The GCC region has one of the lowest penetration and density rates in the world with insurance penetration in the region much lower than the global and emerging market average.
While the penetration rates for the GCC region as a whole have increased – from 0.6% in 2000 to 1.3% in 2010 – they remain significantly lower than the global average of 6.9%. In comparison, emerging markets currently average an approximate 3% penetration rate, while OECD countries are expecting to see an average of 8.1% in 2010.
Given the high correlation of insurance penetration levels with GDP, the low regional penetration and density levels underscore the significant growth potential of the rapidly growing economies in the GCC.
The insurance sector at large has a strong positive correlation with GDP. The IMF estimated real GDP growth for the region at 17.8% in 2010, up from a negative 18.8% in 2009. The region also demonstrates favourable demographics, with a young population and rising birth rates.
Alpen Capital estimates that insurance premiums in the GCC currently stand at approximately US$18 billion in 2011 and will rise to US$37 billion by 2015, registering a combined annual growth rate (CAGR) of 20%.
The UAE and Saudi Arabia are likely to remain the two biggest markets in the region and are predicted to hold a 75% combined share in 2015; a slight reduction from the current level as other GCC states such as Qatar continue to register higher growth rates of up to CAGR 30% in the coming years.
At present most GCC states are experiencing a rebound in economic activity. The region continues its expedited program to diversify away from hydrocarbon dependence, having invested heavily across multiple sectors: particularly financial services and infrastructure projects.
This has meant that a large portion of the invested capital is likely to remain in the region at large and will further assist the continued expansion of the banking and insurance sectors.
The upsurge in state-led spending has also widened the potential areas of growth for the non-life insurance segment and is expected to continue to comprise a significant portion of the total premiums in the region. According to Alpen Capital the non-life segment is expected to grow at a CAGR of 19% from 2011-15.
Life insurance premiums will grow at a higher CAGR of 25.1%, albeit from a smaller base. Life insurance is likely to continue gaining momentum, driven by the rising population and increasing per capita income in the region.
Increasing acceptance of Takaful will continue to provide a strong growth impetus to the insurance sector as a whole, having increased by 31% in 2010 on a year-on-year basis. Ernst & Young estimates that the GCC Takaful market will continue to grow at 31%, reaching US$8.3 billion in 2011.
Governments across the GCC have been proactive in supporting economic growth; primarily through investments in infrastructure, underpinned by ambitious medium-term state led development programs in Saudi Arabia, Kuwait, and Qatar. Robust growth in developing markets should push the demand for oil, offsetting the decline in developed economies.
The US debt downgrade and ongoing crisis in the Eurozone are only likely to push commodity prices higher. These higher prices should facilitate a freer flow of funds back into the region that will likely be captured by the financial sector and invested into further infrastructure projects.