IN VERY lay terms the process of Insurance helps to safeguard interests of people from uncertainty by providing certainty of payment at a given contingency. Undoubtedly the insurance principle has become more and more used and useful in present times. But strangely enough the insurance sector in Kuwait and the rest of the Middle East is marked by low development with particular reference to long term insurance. Life and non life premiums as well as assets in the region are very low relative given per capita income and demographic characteristics.

In Insight today Arab Times speaks to Vijay Kapur, General Manager of MSRY Behbehani & Co, one of Kuwait’s leading family-owned conglomerates who are also the Kuwait agents of New India Assurance, a global insurance company established by Sir Dorab Tata in 1919. The first wholly Indian owned insurance company in India, New India Assurance, is one of the largest non-life insurance companies, not only in India, but also in the Afro-Asian region.
Mohammad Saleh Behbehani & Co WLL was appointed as the chief agents for The New India Assurance, Bombay, in the year 1953, one of the oldest foreign insurers operating in Kuwait having excellent relations with the principals in India ever since.

Vijay Kapur found his ‘calling’ when he joined insurance as a management trainee. With more than forty years of experience in the industry both in India and Kuwait, it was no surprise when he faced hard-hitting questions on the poor performance of the insurance sector in the region, the wide range of factors that play a constraining role in its development, the chronic lack of suitably skilled people, gaps in regulations and supervisions and the emergence of ‘takaful’ insurance in the region. Despite the constraints, he avers, the insurance sector has grown in Kuwait particularly in the past one decade, but more effective measures are needed to push the industry forward.

Question: What is the role that a well-developed insurance industry plays in a stable financial system?
Answer: Insurance is an important and growing part of the financial sector in virtually all developed and some developing countries. A role of a well-regulated insurance industry can significantly contribute to economic growth and efficient resource allocation through transfer of risk and mobilization of savings. In addition, it can enhance financial system efficiency by reducing transition cost, creating liquidity, and facilitating economics of scale in investment.

Q: What is the total number of insurers in Kuwait and what is the break up between foreign owned companies and local companies?
A: The total number of insurers in Kuwait currently stands at 32-10 conventional insurers, 11 Takaful insurers, 7 Arab insurers, and 4 foreign insurers (non-arab).

Q: Why is the insurance market in Kuwait small in size in comparison to developed insurance markets around the world?
A: A new report released by global market research firm Business Monitor International (BMI) has provided some insight into recent developments involving the Kuwait insurance industry.
 The Kuwait Insurance Report asserts that while country’s insurance sector will continue to grow overall, this will be due to the continued expansion of the economy and population, and not from any particular developments, innovation, or upswing of demand in the local insurance market. By most measurements, the study found that the Kuwait insurance sector will remain stagnant, in comparison to neighboring markets, through the next decade and serves as an example of a country where the prospects for sustained premium growth appear brighter than the reality at present.

Q: When did you join the Insurance market in Kuwait? How did you find it different from India?
A: I was posted as Resident Manager for New India Assurance in December 1986. In 1998 I joined Mohammed Saleh Behbehani & Co WLL, the Kuwait agents of New India Assurance as General Manager. Sometime in 1999 I took additional charge of M.S. & R.Y. Behbehani Company as General Manager.

Q: What is your personal perception of the way this sector has developed in the years you have been here?
A: The Insurance industry in India is better regulated through the IRDA .The products are registered and approved by the Regulator. Moreover, the Indian market has the advantage of having professional and trained manpower. In Kuwait regulation has started taking shape only recently. Products here are not registered with the Regulator and are devised according to need. The lack of qualified professionals has also posed a problem for the development of the insurance sector. I believe that foreign insurers, expatriate management and reinsurers can play an active part in the training role. There is an urgent need for local capacity in Kuwait.

Q: But why is the average insurance penetration in Kuwait low? Has it anything to do with culture?
A: Insurance penetration is very low in Kuwait at 0.58 percent of GDP. The main reason for this low rate is untapped life business, which contributes only 20 percent to the total GPW in Kuwait. This is mainly due to cultural and religious sentiments prevailing in the region. Meanwhile the total GPW in the GCC countries is still dominated by non-life Insurance segment.
 Going forward, comprehensive legislative reform will be needed to bring about a more robust regulation and this is required to make insurance a more prominent part of the country’s overall financial services landscape.

