Favouring growth over profitability, insurance companies looking to win market share in the Gulf are making losses on premiums, paying out higher amounts of claims than their income can cover.

But as claim costs go up, small to mid-size insurers looking to establish a franchise – representing about half of all insurance companies in the region – will soon have to realise that strategy is becoming unsustainable.

With the region lacking regulation that limits the amount of insurers competing in the region, insurers have for the past few years been slashing premium prices in order to attract companies shopping around for a good deal.

As a result, premium rates are disproportionally low, not accurately reflecting the associated risks and forcing insurers to remain dependant on other sources of income.

Traditionally, insurers have used income from equity and real estate investments as a cushion, but with the low returns they generate now, insurers will need to keep an eye on their capital reserves.

Meanwhile, reinsurers, which pay insurers to take on a share of their premiums and risk, have started raising prices when renewals came up, most recently on 1 January.

The only way insurers can continue their operations is by increasing premiums, which are set to rise up to 5 per cent annually.

For medical insurance, that is expected to be much higher; premiums are forecast to rise 20 to 30 per cent annually, with some reinsurers even claiming prices might double in the next two years.

Prices have already started to level out in some insurance sectors, but when it comes to medical insurance, the question is who will be the first to raise premiums.