Category: Insurance

Introduction

Bahrain is known to be an insurance hub in the Middle East region due to its successful and effective monetary policies. This has resulted in the emergence of the best insurance firms that offer several services to the employees and those in the private sector. The kingdom of Bahrain is endowed with the local and international insurance service providers who are able to give a range of insurance services to the clients at the local and international levels.

The insurance services range from health, property, personal and group covers. Bahrain is composed of a large number of foreign expatriates and the workforce. This has made it necessary to come up with insurance covers that will include foreign expatriates and the local Bahraini workers. Most of these insurance firms offer holistic solutions to the needs of the clients. Employees are able to register for policies that cover their families and property as this makes them feel secure (Dixon, 1999).

Medical Insurance

Plans have been underway to make insurance cover compulsory for all the expatriates working in Bahrain so as to reduce the government budget on healthcare. Most of these expatriates are currently entitled to unlimited health services at the government hospitals and other medical institutions.

There are plans in place to ensure that companies that have more than 500 workers become the first to register their employees for the appropriate insurance policies. This will be later extended to smaller companies. The Bahrain population is composed of 39% foreigners who form more than 70% of the total workforce. There has been an upsurge in the need for health services in the recent past, hence there was a need to take drastic measures.

There are plans to involve the private sector in the health matters. The National Health Insurance scheme is supposed to ensure that health issues of the expatriates are well taken care. The expatriates, private medical practitioners, companies and sponsors have been involved in this plan. The scheme is supposed to be rolled out in stages so as to ensure that all the stakeholders are involved and they are ready. This is supposed to take five years.

After the full implementation of the scheme, it is expected that each foreign expatriate will have a medical insurance cover. At the first stage, the fees and levies will be increased and the private insurance sector will not be involved at this stage. After the scheme is implemented, the expatriates and other employees will be issued with medical cards which will enable them to get medical services from the appropriate medical centers. In the event that an employee is not covered, the he/she will still benefit from the levy system.

With the current trends in globalization insurance, firms have been putting a lot of effort in making insurance services available to the local employees, as well as foreign expatriates. The insurance companies in the Kingdom of Bahrain are well known for their competitiveness in service delivery.

These companies offer both, the inpatient and outpatient medical covers. The employees are able to receive maternity, dental and optical covers. This insurance cover also gives other benefits to covered policy takers like counseling, medical checkups, and medical evacuation assistance. Large organizations receive a variety of health benefits when compared to smaller organizations. Employees are also covered for the preexisting medical conditions like diabetes and pregnancy (Al-Khalifa, 2010).

The insurance cover is structured in a way that suits each class of the employees. Junior employees, for instance, receive lesser benefits than the executive class employees. Because of the quality insurance services being offered by most of the insurance firms in Bahrain, most employees use these as a bait so as to attract and retain the qualified employees as they are being sought after at the local and international levels.

The health insurance benefits ensure a healthy workforce which definitely implies higher performance. Most of the insurance companies have extended their services to foreign countries. This is particularly important to those employees whose work involves much travelling. Medical evacuation and repatriation services are also provided and this is quite beneficial in the cases where the prescribed medical services are not locally available.

There are also group medical insurance covers offered by most insurance companies. Most medical insurance covers allow the policy holder to be repatriated to the medical centers that have specialized medical services if such services can not be found locally. The medical bills are then covered by the insurance company that the policy holder registered with (Terterov, 2005).

Group Health Insurance

This type covers employees of companies, sports clubs and other social clubs. This type of insurance cover usually considers at least three or more members who have come together for a common purpose.

The premiums to be paid are usually given at a discount and they are therefore relatively lower when compared to individual covers. The coverage is customized so as to suit a certain group. The cover can be harmonized to suit each person’s ability with the senior employees paying a little more on their premiums yet, at the same time, receiving additional benefits.

The cover can be customized to include maternity, dental, personal accidents, and medical evacuation benefits. The insurance companies also advice clients on matters concerning the various policies offered by these companies. Even after a person leaves a particular group, the client is able to change the policy to a personal one, hence continue reaping the benefits of the cover. It is also possible to retain the cover even after relocating to a different country.

The health insurance also covers chronic diseases such as diabetes and asthma, hence those who have terminal illnesses can still benefit from the insurance services. The employees are able to take policies that can enable them to benefit even after loosing their jobs due to accidents or terminal illnesses (Isa, 2011).

Saving/Pension Plan

The insurance saving plan in Bahrain is quite critical in ensuring that the foreign expatriates and Bahraini workers save for the future without sacrificing about the present. This has been quite significant in reducing the financial burden of the present world. These pension plans are quite critical in helping the retirees have a decent life after reaching their retirement age.

Such schemes help people meet their long-term retirement objectives. These plans are available for the local workers, as well as the foreigners. The client has the right to choose the investment plan that suits his/her needs. Expatriate insurance companies in collaboration with financial service companies have particularly been instrumental in making this happen.

Education Plan

The education cost has increased significantly across the globe. It can therefore be difficult to meet the education requirements of the children, especially during the times recession without the appropriate plan in place. Most insurance companies have these provisions in place, hence enabling the parents to save for their children’s school fees.

Through such plans, expatriates and workers can be assured of quality education for their children even during hard economic times. Every client is allowed to choose the premiums that he/she will be remitting to the company depending on the quality and level of education he/she desires the child to have. This is also dependent on the salary of the applicant.

Off-show Investment Plan

This plan is quite significant when ensuring that future financial stability of a client is secured without leaving the person vulnerable in the current state. This plan is usually carried out by specialists who advice the client on the best investment plans, yet at the same time leave him/her to make a choice over the same. Under this plan, the client is able to switch funds to other investments so as to maximize on the profits.

One, for instance, is able to invest in bonds and equity and switch to either of the two if need arises. Such investment is free from income and corporate taxes, as well as capital gains.

