May 28, 2013 by Canadian Underwriter
The insurance industry can play an important role in economic development in the Middle East and North Africa region, but despite growth potential, many challenges remain, notes a new report from Zurich Insurance Group.
The MENA region has some of the lowest penetration rates in the world for insurance, with an average rate of 1.5%, which means potential for growth in the region, the company says.
Providing insurance coverage can help stabilize the economy and promote development, by allowing, for example, commercial development project to take place that wouldn’t otherwise go forward without coverage, the report suggests.
“The role of insurance in emerging economies is often not well understood and underestimated,” Saad Mered, CEO for General Insurance, Middle East and Africa at Zurich noted in a statement.
“For these fast growing countries, insurance supports the pace of economic development and protects quality of life,” Mered said. “It safeguards and rebuilds the foundations of economic activity after unexpected loss, like in the wake of natural catastrophes.
“In addition, given the long-term nature of their liabilities, insurers are ideally suited to provide finance for growth enhancing long-term investments,” Mered noted.
“Finally, the insurance industry is a dynamic services sector which creates employment and entrepreneurship opportunities at all levels and in adjacent services sector.”
Still, challenges remain around affordability, financial literacy and regulation, the report notes.
In terms of affordability, the report points to microinsurance as one way insurers are tailoring coverage to certain regions that have low income levels. Such products can “reduce the thresholds for efficient insurance by simplifying policy terms and collecting payments in highly scalable ways (such as via mobile phones),” the report suggests.
There is also an “urgent need” in many parts of the MENA region for a stronger, more enforced regulatory environment, the report says.
“A concerted effort by policymakers, regulators and market participants is needed to address a number of market and regulatory challenges to enable insurance to grow in the region,” Zurich says.
There is also often a general lack of trust and confidence toward insurance in the MENA region, the report suggests.
“On one hand, the insurance sector needs to develop affordable and tailored products for emerging markets that enable consumers to build up trust in the sector,” Zurich says. “On the other, it is vital for many countries of the MENA region to ensure that the right regulatory infrastructure exists to allow the sector to deliver the economic and social benefits that it is able to.”
The full report is available for download on Zurich’s website.