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For Qatari residents: Do you prefer a summer or winter World Cup 2022?

A sure bet

Written by  Author |   Sun, 03 May 2015 07:07

The 9th edition of MultaQa Qatar, MENA region’s leading risk and insurance forum, was held at St Regis Hotel in Doha. More than 700 senior insurance and reinsurance executives operating in the Middle East and Northern Africa (MENA) attended the conference and discussed the current trends and developments in the marketplace.

The event, co-hosted by the Qatar Central Bank and the Qatar Financial Centre (QFC) Authority, featured a keynote address by QCB Governor H E Sheikh Abdullah bin Saud Al Thani, who emphasized the essential role of insurance in protecting businesses and society alike from the potential harm of sudden losses while also contributing to broadening and deepening capital markets, a role particularly relevant to the MENA region.

“The insurance and reinsurance industry is vital for the rapid progression and diversification of Qatar’s and the wider MENA region’s economy,” said Shashank Srivastava, Chief Executive Officer and Board Member of the QFC Authority.

Inga Beale, Chief Executive Officer of Lloyd’s; Karel van Hulle, Associate Professor at the Faculty of Economics and Business at the University of Ku Leuven and Former Head of the Insurance and Pension Unit of the European Commission; Giles Ward, Regional President, ACE Eurasia & Africa; and many distinguished panelists from the industry addressed the conference.

The winner of this year's essay competition was announced. An international jury of insurance experts selected the essay 'From Breakneck Premium Growth to Sustainability and Sanity: How Market Discipline can be Strengthened' submitted by regional insurance and risk executive James Portelli.
QFC Authority CEO and Board Member Shashank Srivastava said, "The MultaQa Qatar essay competition directs attention to issues characteristic of the region's risk and insurance industry. We are especially honored to have found in Portelli such a qualified and apt winner of this year's essay competition." Insurance plays a vital role in world economy. It is one of the largest sectors. In 2013, total insurance premiums amounted to about $4.6 Trillion, which is equal to more than 6% of global GDP.

Besides investment funds, insurers hold the largest amounts of assets under management ($26.1 Trillion of $92 Trillion of global assets – according to OECD, 2014).
During the 2008-2013 period, the MENA region has experienced an average real GDP growth rate of 4.1%, ahead of the global average, of 3.2% per annum in the same period.  "Qatar has a 4% share of the MENA insurance markets, which had premiums of more than $50 Billion in 2013," said Srivastava. "However, quite remarkably, Qatar, although small in population had annual premiums of almost $2 billion in 2013, ahead of Egypt, which has a population of 80 million people and insurance premiums of $ 1.9 billion."

Qatar insurance market expands….

The size of Qatar’s insurance market is picking up, though slowly. Yousuf Mohammed Al Jaida, Deputy CEO, Qatar Financial Centre (QFC) Authority, said that the Qatar Central Bank (QCB) is expected to come out with fresh administrative regulations for insurance companies soon.

Citing key finding in QFC Authority’s 3rd Annual Mena Insurance Barometer released to mark the annual two-day MultaQa Qatar conference, Al Jaida said that confidence prevails in the MENA insurance markets as insurers expect regional premiums to outgrow GDP and rates to finally stabilize or even start rising.

While the region’s average income per capita is similar to the global level, insurance penetration remains extraordinarily low, with premiums accounting for a mere 1.3 percent of GDP, a fifth of the global average. This gap is narrowing, however, as MENA insurance markets outpace regional GDP growth.

Between 2008 and 2013, total non-life and life insurance premium volumes in the region expanded from about $30bn to more than $50bn. Going forward, Swiss Re expects premiums to grow at an inflation-adjusted 5.5 percent for 2015 to 2016, higher than the International Monetary Fund’s economic growth forecast for the region.

Akshay Ranadeva, Strategic Development Director, QFC Authority, said the MENA Insurance Barometer shows that the region’s strong fundamentals remain intact. Insurance penetration is on the rise, demographics are favorable, and the ability of most Gulf countries to withstand short-term volatility in oil pricing is strong.

The executives polled in the MENA Insurance Barometer see the region’s strong economic and direct insurance market growth as its most important current strength, followed by a massive pipeline of major infrastructure and construction projects and a relatively moderate natural catastrophe exposure.

The Barometer found that 86 percent and 34 percent of executives polled view current prices in Mena commercial and personal lines business, respectively, as being below the average of the past five years. Around 81 percent and 89 percent, respectively, expect commercial and personal lines rates to remain stable or improve over the next 12 months, very similar to last year.

However, in commercial and personal lines the share of those expecting rate increases has grown from 19 percent to 30 percent and 21 percent to 37 percent, respectively. Rate expectations remain moderately positive as prices appear to have hit bottom and regulators continue to take supportive action.