This plan is secure given that in the event of death, the beneficiaries, like the family members, will get a large payout. The saving plans are just some of the benefits that expatriates and Bahraini workers get from the insurance industry. They provide a sense of security, especially in turbulent economic times as the client and his/her family can benefit.

Property/Casualty

Most employees in Bahrain are covered under the employers’ liability policy. Those expats or employees who are injured or become sick while on duty at their work are able to be compensated and hence benefit from this insurance cover. In the event that an employee dies while in the course of duty, the representatives or closest relatives of the deceased are compensated appropriately.

The contractors and other expatiates also have their machinery and plants covered. In the event that their machinery are damaged or destroyed at the construction site, they can be fully compensated.

The workers and expatriates are also insured against any damage that is likely to be incurred yet involving the third party while in the line of duty. This might be in the form of damage to the person’s property or injury and in extreme cases, the death. This prevents the employee from incurring the whole cost of the damage caused. The employee can also have his/her personal property insured against damage, fire, theft, accidents, natural disaster and other losses.

Some of the international insurance companies that offer their services in Bahrain include AXA-Minmetals, Vanbreda international insurance, Cigna, Blue Cross and Expacare. These are just some of the companies that give insurance services to the local, as well as international workers in Bahrain. Travel insurance is particularly very important to those workers whose work involves a lot of travelling. In the event of an accident, the workers can be compensated by an insurance company.

Conclusion

With the implementation of the National Health Insurance scheme, companies will be compelled to ensure that their employees are covered by the insurance scheme under the law.

All the insurance companies are supposed to be monitored by the relevant government ministry so as to ensure that they abide by set rules and regulations. The law also requires the international law firms to have their offices in Bahrain so as to carter for the needs of those clients in the kingdom of Bahrain whether they are foreign expatriates or the local Bahraini workers.

The insurance companies are also expected to put their policies in the Arabic language with the appropriate translations into other languages that the policy holders understand. Such translation makes it possible for the insurance companies to reach the foreign expatriates as well. The workers in Bahrain can therefore get quality services from insurance companies.

All the insurance firms are registered and monitored by the relevant ministries so as to eliminate any cases of overexploiting the clients. Any insurance company that does not comply with the set rules in Bahrain risks its licenses being revoked. With such policies in place, Bahrain forms the insurance hub in the region.

The insurance sector has developed greatly and there is a need to improve their services even further. With such improvements, the kingdom of Bahrain is bound to benefit not just the employees and expatriates working in large companies, but those working in smaller companies as well.

The employers will be assured of a healthy taskforce which in the long-run will result in higher performance which will lead to higher profitability in the companies (Garcia, 2000). By implementing the National Health Insurance scheme, the number of those being registered under various insurance schemes is bound to increase.

References

Al-Khalifa, L. (2010). Foreign Direct Investment in Bahrain. Bahrain Health Insurance, 77. Web.

Dixon, J. (1999). Social welfare in the Middle East. Bahrain Insurance Association, 2-10. Web.

Garcia, G. (2000). Deposit insurance: actual and good practices. Insurance in Bahrain , 44. Web.

Isa, M. (2011). A Review of IR Practices in Bahrain. Bahrain Insurance, 100. Web.

Terterov, M. (2005). Kingdom of Bahrain: Financial System Stability Assessment. Bahrain: Insurance Benefits , 54. Web.

RAC Inc. considers South Korea to be the most suitable for international expansion due to the previous examination of technology in the country. Brief analysis of South Korea potential is necessary to define what subsequent preparation stages and measures should be taken to proceed with the international expansion.

Statement of Problem

The success of establishing strong market segment in the United States has become the major reason for expanding it to other regions. In order to define whether South Korea is the most suitable variant for expansion in terms of technological capabilities, specific emphasis should placed on evaluating the country as a possible alternative for producing slate tablets.

Background of Problem

In order to define the success of the proposed venture, attention should be given to the research and analysis of scientific and technological development in South Korea. In particular, the country has received a competitive advantage due to low-cost labor, as well as increased access to technical skills that are necessary for advancing technological equipment (Technological Landscape 60). Moreover, the government has created a great number of scientific institutions and has developed indigenous technology.

In addition, the South Korean authorizes have reformed the tax system to promote research and development in the country (Technological Landscape 60; Manyin 1). Strong governmental influence is also revealed through adopting new mechanism of technology advancement and innovation.

In particular, Kim and Jung assert, “the national government started technopark project to generate regional self-sustaining growth in 1997” (273). In fact, the technological growth and economic sustainability of South Korea is largely supported by further governmental investments.

Telecoms and Technology Report also focuses on the fact that “South Korea has one of the world’s highest broadband penetration rates, with optical-fibre connections accounting for almost all household connections” (3). Such a perspective contributes greatly to the analysis of technological potential of South Korea.

The evidence of strong economic recovery is also represented in Weber’s research. In particular, the scholar argues that the infrastructural investments and government’s engagement is indispensible for economic growth and development, as well as for promoting industrial profitability (Weber 610). Hence, the South Korea has a greater advantage over the economic policy in the United States.

Audiences

Gatekeeper: professor Toth is in charge of solving and investigating the problem.

Primary: managerial staff of RAC Inc. should evaluate the problem, as well as define the validity and reliability of research. They will also decide whether technological potential of South Korea is sufficient for introducing slate tablets to the market.

Secondary: consumer demand of South Korea is also an important dimension to be addressed. RAC Inc. should be aware of this component before expanding the market.

Auxiliary: employees of RAC should also be concerned with the market potential to be able to adjust to the new circumstance and introduce alternative decisions to the emerged challenges.

Watchdog: stakeholders of RAC, including environmental organizations and government should also be concerned with the oncoming changes.

Questions to Investigate

Governmental involvement

What information should RAC know about the economic peculiarities, as well as the extent to which government is involved into the economic activities?

What are other political, social, and cultural circumstance identifying the success of the venture?

Competition

How can RAC successfully integrate their new products to sustain advantage over other products and prevent the market resistant to the technology expansion?

What factors may prevent RAC Inc to benefit from introducing slate tablets?

