Insurance Article


Call to improve insurance sector governance
Dubai: Experts have called for improved corporate governance measures in the Middle East insurance sector to advance the development of the sector as well as create a more transparent and accountable industry.
The Hawkamah Institute for Corporate Governance, based at the Dubai International Financial Centre (DIFC), and the Jordan-based Arab Forum of Regulatory Commissions (AFIRC) yesterday launched a Policy Brief on Corporate Governance for the Insurance Industry in the region.
"The need for the global insurance industry to implement sound corporate governance practices is all the more pressing in view of the [global financial] crisis," said Nasser Saidi, chief economist at DIFC. "This is particularly so in the MENA region, where the insurance industry, both conventional and Islamic, has been underdeveloped but is now growing," Saidi said.
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Insurance statistics for the Middle East make for surprising reading, with penetration and density rates among the lowest globally. As a percentage of GDP, insurance premiums in the Middle East and Central Asia region accounted for 1.45 per cent in 2007; without Central Asia, this figure drops to below one per cent. As a share of the world market, the insurance sector in the Middle East and Central Asia region accounts for 0.57 per cent.
In 2007, premiums per capita for the region totalled 75.4, compared with 3,984 for North America and 3,018 for Japan.
At the same time, the potential for growth of the insurance industry remains very strong, with a young and fast-growing population expected to comprise the main driver of growth. In recent years, conventional insurance rates grew by between 15-20 per cent regionally, but Takaful, or Sharia compliant insurance, rates grew by between 20 and 25 per cent.
The Policy Brief recommends the development of uniform guidelines, the need for regulation and supervision, compliance with international principles, as well as Sharia compliance, among others.
"The recommendations of the Policy Brief should be viewed as areas for improvement regionwide, as opposed to an attempt to identify specific problems within a particular company or country," said Dr. Bassel Hindawi, director-general of the Insurance Commission of Jordan and chairman of AFIRC.
"It's not to say that only good governance will contribute to the growth of the industry, but it is certainly one of the key components of a healthy and sound industry," Hindawi said. Industry insiders responded with cautious optimism to the proposed guidelines.

List of insurance companies

1. Arya Insurance Brokerage Co
2. AXA Insurance Gulf
3. Candour Consultancy
4. Continental Group International
5. Dubai Islamic Insurance & Reinsurance Company
6. Gargash Insurance
7. Gulf Warranties
8. Lifecare International
9. Nasco Karaoglan Dubai
10. National Health Insurance Company (Daman)
11. Scandinavian insurance company

How does insurance make money?

If an insurance company is making money, then it must be ripping you off, right? Well, not really. Insurance companies have to make money. That's why they are in business. Remember, the point of insurance is to cover a major loss. You hope you never have to use it. Also, many insurance companies don't make their profits off of your premium, but investments. Insurance companies collect premiums from hundreds of thousands of customers. They then pay out benefits to those customers you make claims. If they collect more premium than they make payments, then they make what is called an underwriting profit. Some insurance companies manage an underwriting profit, some don't. Many insurance companies make their profit on what is called the float. This means that they invest the premiums they collect. Since, with some types of insurance, premiums are typically collected many years before they have to pay out benefits, the insurance company can have ample time to make significant investment returns on the premium money. If the insurance company is good at investing, this can be where they make the majority of their profit.