Insurance may have become one of life’s necessities today, but it remains one of the least understood among financial products. In Bahrain, as in much of the Arab world, insurance penetration has traditionally remained low given the philosophical outlook on risk and uncertainty coupled with outdated regulation.

In fact, the insurance spend per capita in the Kingdom is barely two per cent compared to developed markets such as the US, Europe and Japan, observes Bahrain National Holding (BNH) chief executive, Mahmoud Al Soufi.

Despite taking over the mantle of the regional financial hub from Lebanon in the 1980s, the insurance sector in Bahrain did not find mention in the Kingdom’s economy until the last decade. In contrast, the insurance sector in countries such as the UK has been contributing more to the economy than the banking sector.

Until seven years ago, the insurance industry in Bahrain fell under the purview of the Ministry of Finance and Commerce and it was only after the Bahrain Monetary Agency assumed the responsibility for regulating and supervising the sector that a comprehensive regulatory framework for insurance activities was developed.

As CEO of Bahrain National Holding (BNH), the parent company of Bahrain National Insurance (bni) and Bahrain National Life Assurance (bnl) and board member of six insurance and insurance-related companies in the region, Mahmoud is acutely aware of the immense potential the sector holds, particularly in the individual, life, health care as well as the industrial lines.

“The industry has not been given the respect and attention it deserves,” he opines.

“It is overshadowed by banking and most of the complementary business is outsourced; it is yet to mature when it comes to public awareness, product innovation, regulation and personnel development. Going forward, these factors would be the key enablers for growth.”

Having posted good results in 2011 despite a challenging market environment, Mahmoud is optimistic about BNH’s performance for 2012.

He firmly believes that the growth of the insurance sector as a major component of the financial services industry is attainable if the right conditions are cultivated by regulators, policymakers and the sector itself.

“The potential for growth in the region remains intact, but we cannot wait for things to happen. We must embrace change and adopt a more international outlook and above all, think long-term value rather than short-term profitability,” he maintains.

Developing human capital
The insurance sector in the Kingdom is marked by an acute shortage of skills, particularly in the areas such as underwriting, surveying and actuarial skills.

“Bahrainis comprise around 70 per cent of the workforce in the insurance sector, but the main revenue earning functions are outsourced to expatriate professionals. This presents a huge opportunity for locals in the region as cultivating the growth of a pool of skilled local insurance professionals is paramount to the development of the sector,” he notes.

A self-described “engineer at heart”, Mahmoud is a staunch believer in learning “on the job”.

While institutions such as the Gulf Insurance Institute and the Insurance Learning Centre are doing commendable work as centres for training insurance professionals, it’s the appropriate work exposure that really makes a professional employable, he believes.

Regulators could influence the market in raising the standards of training programs by adopting internationally accredited programs. However, training, like all other functions, needs to be regulated, he opines.

“Initiatives such as GOSI and Tamkeen training programmes are excellent initiatives to start with. But companies need to move beyond the mindset of trying to get their money’s worth. Moreover, rather than being mandated, enterprises should be able to determine for themselves which employees they intend to invest in,” he suggests.

Over the coming years, market-led initiatives, including the active involvement from industry associations in generating consumer awareness of insurance, will be crucial in raising the profile of the industry to attract new talent.

Reinvest in growth
The insurance sector in Bahrain is intensely competitive and fragmented, with BNH competing with over 30 companies on the island, of which half are international players. The sector is served by ancillary service providers such as brokers, actuaries, insurance consultants and loss adjusters. Mahmoud is concerned that local insurers typically retain a small portion of the risk and transfer the remaining risk to their international reinsurance partners.

“In developed countries, limited liability companies are required to invest 70 per cent of the premium collected within that country, whereas in the Arab world, two-thirds of $7 billion premium generated annually goes out of the region. This figure is set to triple by 2020,” he says.

This has significant growth implications, given the opportunities for investment in an open economy such as Bahrain which is primarily services-driven. The issue merits an intervention on the part of the government, insurance associations as well as insurance companies themselves, he believes.

The Kingdom has so far maintained a conservative approach towards GDP growth, but it’s time to widen the perspective if greater growth is to be achieved. Mahmoud feels that with the boundaries within the region melting away, the whole of the Arab world is a potential market for Bahrain.

“Small was considered beautiful twenty years ago; it’s time the Kingdom’s small and medium enterprises (SMEs) started thinking big. In order to compete on an international level, enterprises need to think out of the box,” he says.

He also hopes the Kingdom’s family businesses will soon realise the need to divest a part of their companies to pursue long-term growth and expansion. This could provide the much-needed shot in the arm for the region’s capital markets. “They can divest 20 to 40 per cent and still maintain control of their company. Sooner or later, family businesses will have to do it, or they can forget about achieving growth,” he feels.

Furthermore, true management professionals need to be injected into the boards of companies to “add value” and not mere numbers. It is only the non-executive directors who can provide objective criticism and advice and their role cannot be ignored. Once the security issues within the Kingdom are resolved, Mahmoud is very optimistic about Bahrain’s future. “We need to talk less and do more to make a tangible change around ourselves,” he advises, to bring about a fundamental shift in the economic outlook for the Kingdom.