Are there any other products that can become serious competitors to the proposed product?

Methods and References

In order to gather more information about the issue, it is highly important to address official websites, reports, and scientific articles dedicated to the analysis of economic and political landscape in South Korea. This is of particular concern to South Korea governmental sites.

The following list of sources should be useful for investigating the topic:

Lee, Ho-Chul. Korea’s Information and Communication Technology Boom, and Cultural Transition after the Crisis. Ministry of Finance and Economy. 2002: 1-40.

“Science and Technology Policy”. Ministry of Science and Technology in Korea. 2012. Web. https://park.org/Korea/Pavilions/PublicPavilions/Government/most/policye1.html

The resources used to examine the background of the problems can also be used to support the research and collect the necessary data. It can also serve for analyzing the technological landscape in the country.

Qualifications

In order to support the research and provide answers to the research problems, profound knowledge in technology, finance, economy, accounting, and marketing are essential. Exploring all these dimensions will allow to define the extent to which South Korea is ready for international expansion. Awareness of global environment problems is also necessary and, therefore, international relations is another important discipline to be learnt.

Work Schedule

Call to Action

Scanning the environment is South Korea will allow the company to acquire a better idea of how the South Korean market differs from that represented in the United States. We are confident that the problem is worth further consideration because it influences significantly to economic and financial issues.

Works Cited

Kim, Ha-Young, and Chang Mu Jung. “Does A Technology Incubator Work In The Regional Economy? Evidence From South Korea.” Journal Of Urban Planning & Development 136.3 (2010): 273-284. Print.

Manyin, Mark E., Emma Chanlett-Avery, and Mary Beth Nikitin. “U.S.-South Korea Relations.” Congressional Research Service: Report (2012): 1. Print.

“Technological Landscape.” South Korea Country Profile (2012): 60-63. Print.

“Telecoms and Technology Report.” Telecoms Industry Report: South Korea 1 (2012): 3-11. Business Source Complete. Web.

Weber, Eric T. “Learning From Others: What South Korean Technology Policy Can Teach The U.S.” Review of Policy Research 25.6 (2008): 608-618. Print.

Introduction

The auto insurance sector has continued to experience dramatic changes over the past decade. Analysts suggest the emerging trends in culture, globalization, and technological changes promise even much change in the future (Castells, 2011). Therefore, the marketing of auto insurance products will be driven by these trends that shift consumer buying behavior. These aspects have been seen to create dynamics for marketers in the insurance sector because they have continuously influenced the psychology and expectations of insurance consumers across the world (Usunier, 2000).

Discussion

Cultural trends

Culture plays a critical role in shaping the psychology of buying and consumer expectations across the world. While culture has been neglected in the recent past, researchers agree that cultural trends carry the future of marketers. Changes in social networking breed a new form of integrated culture, which changes the perceptual concerns of most consumers (Castells, 2011). The shifts from single and distinct cultures continue to be demystified rigid culture toward a more inclusive approach for multiculturalism. Currently, the growing social networks enabled by internet technology have transformed the cultural face of consumers across the world.

Globalization

Researchers and analysts have suggested that the recent financial crises have provided a fertile ground for enhanced communication, collaboration, and integration of various industry players. This shows that the future of the auto insurance sector will be directed by the successful negotiation and collaboration by marketers and insurance regulators (Usunier, 2000). This will cause a relative shift in policy to yield standardization of product offerings and promote the globalization of the insurance value chain.

The creation of global regulations underpinning market activities will influence the ability of industry payers to approach and manipulate the market. One of the conceivable implications of globalization is the development of limits that will affect the marketing ability of insurance marketers (Castells, 2011). On the side of consumers, these global trends promise an overall shift from supply power to customer sovereignty.

Technological trends

Technological improvements have introduced advances in software and hardware, which have created a shift in information power from marketers to consumers. The insurance industry has registered tremendous gains from recent information technology waves in terms of automation. These technologies have continued to promise enhanced operational efficiencies, increased revenue opportunities, and support customer experience (Usunier, 2000). The industry players have been able to transmit large scale data in real-time via the internet-enabled by devices such as tablets, pads, and smartphone technologies.

The ability of firms to manage large amounts of data and convert it into actionable insights enables them to approach the market with more objectivity. In the recent past, the insurance industry has over-relied on traditional sources of the market and consumer purchasing data(Usunier, 2000). Research shows that a lack of objective data rendered the traditional industry less efficient (Castells, 2011). Today, technology growth enables marketers to evaluate customer needs and assess the effectiveness of their marketing strategies. Therefore, these changes continue to reverse these trends in firms dealing with auto insurance.

Conclusion

The insurance industry has experienced enormous changes in the manner in which consumers perceive marketing information. Similarly, marketers in the insurance industry, especially the auto insurance sector have shifted their emphasis from the traditional sense of consumer behavior toward a modern view. The global insurance industry is expected to witness changes due to global changes. The effect of technology growth has availed benefits for both marketers and consumers.

References

Castells, M. (2011). The Rise of the Network Society: The Information Age: Economy, Society, and Culture, Volume 1. New York, NY: John Wiley & Sons.

Usunier, J. (2000). Marketing across Cultures. New York, NY: Prentice Hall.

Introduction

The social services system of Saudi Arabia aims at providing a decent living standard to all the citizens of the Kingdom. The safety and welfare of the people is the prime objective of the Kingdom that abides by the principles of Islam. A state agency called General Organization for Social Insurance executes these social welfare programs in the Kingdom (Social Services Network, 2013).

General Organization for Social Insurance (GOSI) was established in Saudi Arabia by the Royal Decree to implement the provisions of the Social Insurance Law and is responsible for administering the schemes under the Social Insurance Regulations. This financially independent organization runs its administration independently and seeks the fulfilment of the required insurance coverage. The GOSI is dedicated

“to implement the provisions of the Social Insurance Law and follow-up the process of achieving the compulsory insurance coverage, collecting contributions from employers and paying benefits for the eligible contributors of their family members” (Brief on the General Organization for Social Insurance, n. d. Para 2).