…And is set for a booming couple of years

According to ‘MENA Insurance Review’, the commercial lines business in Qatar is expected to benefit from a strong pipeline of infrastructure and construction projects with an estimated value of up to $200bn over the next decade. In addition, Qatar’s economy is expected to continue to grow at an annual inflation-adjusted rate of 5-6%, primarily driven by a rapidly expanding non-hydrocarbon sector.
According to Moody’s, the Qatar insurance market has experienced compound annual growth of 17.9% over the last six years, despite experiencing one of the lowest levels of insurance penetration in the region.
Property and construction insurance business accounts for about 70% of Qatar’s non-life premiums, explains Akshay Randeva, director of strategic development at the Qatar Financial Centre Authority.
Third-party motor insurance is compulsory and the segment accounts for a large portion of the personal non-life insurance market. It is the most competitive business line, generating low margins for the service providers according to Lloyd’s of London.
Standard & Poor’s ratings specialist Dina Patel agrees that the key lines of growth in Qatar are property-related construction/engineering and associated liability/personnel lines such as workers’ compensation, and motor and health, as the population and workforce expands to facilitate major infrastructure projects.
“Motor, medical and property have seen the largest growth, although this is not uncommon in the region. Growth was relatively subdued in 2013 as the preparations and developments prompted by the 2022 World Cup were slower to start than anticipated,” she says to ‘MENA Insurance Review’.
Construction Insurance programs

According to Julie Tuck, Managing Associate, Dentons & Co. and published by ‘Taameen Qatar’, “Much has been written about Qatar’s construction market and its ever increasing order-book of projects, delivering to the 2022 ‘time-critical’ program and to the 2030 National Vision. Less has been published about the innovation and the complexity of these projects, the risks that they entail and particularly the importance of the insurance sector in managing these risks.”

“The complexity of design and engineering in Qatar’s projects seems to know no bounds. From the air-conditioned iconic soccer stadia, to the miles of metro-tunneling under one of the fastest developing and hottest high-rise cities in the world, the architects and engineers are stretching their technical skills to deliver the innovation that Qatar demands,” indicates Tuck and adds “But innovation brings risks and risks should be managed. Insurance is one of the key tools in a risk management strategy and the Qatar insurance sector has an important role to play. Now more than ever before in Qatar, there is potential for the insurance sector to work with the organizations in procuring and delivering the projects, to help them identify, allocate, manage and mitigate the risks that inevitably arise with such innovative projects.”

Defective Design, Decennial Liability and other professional risks in construction mandate the adoption of construction related insurance programs.

One of the key risks in a construction project and long-term viability of a structure, is defective design mentions Julie Tuck. If a structural defect or more seriously a collapse is due to a fault with the design or with the suitability of specified materials, then the designing architect or engineer may be professionally liable for the consequences. This risk can be covered by Professional Indemnity (PI) insurance, which covers the compensation that a designer is liable to pay if he is found to have been negligent (i.e. has failed to use the relevant professional skill and care) in preparing the design.

Insurances mandated by Qatari Law

To cover the inherent risks in construction and engineering, Qatar law requires certain insurances to be taken out. The Executive Regulations for Law No. (19) of 2005 (known as the ‘Engineering Law’) contain some insurance requirements for ‘engineers.’ Importantly, this term extends far more widely than the professions commonly referred to as ‘engineers’; it covers broadly almost any consultant offering professional advice in connection with a construction or an engineering project.

To establish an International Engineering Office in Qatar, the Engineering Law requires: “an unconditional pledge ratified from the related Qatari Embassy, declaring that the office will: …insure the office, employees and engineering works implemented by the office at one of the Qatari insurance companies.”

To establish a local engineering office in Qatar, the Engineering Law requires specific levels of insurance depending on the category of registration sought. A ‘Category A’ license requires PI insurance of no less than QAR 500,000, whilst a ‘Category B’ and a ‘Category C’ license each require cover of at least QAR 1,000,000 and QAR 2,000,000 respectively.

 The insurances for a local engineering office must also be taken out with one of the Qatari insurance companies and must be maintained for at least 3 years following completion of the project: “In order to guarantee the compensation for damages arising from negligence and professional errors and defects that might appear during the indicated period." This extended cover makes sense considering the point made below regarding the 'claims made' basis of PI insurance.

In addition to these basic requirements for PI, it is common for responsible 'project clients' to require far more detailed provisions in their contracts regarding PI for their consultants.

The insurance industry has wide international expertise and experience of the risks with innovative and complex construction and engineering projects. Standard and bespoke insurance products (such as ‘project’ or ‘inherent defect’ policies) can be procured to help manage risks in major projects like the ones facing Qatar today. There are great opportunities for the insurance sector to help Qatar achieve its vision for 2022, 2030 and beyond.


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