, the lack of familiarity with the financial services industry is” preventing GCC consumers from utilising advisory services for their financial planning”.
Regulators and financial services companies in the region should therefore “collaborate to address this issue, initially by segregating the life industry from the general insurance industry and by investing in better trained and certified life insurance professionals”.
“This will improve the consumers’ perception of the financial services industry and help to promote its role in creating a safety net for individuals over the long term,” she concluded.
Experts in the roundtable acknowledged that while progress has been made, some issues with regulation in the region need to be addressed. These include the establishment of an ombudsman or other suitable institution that can take care of consumer complaints and more government action to curb cold calling customers.