The work of the GOSI is administered and controlled by a Board of Directors. The position of the Chairman of this Board is held by the Minister of Labor. The GOSI Governor holds the position of the Vice-Chairman in the Board. One member from the Ministry of Health, one from Ministry of Finance and one from the Ministry of Labor are part of the Board of Directors.

Moreover, three members represent the contributors and the other three members are the representatives of the employers. All these eleven members constitute the Board of Directors for GOSI. The GOSI operates through a Head Office and 21 field offices located in different parts of the Kingdom (Brief on the General Organization for Social Insurance, 2012, Para 2).

GOSI deals with various governments agencies and contributors. It also covers establishments and hospitals under its scheme. It has around one hundred and six establishments. The number of its customers will soon be almost three million. GOSI keeps a record of the MONTHLY MOVEMENT of the establishments that includes monthly information about the modifications in wages, terminations, and joining of all workers.

The conditions that are required to be eligible for making GOSI contributions and avail the benefits of social insurance are that the employee must be working in an organization in Saudi Arabia. The employer of the individual must be providing a genuine funding and the employee must be holding eqama under the patronage of a Saudi-based company.

GOSI covers two types of contributions. Annuity Branch that covers contributions related to retirement and Occupational Hazards Branch that covers compensation and medical care against occupational hazards.

Annuity Branch

The eligibility criteria for the social insurance with respect to retirement include the following points:

• Only Saudi nationals and the GCC nationals come under the social insurance coverage.
• The age criterion for availing retirement benefits is 60 years onwards for men and women both.
• In case of death before retirement, the benefits are given to the nominated beneficiary (Social Insurance, n. d.).

The minimum monthly earning of SAR fifteen hundred is necessary for contributions. The maximum earnings should be SAR forty five thousand in a month. Employees are required to do minimum 120 months of paid or credited contributions for availing the old-age pension.

In absence of the necessary standards for retirement pension, GOSI offers onetime payment to the employees. In case of not having 120 months of paid contributions, the employees have an option to be suitable for the old-age pension by having at least 60 months of paid contributions and paying the balance contribution in monthly instalments.

They can also pay the remaining contribution in one lump sum. These are called “credited contributions” and are restricted to 60 months. The calculation of the retirement pension is based on the “2.5% of average monthly salary over the last two years multiplied by the number of years of social security contributions up to 100% of the pension calculation base” (Memorandum-General Overview Employment Law/Kingdom of Saudi Arabia, 2013, p.6).

In case of a person resuming covered employment, his old-age pension is cancelled till he resumes retirement. The benefits in this case are adjusted keeping in view the best possible favours for the individual based on his former contributions.

It may also consider only the concluding period contributions in this regard. In cases of survivor pensions, the pensions are allocated only if the departed person has paid three uninterrupted or six non-consecutive months of contributions, at the time of his death, to the social security system (Memorandum-General Overview Employment Law/Kingdom of Saudi Arabia, 2013).

Occupational Hazards Branch

The social insurance approach for the occupational hazards includes the following points:

• Employees can avail the occupational hazards contributions in case of accidents or death at the work site, or any disability (partial or complete) caused while at work.
• This covers Saudi nationals along with GCC citizens and expatriates.
• The employer solely is responsible for these contributions.
• The employer mediates between the GOSI and the employee in cases of disability or injury caused at work.
• In case of death due to injury or accident at the work site, the compensation goes directly to the beneficiary from GOSI (Social Insurance, n.d.).

However, the employees are not supposed to contribute any amount. In cases of Saudi employees, the employers as well as the employees both have to contribute an amount equal to nine per cent of the employee’s wages to the annuities or pension branch of the GOSI that reserves the retirement benefit. The employers contribute their part and deduct nine per cent of the employees’ wages and deposit it to the GOSI branch of occupational hazards (Shoult, 2006).

GOSI, under the Social Insurance Law, is responsible for providing compensation to the injured employees that are registered under GOSI Scheme. GOSI may ask the establishments to contribute higher rates in case of their not fulfilling the requirements of safe and sound occupational environment. However, GOSI does not raise the contribution rate if the establishment has followed the required occupational safety regulations (Occupational Health and Safety in the Kingdom of Saudi Arabia, n.d.).

The social security scheme is administered by GOSI in Saudi Arabia and covers various benefits such as old-age pensions, compensation for ill health, incapacity grant and pensions to the survivors. The foreign workers get only the workplace injury compensation as social security from GOSI.

In September 2002, The reforms in the social security regulations conferred the benefit of retirement pension to all KSA employees. Earlier, it was restricted only to employees working in companies with more than 10 employees. Monthly income is topped at SAR 45000 for social security contributions (Memorandum-General Overview Employment Law/Kingdom of Saudi Arabia, 2013).

Ministry of Labor has now made it compulsory for private employers to let the expatriates benefit from the GOSI. The expatriates, if not registered under the insurance scheme earlier, could register their names for GOSI now and their private employers cannot stop them. The GOSI governor informed that the non-Saudi worker will be registered with the occupational hazards branch of GOSI with effect from the date he entered Saudi Arabia or the date his job was switched over to another employer (Legal expat workers eligible for GOSI, 2013).

The Social Insurance Scheme takes care of both private and public sector workers and ensures a decent life to its contributors even after their retirement from work. In addition to this, in the case of any disability and death in any family, the members of the family get an appropriate compensation. In cases of occupational diseases or accidents and injuries at the work site, there is a provision for medical care for the contributors. If a worker is disabled or dies in the work area, he or his family is provided the required compensation (Brief on the General Organization for Social Insurance, n.d.).