Q: An adequate insurance knowledge base helps assess the risks to be insured, provides customers with the appropriate products and services, and ensures the availability and development of locally-based skills - is the lack of trained professional skills a deterrent to the growth of this sector. Is it necessary to set up institutes like they have in the UAE to teach insurance?
A: Kuwait, in fact if I may add, the region continues to struggle with shortage of local talent and the rising cost of acquiring and retaining talented resources. The industry lacks the required expertise in underwriting skills and portfolio management skills which are crucial to retain premiums in-house. As a result, most local insurance companies pass on their businesses to reinsurers with sophisticated tools and skilled manpower which impacts their profitability.
There have been efforts to plug the knowledge gaps with the establishment of the Gulf Insurance Institute (GII) in Bahrain, and similar training institute in Qatar which offers accredited courses in insurance, however, while some initiatives have been taken, there remains an urgent need to facilitate a wider base of students and professionals who can contemplate a career in insurance.

Q: Has there been a change in the insurance industry in Kuwait in the past one decade?
A: While the insurance industry in Kuwait has grown considerably over the past decade, with gross premiums written expanding by about 11.9 percent annually since 1999, there is still much work to be done. Premiums currently amount to less than 1 percent of GDP in Kuwait, which is the lowest in the region. This development has attracted multiple new players to the market and improved the overall competitive landscape of the industry. Similar to other Gulf Cooperation Council (GCC) countries, the insurance market in Kuwait has been dominated by the general insurance sector, which has been driven by an increase in oil prices and government infrastructure development plans. In addition, a law that mandates that local drivers acquire motor insurance has led to the growth of non-life insurance premiums in personal lines.

Q: Has growth in this sector in recent years attracted new players?
A: The insurance sector is expected to rise significantly in Kuwait, as the concept of insurance is now spreading in the market, and more individuals and entities are adapting it. According to Capital Standards “Gross premiums written (GPW) in Kuwait posted an impressive 11-year compounded annual growth rate (CAGR) of 11.9 percent since 1999. This high growth rate has attracted new players and consequently, the competitive landscape of the industry has seen a sea change. The total number of insurers in Kuwait currently stands at 32.

Q: Which are the major business segments in the Kuwaiti Insurance Market?
A: There are 5 major business segments within the Kuwaiti insurance market: Fire and Property & Casualty, Marine & Aviation, Motor, Life & Health and Others (which include miscellaneous financial loss, engineering, etc.)

Q: Is it true that underwriting operations of most insurers in Kuwait lack diversification in terms of both product profile and geography?
A: Firstly, a majority of the Kuwaiti insurers lacks diversification in their earnings — both geographic and segmental. The underwriting operations of most of the Kuwaiti insurers are limited to the domestic insurance market. The total GPW of Kuwait is still dominated by non-life insurance segments. The prevalent cultural and religious sentiment against the conventional life insurance model is a major factor obstructing the growth of life insurance segment in the region. Diversification opportunities are minimal in the non-life segment since the commercial product lines form the bulk of the insurance business with little focus on personal insurance products.

Secondly, the high risk equity investments have the highest weightage in the investment portfolios of insurers in the country. Insurers are mostly forced to park their assets in high risk investments - equities and real estate - owing to the underdeveloped nature of bonds and fixed income securities market in the region.
Thirdly, the business models of domestic insurers are heavily reliant on reinsurance. The reinsurance exposures of Kuwaiti insurers are higher and retention rates are lower than that of their international peers. The high dependence on reinsurance could expose Kuwaiti insurers to significant counterparty risks, while lowering the growth expectation of the bottom line and the profitability of the insurance providers.
Finally, a large number of new players entered the domestic insurance market in the last decade. The fragmented market is a cause of concern, as the growth rate in the number of insurers seems to have outpaced the industry growth rate since 2005, and consequently, the profitability of the sector deteriorated in the last 5 years.

Q: According to recent research findings compared to other GCC Countries, insurance penetration in Kuwait is the lowest. What is the reason?
A: Kuwait’s insurance sector performance reflects the generally muted perception and demand for protection products in the country. For many Kuwaiti nationals, the country’s pre-existing social security system appears generous enough to meet their needs and they see no need to take out further insurance coverage. BMI notes that in the country’s general insurance market, overall penetration rates have remained stagnant for years, with life insurance only posting moderate gains during the same period. While these low insurance density and penetration rates are certainly an issue throughout the region, unlike other Gulf Cooperation Council (GCC) countries, there appears to be no impending governmental or societal reforms in Kuwait which could push the insurance industry forward.

Q: What is the minimum deposit Amount as per new amendment to Insurance Law No. 24 of 1961?
A: According to this every insurance company with operation in Life Insurance and Capital Insurance Segment should deposit KD500,000/- as a guarantee towards fulfillment of its obligation in a Kuwaiti Bank Branch or Kuwaiti Branch of a Foreign Bank. Insurers having operations in both Life and Non-life segments are required to deposit an amount of KD 1 million.

