Demand for insurance products that comply with sharia (Islamic law) is set to grow within the Gulf in the coming years, according to a new report from UK-based rating agency Moody’s.

The GCC is driving the global growth of takaful (Islamic insurance), with the region contributing the largest proportion of global takaful premiums. According to the report, Islamic premiums from the key global markets in the GCC, Africa, the Levant and southeast Asia will hit $20bn by 2017, compared with $4bn in 2007.

Demand for Islamic-compliant insurance is rising faster than demand for conventional insurance in these key markets. Between 2005 and 2010, takaful premiums grew by 33.2 per cent compared with 19.9 per cent growth in the conventional insurance market, according to Moody’s.

Within the GCC, growth has been driven by various factors, including the rise of compulsory medical insurance in certain countries, such as Saudi Arabia.

“The non-life takaful market is being mainly driven by demand from the retail sector, specifically motor and property lines,” says Mohammed Ali Riyazuddin Londe, analyst at Moody’s.

In Oman, some conventional insurers are looking to convert into takaful providers to meet the growing demand. Al-Madina Insurance Company will have completed its conversion to a takaful provider by early 2014. 

The insurer completed an initial public offering (IPO) on the Muscat Exchange in December 2013. A public listing is a regulatory requirement for all insurers wanting to write takaful in Oman. Oman United Insurance Company also launched an IPO earlier in 2013 to set up a takaful business.

The inadequate number of reinsurers within the Gulf could hamper the potential growth of the Islamic insurance market.

“The lack of reinsurance capacity is one of the main constraints for the takaful market, specifically in terms of large commercial business,” Riyazuddin Londe says.

Some Islamic-compliant insurers can apply for approval from their sharia boards to be allowed to sell into the conventional reinsurance market.

In the GCC, efforts are also being made to tighten insurance regulation that could prevent another challenge to the insurance market.   

“Across the GCC, all authorities are revising, or considering revising, their insurance regulations,” says Riyazuddin Londe. “One of the main developments is that authorities are considering raising the minimum capital requirements for insurers offering both life and non-life insurance,”