Besides this, GOSI also performs the following tasks to ensure safe and sound occupational environment in the work places in the Kingdom of Saudi Arabia:

• Adequate treatment and compensation for the injuries inflicted at the work site through its Occupational Hazards Branch (OHB).
• Active participation in the law making process related to occupational health and safety in Saudi.
• Keeping an updated version of the occupational diseases in accordance with international legislations.
• Regularly checking the realization of the occupational health and safety requirements by the companies.
• Making efforts to increase sensibility about occupational safety within establishments with the help of mass media, conferences and seminars.
• Studying the impact of various chemicals and equipment pertaining to occupational threats in the establishments.
• Presenting the Annual Statistical Report based on the information regarding the occupational injuries in the Kingdom.
• Increasing awareness about occupational hazards through published brochures and periodicals.
• Increasing occupational safety with the help of expert and trained medical and engineering staff.
• With the help of essential environmental procedures, ensuring a safe and sound environment at the work places (Occupational Health and Safety in the Kingdom of Saudi Arabia, n.d.).

Conclusion

GOSI has been very cautious in preparing an effective long-term strategy about managing its investments that are based on added experiences and extensive research. It attempts to take precautions to evade risks and focus on local investments that can bring profits. Moreover, it also aims at seeking large revenues to fulfil the accountabilities towards contributors or recipients.

Besides its main aim to uphold fund sustainability for covering the insurance paybacks of the contributors, GOSI investments play a vital role in reinforcing the developmental plans related human and material resources in the Kingdom (REDmoney, 2014).

References

Brief on the General Organization for Social Insurance (2012). Web.

Legal expat workers eligible for GOSI (2013). Web.

Memorandum-General Overview Employment Law/Kingdom of Saudi Arabia (2013). Web.

Occupational Health and Safety in the Kingdom of Saudi Arabia (n.d.). Web.

REDmoney (2014). The Islamic Finance Handbook: A Practitioner’s Guide to the Global Markets. Singapore: John Wiley and Sons.

Social Insurance (n. d.). Web.

Social Services Network (2014). Web.

Shoult, A. (2006), Business with Saudi Arabia (3^rd ed.) London: GMB Publishing Ltd. Web.

Abstract

Various reasons explain why firms opt for market insurance instead of using other strategies in risk management. In fact, the number of risks being covered under insurance policies has radically increased. The reason is that risks related to disasters and manmade catastrophes such as terrorism that were not included in the traditional insurance policies are currently being considered as potential hazards to businesses.

The indication is that the demand for corporate insurance has increased considerably in the last decade. Besides, studies indicate that the demand for corporate insurance is price inelastic. However, the degree of price inelasticity depends on the type of the policy. Moreover, firms will purchase insurance policy depending on the probability of being bankrupt. Bankruptcies result from financial losses. The reason is that large firms are highly differentiated and have established own risk control capabilities, which result in decreased risk coverage.

Introduction

Firms purchase insurance policies for a range of reasons. In fact, various studies have indicated sets of incentives that corporations utilize to purchase insurance policies. According to the classical economic theory, firms are supposed to be free from any risks. Therefore, in the circumstances that the premiums placed on certain risks are high, firms cannot purchase such insurance premiums. In other words, firms have no interest in buying insurance policies whose premium rates are higher than the actuarial fair prices (Hoyt & Liebenberg, 2011).

Practically, firms normally purchase insurance coverage against fire, natural disaster, and property exposure as well as coverage against terrorism. Unlike consumers, firms are currently purchasing increased insurance policies against natural disaster risks. The reason is that prices of such insurance policies are fair compared with property coverage policies (Hoyt & Liebenberg, 2011).

While empirical studies indicate increasing demand for insurance coverage against natural disaster risks, the demand for property insurance coverage risks have remained constant over the last decade. However, the comparative data on the catastrophic and non-catastrophic insurance coverage is lacking. Besides, existing empirical studies indicate the increasing trend in the intake of insurance policies by firms for standard properties.

The findings of previous studies indicate that corporate demand for insurance policies particularly the increasing catastrophic risks does not have greater erraticism (Aunon-Nerin & Ehling, 2008). Besides, several studies have demonstrated that demands for corporate insurance policies are not flexible in pricing. However, when categorized according to the given risks, some policies have increased price inelastic demand.

In particular, the rise in the actuarial price policies causes a decrease in corporate demand for insurance coverage. Nevertheless, some policies would be greatly reduced compared with others. For instance, within the US insurance market, the reduction of the policies prices cause a decrease in the corporate demand for catastrophic coverage by about 2.41% compared with property coverage of about 2.90%.

The results are different with the property coverage. Studies indicate that firms in the property industry do not voluntarily purchase insurance coverage (Grace, Klein & Kleindorfer, 2004). Further, studies indicate that firms purchasing insurance coverage exhibit an elastic demand.

The behavior of individuals buying property coverage differs with that of the corporations. In addition, empirical studies indicate that the capability of firms to self-insure decreases the demand for corporate insurance coverage for other policies apart from the property exposure (Grace et al 2004).

Types of Risk and the Corporate Demand

Several risks exist in business operations ranging from financial loses to hazards associated with natural disasters. While insurance firms have been covering several risks associated with property losses and damages, the threats related to natural disasters have not been part of the insurance coverage market (Hoyt & Liebenberg, 2011).

Generally, the economic costs of various risks have increased dramatically over the last three decades raising the corporate demand for insurance coverage. Besides, it is estimated that the economic costs of natural disasters on businesses has increased by over $1.2 trillion. In the US, most of these damages are caused by catastrophes ranging from technological accidents to wildfires.

Firms behave invariably to protect themselves against any financial effects of undesirable consequences. In other words, firms have various financial risk-transfer instruments options to protect themselves against any losses caused by both natural and artificial damages (Aunon-Nerin & Ehling, 2008). The most critical risk relating to property damages is deficiency in asset liquidity. Such deficiencies enable firms to sell their liquid asset portfolios at undesirable reduced prices.

Damages in the firms’ properties have increased possibility of causing disruptions in the normal operations of the firm. As such, firms cannot fulfill their contractual agreements of delivering excellent services and quality products to the target clientele. In situations where the firm is incapable of raising short-term capital to repair the damages, the possibility of being driven out of operation is high (Aunon-Nerin & Ehling, 2008). However, several sources of financial capital are available to firms.

