Saudi Arabia is trying for more than a catching up with the other Gulf markets to create a future-proof regulatory framework for its insurance industry. So many regulatory changes have been squeezed into the last two years in the process.
At the same time, there are also the sceptics who reckon that the pace of change should be faster, especially as little was done to update the kingdom’s insurance industry. But all agree that the next year will be a seminal one in determining how well the changes have actually percolated down into the Saudi insurance sector.
Regulations in other Gulf states are also evolving, at times well out of public scrutiny. Lisa Kelaart-Courtney, the regional head of compliance services at the law firm Clyde & Co, provides a guided tour on the regulatory environment. It will be a process she will repeat at the Insurex conference this month in Dubai.
Gulf News: Much of the activity in the GCC’s insurance industry regulatory front seems to stem from Saudi Arabia and, to a certain extent, Qatar. What explains the phenomenon?
Lisa Kelaart-Courtney: There has been a tremendous increase in regulation in the insurance sector in Saudi Arabia and Qatar over the last few years. This does indicate to a certain extent a need for countries which historically had relatively little regulation in place to build their regulatory structures for the future.
In many ways, the Saudi Arabian Monetary Agency and Qatar Financial Centre are now showing the way in terms of local regulatory frameworks and have overtaken other more established jurisdictions in terms of what they are seeking to implement. Of course, it is still a work in progress and we expect there to be some teething pains.
Just three years ago a lot was expected in the UAE’s insurance sector by way of an extensive reworking of its own insurance regulations. Since then, whatever has emerged seems like updates. Your comments.
The issue of the new UAE federal insurance law in 2007 did appear to set the stage for an independent Insurance Authority to overhaul the ageing insurance regulatory framework. Although it took a while to get going, we have seen a raft of regulations issued by the Insurance Authority recently. Whether these raise the regulatory standards to an appropriate level and meet the needs of this market is still an open question. We are pleased to hear that the Insurance Authority has recently been engaging with the market on vital regulations regarding solvency and prudential requirements in a series of workshops.
In our view, an informed consultation process with the industry, coupled with advice on current best practice is what is really needed by the Insurance Authority. Industry-wide conferences like Insurex are ideal platforms to take these further. Of the regulatory changes that were effected in the UAE in recent times, can you pick one that has really interested you and the wider industry?
The Insurance Authority issued a number of draft regulations concerning solvency and prudential requirements for the industry. These are vital for ensuring the ongoing stability and health of the industry. However, there was a lot of pushback from the industry to the fairly vague nature of the regulations. We understand this has prompted the Authority to arrange a series of workshops to discuss what is required by the industry which is a positive step.
There is much that this ongoing debate needs to cover, and the need for informed consultation is certainly great. Another development that illustrates the interconnectedness of investment and insurance services is the issuing by the Central Bank of draft regulations regarding local and foreign funds, which is likely to be of key importance to the life insurance industry.
There is also the very important issue of impending deadlines set under the Federal Law for composite insurers to spin-off their life and general arms. However, we are not aware of any guidance issued by the regulator as to how this should be achieved.
It is another urgent point that needs addressing. When it comes to banking and investment-related services, the marketplace knows the stark difference between a free zone environment and outside. Is there a wide gap in the insurance space?
The position with free zones and insurance is complicated by the federal law prohibition that requires local insurance to be undertaken by federally regulated insurers. This is a fairly standard requirement across the world, and one that most of the market recognises and is happy to comply with. However, there does appear to be a lack of appreciation as to how free zone service providers can assist the industry in providing effective — and efficient — services to insurers and intermediaries, which does need to be developed. Other regional regulators such as Sama appear to recognise this.
The global insurance industry and its players have lagged when it comes to signing up for the financial free zones in the GCC. Do you feel the free zones themselves need to do a lot more of convincing?
There is now a considerable international insurance market that has set up local operations in the financial free zones. We are aware that others are still looking at the prospect, so from that perspective, the DIFC and QFC have done a very good job at creating an environment that is attractive for the international market to establish a regional footprint.
The limitations — whether actual or perceived — on operations from the free zone have a lot more to do with the manner in which the free zones are required to interact with the domestic market, which is often as a result of local legislation. However, there is certainly a market that has developed in the free zones, which is healthy and thriving.
How much impact will the ongoing global financial situation have on the GCC’s insurance sector?
Liquidity problems will no doubt have an impact on industry players’ plans to invest in emerging markets. However, the GCC is perceived to have a lot of potential, and so we doubt whether it will be as affected as other more mature markets. There is also a lot of local capital available through regional players, who we expect will see the benefit of expanding further in the GCC insurance market. And in markets such as Saudi Arabia, you see a lot of new players coming into the market. Should that be sounding alarm bells somewhere?
Saudi Arabia was a market that was ripe for expansion under a responsible regulator. Sama has managed the process of bringing insurers into the market, and we expect that there will be far fewer new entrants allowed into this market, as the regulator allows the current crop of insurers to mature. We would not be surprised to see some consolidation and M&A activity in the Saudi market over the next few years.