'The fundamental issue is the law,' he told the MEED Retail Banking conference in Dubai in November. 'But this will not be forthcoming until all the key stakeholders are involved. You need a consultation process with the insurance associations, insurers, brokers and syndicates.

'In Bahrain, that process took two-to-three years. Elsewhere, it will take at least five years for the law to be passed and products to be launched.'

Rated BBB+ by Standard & Poor's, Oman Insurance Company is the most profitable insurer in the GCC and has written more than AED 600 million ($163 million) in premiums in the first three quarters of 2005.

Low penetration

Bancassurance is the boom insurance sector. Swiss Re forecasts that in 2006 it will capture 15 per cent of the life market and 6 per cent of the non-life market in Asia. But the pace of regulatory change is hampering progress in the GCC. 'The region is nowhere near the 15 per cent growth predicted by Swiss Re,' says Portelli. GCC insurance premiums now exceed $3,000 million, but penetration rates are low, ranging from 0.5 per cent of gross domestic product (GDP) in Saudi Arabia to 2.2 per cent in Bahrain.

But this could quickly change. 'If Saudi Arabia makes healthcare insurance compulsory and this is followed by some of the other Gulf states, this will have an impact on further penetration in personal insurance lines,' says Portelli. 'Other social developments, such as home ownership and the availability of long-term personal loans, as well as small and medium-sized enterprise growth, will also contribute to higher demand of insurance. If all these go ahead, the percentage of GDP written will grow. But more than 5 per cent of GDP in the medium term? That is unlikely.'

The biggest problem is who should supervise bancassurance. Gulf central banks generally consider it to be beyond their competence, but commerce ministries often do not have the powers to make a difference.

Portelli says the growth of Islamic banks and takaful insurers lends itself to bancassurance development. 'Some of those barriers are breaking down,' he says. 'Now you have takaful insurance and people are less averse to buying insurance because of the takaful concept. Its growth will certainly contribute to increased market penetration and there is a warming attitude towards life insurance, long-term savings, mortgage protection and medical insurance coverage.

'In terms of a role for bancassurance in health assurance, one of the ways banks can get involved in creating alternative insurance products is through funded programmes. How this works is that instead of paying premiums direct to the insurer, clients can create a bank account, channel claims through it and buy insurance to protect any accumulation of losses. This would definitely be a cheaper way of managing medical insurance expenditure.'

But the key deficiency is the law. 'The legislative framework is not yet in place, and without this, you cannot achieve the growth that one would hope for,' Portelli says. 'Bancassurance is present in the region today, but it's a false start. There is no framework for it to grow as it should. Programmes in France, Germany, Spain and the UK have achieved relatively high penetration of 40-60 per cent. Here, the industry hasn't even started.'

Peter Shaw Smith