Firms can exploit such sources to repair the damaged properties and offer coverage to future business disruptions. One of the options is self-insurance, which entails the utilization of their cash reserves. Besides, the firms can resort to both short-term and long-term debts. On the other hand, firms can opt for market insurance that covers future potential damages (Aunon-Nerin & Ehling, 2008). Market insurance is one of the corporate risk management options firm can utilize to avert any potential future hazards.

Essentially, corporate risk management involves processes that reduce the possibility of the occurrences of risks associated with both internal and external events. Currently, firms utilize insurance purchases to manage risks because it is easier to quantify the hazards likely to affect the firm and the type of policy that offer protection against such risks (Hoyt & Liebenberg, 2011). In other words, it is easier to understand the type of risks and the possible remedial policies that firms should purchase.

As indicated, problems facing firms normally anticipate nonconformity in the daily business activities. Risk professionals have varied explanations of what constitutes risks in insurance. Some of the explanations depend on the consequence of deviation from the expected occurrence (Aunon-Nerin & Ehling, 2008; Hoyt & Liebenberg, 2011). In some cases, the word risk is used to denote the entity that is exposed to possible losses. Risks come in different categories ranging from pure or static risks to fundamental risks.

Pure or Static Risks

Sometimes firms incur huge losses with no prospect of compensations. The circumstance in which a firm has increased potential of incurring huge losses with no gain results in pure risks. On the contrary, speculative risks are threats that have equal chances of resulting into either a loss or a gain.

Most insurance companies deal in pure risks since it can only result into two definite results (Aunon-Nerin & Ehling, 2008). In other words, the policyholders can gain or fail to be compensated from the losses. Pure risks policies pay off when there is an absolute loss of insured item (Hoyt & Liebenberg, 2011).

Most of the pure risks occur when losses happen unintentionally. In addition, most insurance firms draw benefits from pure risk policies due to the likelihood that the policy will remain active for a very long time (Hoyt & Liebenberg, 2011; Grace et al 2004). On the other hand, pure risk policyholder would hugely benefit from compensations in case of a calamity.

Personal risks are the main type of pure risks. Risks are normally considered extortions that affect individuals. The risks form the basis from which most insurance firms operate. A personal risk involves the possibilities of loss of income and the removal of financial assets (Hoyt & Liebenberg, 2011; Grace et al 2004).

Main forms of personal risks comprise of premature death, old age, poor health and unemployment. Other examples of pure risks include property and liability risks. Property risks are threats of having assets destroyed or lost while liability risks are threats that arise from various litigations. In terms of demand, pure risks have increased demand compared with others.

Speculative or Dynamic Risks

Speculative risks are policies that can result into either a profit or loss. Business executives are usually faced with decisions that include certain elements of risks. In most cases, insurance companies do not consider speculative risks insurable except with certain reservations (Hoyt & Liebenberg, 2011; Grace et al 2004).

For example, it is very difficult for insurance companies to cover betting in horse races. Speculative risk is quite distinct from pure risks in a number of ways. For instance, societies normally gain from the losses as opposed to pure risk policies.

Fundamental Risks

Fundamental risks are widespread. In extreme situations, important threats might involve the whole society. Natural disasters such as earthquakes, socio economic problems like unemployment, high inflation rates and civilian upheavals form the wide range of threats that fall under fundamental risks.

In developed countries, fundamental risks are handled by the government agencies since they cover wide scope of interdependent functions (Hoyt & Liebenberg, 2011; Aunon-Nerin & Ehling, 2008). The commonly applied remedies governments utilize to reduce critical threats range from social insurance to the provision of subsidies to the affected populations and businesses.

Causes of Increased Corporate Demand for Insurance on Risks

The increased demand for corporate insurance on risks can be attributed to a number of causal factors. While most firms find it obligatory to buy insurance coverage against any potential risks, the law also required firms to have some coverage against certain risks. Apart from these obligatory requirements, firms also buy insurance policies because of tax incentives.

In the circumstances where tax incentives exist, most firms would opt for insurance policies since insurance premiums are normally deducted as business expenses (Hoyt & Liebenberg, 2011). Moreover, most firms perceive insurance as one of the forms of financing which could prevent the transactions costs of bankruptcy.

In fact, the insurance policy reduces the probability of incurring additional costs resulting from uncertainties. The additional costs resulting from loses is reduced through the transfer of exposure risks to insurance companies (Grace et al 2004). According to behavioral economics, risky firms would over- insure as a precaution against any ensuing loses that might occur in case the firm is liquidated. However, most firms focus on the consequences of the risks.

For instance, firms would focus on the finances losses instead of the risk occurrence. In other words, for risks associated with damages, firms would insure for financial compensation instead of prevention of the causes of the damages (Hoyt & Liebenberg, 2011; Grace et al 2004).

While the main principle behind any insurance policies is to offer compensation in case of losses, the compensation depends on the type of policy the firm has taken. The reason why firms focus on the consequences of the risk is the difficulties in estimating the possibility of the risk occurrences.

Generally, most firms purchase insurance in order to reduce the liabilities related to taxes. In other words, the insurance is purchased to reduce losses associated with increased taxation. In addition, most firms purchase insurance to avert the amount of financial distress resulting from mismanagement (Grace et al 2004).

Moreover, in some cases, insurance coverage is needed to mitigate against the agency conflicts, signal private information and to fulfill the creditors’ requirements. Most importantly, firms take up insurance coverage to avoid the consequences resulting from increased competition in the market (Aunon-Nerin & Ehling, 2008).

Distribution of Corporate Insurance Demand in Terms of the Industry

Studies indicate that the corporate demand is not uniform according to the industry. While most firms purchase the insurance policies depending on size and riskiness of the business, the type of industry in which the firm is operating also plays a critical role. Moreover, studies indicate increased corporate demand in the manufacturing industry compared with other industries (Aunon-Nerin & Ehling, 2008).