Q: Why is the underwriting process in Kuwait restricted to domestic insurance market? What is the reason for this lack of geographical diversification?
A: The underwriting operations of most insurers in Kuwait lack diversification in terms of both products profile and geography. The operation of majority of the Kuwaiti insurers is limited to the domestic insurance market. This lack of geographic diversification is a major rating constraint of an international rating scale because of the small size of the domestic market and the highly competitive landscape of the industry. The undiversified product profile which stems from the underdevelopment nature of the many insurance segments in the market, is the other factor impacting the earnings.

Q: How popular is life insurance in Kuwait? Is insurance in Kuwait still dominated by non-life sector?
A: Non-life segments constitute 67.37 percent of the total insurance market in Kuwait, while life segment forms only 32.63 percent. Life segment was the laggard in the Kuwaiti insurance market, growing at a pace slower than the overall domestic insurance market; life segment grew by only 3.97 percent when compared to the expansion of the overall market at 4.68 percent since 2006. The religious and cultural sentiment prevalent against the concept of conventional life insurance is an impediment to the segment’s growth in the country.
Within the non-life segment, the GPW of the motor segment grew the fastest. Motor insurance segment, which accounted for 30.16 percent of the total Kuwaiti insurance market and 44.77 percent of the Kuwaiti non-life insurance market in 2011, expanded at a 5-year compound annual rate of 7.49 percent since 2006. Despite the growth in GPW since 2006, the profitability of the whole industry declined. The loss ratio of all the non-life segments, calculated as claims incurred to GPW, deteriorated in the last five years.

Q: What is meant by Islamic Insurance and family Takaful?
A: Takaful means shared responsibilities/guarantee. It is an agreement or contract among a group based on funds contributed by the group members who agree to assist each other and jointly indemnify the loss or damage that any of them might be exposed to out of that pooled fund. Such agreement/contract employs the notions of mudarabah (trustee profit sharing), tabarru (charity/donation for others benefits) and mutual sharing of losses within a framework free of riba, maysir and gharar.
 The takaful concept is similar to conventional mutual insurance. Since mutual insurance involves the participants sharing the risk on a co-operative basis. It reflects Islamic principles of solidarity, mutual assistance and co-operation. Technically speaking, it comes from the Arab customary practice of asabiyya (tribal solidarity) and diyya (compensation or blood money).
Whereas insurance business under the conventional system is based upon uncertainty — which is prohibited in Islamic society under Islamic principles — insurance in Islam is essentially based on the concept of mutual help.
It is construed on the distribution of loss (in the community of policyholders rather than the transfer of the risk for a profit (as in conventional insurance).

Q: How is the sector on motor vehicles faring?
A: Kuwaiti motor sector is dominated by Third Party liability policies as they are mandatory by law. The comprehensive insurance segment has the potential to expand since the members of comprehensive policies written are only a fraction of the TPL policies written in Kuwait. Profitability of the segment is on the decline due to competition, regulatory issues and increase in the number of accidents as also because of the high awards for third party accident cases. Comprehensive segment is hit by deteriorating price environment and declining bargaining power. The claims made on motor insurance policies have steadily been higher than the corresponding premium.

Q: What is the situation in the personal insurance sector?
A: The personal line of business is not popular in Kuwait and there are very few products available in the market. Mediclaim, Personal Accidents, House Holder policies are not popular although products are available in the market. Diversification opportunities are minimal because of prevailing cultural and religious sentiments. Commercial line products form bulk of the insurance business with little focus on personal insurance products.

Q: What is reinsurance and how popular is it in Kuwait?
A: The practice of insurers transferring protions of risk portfolios to other parties by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten policies by spreading risks across alternative institutions.
It is also known as “Insurance for Insurers” or “stop-loss insurance”.
There are two local reinsurers in the Kuwaiti insurance market
1. Kuwait Re, which is largely a conventional reinsurer, and
2. Al Fajer Re, which is positioned as a provider of Retakaful and Shari’ah compliant reinsurance products and services.
The reinsurance module is very popular in Kuwait as the business models of domestic insurers are heavily reliant on reinsurance. The reinsurance exposures of Kuwaiti insurers are higher and retention rates are lower than that of their international peers. The high dependence on reinsurance could expose Kuwaiti insurers to significant counterparty risks, while lowering the growth expectation of the bottom line and the profitability of the insurance providers.

biography

Education: St Xaviers College, Calcutta, India
Management Diploma – Calcutta University
AIII diploma from the Insurance Institute Bombay
Worked his way up as a management trainee through hard work and effective real time executive
leadership. Began his association with the Behbehanis, a leading Kuwaiti business family in 1986. In 1998, appointed General Manager of Mohammed Saleh Behbehani & Co, agents for New India Assurance in Kuwait. Subsequently appointed General Manager of MSRYB, a well established family owned conglomerate which has contributed effectively to the growth of Kuwait through diverse activities.
 

-- By Chaitali B. Roy - Special to the Arab Times