In my last article for Gulf Times, I highlighted the role of money exchange companies in the development of Qatar’s economy.
A much larger sub-unit of Qatar’s financial sector is the insurance industry, whose expansion has not only been important for financial sector growth, but also for its linkage to the real economy, especially in terms of facilitating private sector investments and generating employment opportunities, both of which are vital for lessening a dependence on oil revenues.
The need for insurance in Qatar was first evident in the mid-1950s due to the growth in the oil economy, serviced at the time by foreign insurance companies, either through their agents or through setting up branch offices. By the mid-1960s the first national insurance company, the Qatar Insurance Company was established, and the demand for insurance services continued to grow as a result of several factors, the most important being: the rise in foreign trade; the rise in domestic investments; the increase in motor vehicles; the substantial increase in public spending, and the increase in population due to the influx of foreign expatriates.
This continued growth led to the establishment of four more national companies; Qatar General Insurance & Reinsurance Company and Al Khaleej Takaful Group in 1978; Qatar Islamic Insurance Company in 1993 and Doha Insurance Company in 1999. Today, the Qatari insurance market is dominated by these national companies, collectively known as the big five and they are all listed on the Qatar Stock Exchange (QSE).
The Qatar Financial Center (QFC) was created in 2005 with the aim of enhancing the capacity and competitiveness of Qatar’s financial sector generally, and specifically to address some of the obstacles and inadequacies of Qatar’s insurance industry that also applied both regionally and internationally. Insurance companies now form a large component of the QFC and although they operate in a parallel regulatory framework to those outside it, standards have been raised by all insurance players in the market.
There are currently 14 insurers operating in Qatar and another 17 insurers in the QFC making Qatar’s insurance market highly competitive.
A more recent development (although not a new concept) is the rapid growth of takaful firms.
From making up only small part of the Qatari insurance market less than 10 years ago, to approximately a third at present, the growth of takaful trade has been staggering, spurred not only by personal insurance lines but commercial lines too.
Today, Qatar has the third largest insurance market in the GCC, with total premiums of $2.2bn according to a 2015 report by Moody’s, and although the insurance industry is sizeable, growing and profitable, the insurance market can still be considered in a developmental phase. Qatar shares particular characteristics with the rest of the GCC insurance market that are hampering the growth of the industry and its contribution to the economy. These can be summarised as low market penetration levels, market fragmentation, and an over-reliance on reinsurance.
I will go into these hindrances in a subsequent article but there are many reasons to be positive about the future of insurance in Qatar, with demand driven by infrastructure spending in preparation for the World Cup and also the continued rise of takaful.