The reason is that most of the smaller firms that greatly purchase insurance policies are found within the manufacturing sector. In addition, most of the firms are operating in hazardous environments prompting their coverage of potential risks. In aggregate, the market penetration of corporate demand for insurance in the manufacturing sector is estimated to be about 79% (Aunon-Nerin & Ehling, 2008). The penetration is higher compared with other industries and is expected to increase in the coming decade.

The healthcare industry follows the manufacturing sector in terms of the corporate demand for insurance. The demand in healthcare is driven by the healthcare regulations and the increasing need of health coverage among the population (Aunon-Nerin & Ehling, 2008). The healthcare industry is estimated to have over 73% market penetration, which is higher compared with associated industries.

While some industries such as manufacturing and healthcare have increased corporate insurance demand for risks, some industries have very low demands including the agricultural sector (Aunon-Nerin & Ehling, 2008). The agricultural industry is estimated to have about 27% market penetration, which is the lowest in terms of industrial estimates.

Table 1: Distribution of corporate demand in terms of market penetration

Table 2: Corporate demand in terms of firms in the industry

As indicated, the type of risks, actuarial premium rates and the type of business determine the demand for insurance policies. Considering these factors, the risks associated with the manufacturing processes is very high.

The high risks make most of the firms in the industry to increase their insurance coverage despite high prices for such policies (Aunon-Nerin & Ehling, 2008). On the other hand, the risks in the agricultural industry are very low making most of the firms to opt for individual insurance despite low premium rate for market insurance.

Essentially, while prices determine the level of corporate demand for insurance, the type of risks involved plays a critical role. Besides, in this case, the market penetration is defined as the percentage of firms having insurance policies over the total costs of insurance (Hoyt & Liebenberg, 2011; Grace et al 2004).

Market penetration = (no. of firms/total cost of insurance) × 100

In other words, the measurement does not take into account the amount of assets firms have insured against risks. Most studies indicate that industries with large volumes of small firms have increased demand for corporate insurance (Hoyt & Liebenberg, 2011; Grace et al 2004; Aunon-Nerin & Ehling, 2008). In aggregate, the corporate demand for insurance is higher in industries with uppermost number of small firms.

Factors Determining Corporate Demand for Insurance on Risks

Studies indicate that prices, company size and the industry determine the corporate demand for insurance on risks (Aunon-Nerin & Ehling, 2008). While these factors are plausible, they interact to determine the demand for insurance policies. As indicated in most of the empirical studies, the types of insurance coverage also play a critical role. For instance, the demand for property coverage differs with other policies. The differences also explain the variations in price inelasticity (Aunon-Nerin & Ehling, 2008; Hoyt & Liebenberg, 2011).

The Actuarial Prices

The amount a firm spends on insurance plan would determine the possibility of taking up the policy. In fact, in a highly competitive market, most insurance firms always reduce the prices of policies enabling many firms to take cover for potential risks.

Additionally, most insurance companies tend to quantify the possible risks and offer the coverage at minimum market rates to make firms buy policies related to such hazards (Hoyt & Liebenberg, 2011; Grace et al 2004). While the coverage prices differ with policies, most firms take shorter durations with expensive policies while inexpensive policies tend to attract long-term coverage (Aunon-Nerin & Ehling, 2008).

Competition in the Product Market

The levels of competition between firms determine the demand for insurance policies. In fact, studies indicate that the degree of rivalry in the product market affects the firms’ demand for insurance (Aunon-Nerin & Ehling, 2008; Grace et al 2004). Essentially, changes in the competitive environment induce firms to strategically demand for insurance. In other words, increased competitive product environment encourages higher probability of firms to purchase insurance policies in order to mitigate the risk of exposure.

Studies indicate positive relationship between increased competitiveness in the product market and the demand for insurance (Hoyt & Liebenberg, 2011; Grace et al 2004; Aunon-Nerin & Ehling, 2008). Essentially, the firm’s risks increases due to the rise in competitiveness. Similarly, risk management of firms is also maintained whether the firm is demonstrating risk aversion or not in their preferences for insurance purchasing decisions.

While most firms manage their risks in terms of hedging portfolios, they ignore risk management activities in the product market competition. In most cases, the externalities such as industry characteristics, market environment and competitive pressure determines the risk management strategies of firms (Hoyt & Liebenberg, 2011; Grace et al 2004; Aunon-Nerin & Ehling, 2008). Essentially, firms maximize on their risk management investments through leveraging the strategic commitment benefit and the cost of insurance.

Generally, increased competitive product markets encourage firms in the industry to exhibit risk aversion characteristics through the transfer of risks to insurance companies (Aunon-Nerin & Ehling, 2008; Grace et al 2004). The interactions existing between the cost of insurance and the competitiveness of the product market predicts the firms’ risk management strategies.

The Size of the Firm

Studies indicate that large firms would not opt for insurance coverage due to increased costs involved and the presence of internal risk management capabilities. In fact, large firms have established internal risk management procedures that contribute greatly in the reduction of losses associated with such hazards (Aunon-Nerin & Ehling, 2008). Moreover, the quantities of risks determine the required premiums, which in effect increase the cost of insurance.

On the other hand, small firms are vulnerable to losses associated with business risks. As such, small firms opt for insurance coverage to protect themselves against such uncertainties. Besides, small enterprises seek for risk management advice from insurance firms (Hoyt & Liebenberg, 2011; Grace et al 2004). Therefore, corporate demand for insurance are higher among small firms compared with large firms.

Conclusion

As indicated, various reasons explain why firms purchase insurance policies. Indeed, different studies have indicated sets of incentives that corporations utilize to purchase insurance policies. Classical economists assert that firms are supposed to be free of any risks. Therefore, in the circumstances that the premiums placed on certain risks are high, firms cannot purchase such insurance premiums. In other words, firms have no interest in buying insurance whose premium rates are higher compared with actuarial fair prices.

