Watershed year for UAE insurance

Insurance is never at the top of many people's priority lists. However, without insurance: planes don't fly, ships don't sail, power stations aren't built, and even theme parks cannot operate. Insurance is a fundamental building block for a stable and thriving economy.

The importance of a stable and strong insurance community comes to the fore when the unimaginable happens: a 9/11, an earthquake or tsunami hits; or, closer to home, a 250 car pile-up on Shaikh Zayed Road.

It is absolutely essential that the UAE insurance industry's framework is robust and sophisticated enough to underpin one of the most exciting and dynamic economies on earth and the developing sophistication of life here.

The GCC is not a world leader in insurance, and the amount spent in the region per capita as a proportion of GDP is miniscule compared to more developed economies. Until now, the local market has been heavily reliant on support from the insurance capitals of the world - Munich, London and Zurich. Another regional characteristic is weak regulation.

The reasons are many and include cultural and religious views. The transient nature of the large expatriate population discourages growth of personal lines insurance (how many of us have contents insurance on our possessions in our rented properties?). Much of this will change: the UAE is becoming a sought-after place to live in on a more permanent basis; the property market will fuel demand for construction, buildings and life insurance; religious and cultural issues have crystallised in the growth of exciting new Islamic-compliant takaful products. The emergence of sophisticated financial centres such as the DIFC also contributes to the process of radically altering the insurance market's landscape.

The growing significance of the region is underlined by the bi-annual World Insurance Forum, usually held in Bermuda, coming to Dubai next week. Tremendous interest has also been shown by international insurers in the new financial centres: global names such as AIG, Allianz and Generali are established in the DIFC.

The challenge now for the UAE's local insurance industry is to rise to the challenge of being a service provider in this dynamic environment. A step in the right direction was the enactment last year of a new law setting up a bespoke Insurance Commission to regulate the industry. However, although the law came into force last August, the Commission has still not emerged and commenced its work. This year could prove to be a watershed year in the insurance industry's history. Let's hope that the moment is seized.

- The writer is a Partner at Clyde & Co.