The prices, company size and the industry determine the corporate demand for insurance on risks. While these factors are plausible, they interact to determine the demand for insurance policies. As indicated in most of the empirical studies, the types of coverage also play a critical role. For instance, the demand for property coverage differs with other policies. The differences also explain the variations in price inelasticity.

Generally, most firms purchase insurance in order to reduce the liabilities related to taxes. In other words, the insurance is purchased to reduce losses associated with increased taxation. In addition, most firms purchase insurance to avert the amount of financial distress resulting from mismanagement.

Moreover, in some cases, insurance coverage is needed to mitigate against the agency conflicts, signal private information and to fulfill the creditors’ requirements. Most importantly, firms take up insurance coverage to avoid the consequences resulting from increased competition in the market. The increase in the mentioned risks increases the corporate demand for insurance on risks.

References

Aunon-Nerin, D. & Ehling, P. (2008). Why firms purchase property insurance. Journal of Financial Economics, 90(1), 298–312.

Grace, M. F., Klein, R. W. & Kleindorfer, P. R. (2004). Homeowners insurance with bundled catastrophe coverage. Journal of Risk and Insurance, 71(3), 351–379.

Hoyt, R. E. & Liebenberg, A. P. (2011). The value of enterprise risk management. Journal of Risk and Insurance, 78(1), 795–822.

Social Insurance: Social insurance is the type of compensation that is offered and controlled by a government for the people who are aged, handicapped, or unemployed. People who are given facilities as per this insurance, should meet certain requirements.

Financial reimbursement for healthcare is taken as an example of social insurance. Social insurance programs, which include healthcare, consist of the network of doctors and hospitals. These service providers concur in seeing people who are covered under this insurance. These service providers are paid by the government for providing their services (Social Insurance, 2014). Social insurance can be defined in the following manner:

“Social insurance, public insurance program that provides protection against various economic risks (e.g., loss of income due to sickness, old age, or unemployment) and in which participation is compulsory. Social insurance is considered to be a type of social security” (Social Insurance, 2014, Para 1).

In Gulf countries, it is comparatively easy to manage these welfare programs for their people since the population is not very high in such countries, but they have high gross domestic products. Consequently, people are not compelled there to do any kind of payment for such schemes, and at the same time, the government also does not encourage the high costs of managing such schemes.

The nationals of such countries are automatically offered pensions, medical care, sickness and maternity coverage, childcare, and unemployment benefits by their government. In some cases, their government provides them disability and housing benefits (Social Security, 2014).

Social insurance programs are related to GOSI. As GOSI provides people of gulf countries a decent standard of living and takes care of their safety, social insurance also aims to do so by providing various facilities to people. Actually, GOSI puts into practice social insurance rules by collecting contributions from employers, and it pays the benefits to the people who are insured, including their family members.

GOSI was started in 1969.

“The Social Insurance Law was issued under the Royal Decree No. M/22 dated 15/11/1969. The Annuities Branch was implemented on 01/01/1393H and the Occupational Hazards Branch on 01/07/1402H. The Law was amended by the Royal Decree No. M/33 dated 29/11/2000 and implemented as of 01/04/2001” (Brief on the General Organization for Social Insurance, 2012, Para 1).

The initial mission of GOSI was to provide insurance coverage to the people of the gulf. The program aimed to collect contributions from employers. The benefit of this contribution had to be given to appropriate contributors. The families of the contributors were also part of this program.

This scheme is based on the harmony and cooperation of the people of society. The workers from both the fields private as well as the public are offered benefits through this scheme. The aim of this scheme is to provide a stable life for the people who contribute to this scheme. Their families are also covered in this benefit.

When the first law of social insurance was made in 1969, a regulatory structure was also created, which included conditions like old age, disability, and survivors, but it was implemented in 1973. The law related to work injury was also created at the same time, but it was also implemented in 1973 (Saudi Arabia, 2010). The need for this scheme was understood chiefly to provide the people with all the necessary benefits.

GOSI has achieved its goal by providing its contributors to the benefits related to medical care, pensions, any occupational hazards, etc.

References

Brief on the General Organization for Social Insurance (2012). Web.

Saudi Arabia (2010). Web.

Social Insurance (2014). Web.

Social Insurance (2014). Web.

Social Security (2014). Web.

The assigned case has several inconsistencies and significant mistakes that go against insurance policies and guidelines.

According to the form that Mr. Pro Crastination provided, it was stated that the patient got a comprehensive preventive dental examination. In reality, Mr. Crastination got several procedures done for him in the dental clinic. These include taking periapical films, diagnosing, and determining the source of pain in the tooth, performing an emergency pulpotomy along carrying out post-operative instructions. Previously, Mr. Crastination has not gone to the office for the annual examinations, and the procedures done by Dr. Giles were performed in a state of emergency. Therefore they did not count as scheduled office visits.

Preventive exams are not meant to diagnose, treat, and evaluate existing problems. Since the visit was entirely considered a medical treatment, it does not meet the requirements of an insurance provider and may not be billed as preventive; therefore, not be paid. Besides, taking periapical films may not fall under preventive care, if they require oversight and if specific operations were carried out on the matter.

It is evident that Mr. Crastination simply wanted his dental services covered by an insurance company. Nevertheless, for the services provided for him by Dr. Giles, he will be required to pay toward a deductible, coinsurance, or even a copay. In this case, Dr. Giles should pull out the dental records and report the results accordingly to the patient’s insurance company and notify them of the procedures done and at what cost.

Ethically and morally speaking, Mr. Crastination has acted dishonestly and has not been transparent about him getting diagnostic care. This kind of situation should be handled appropriately, because the insurance companies may get a person in trouble if the services are misused inappropriately.

Introduction

Today I’d like to present to you an excellent opportunity for investment. Insurance plays a crucial role in society, and currently, the car insurance market undergoes significant changes caused by disruptive technology – usage-based insurance. It is a new method of providing service for customers who seek to optimize their expenses. Due to its novelty, the new market is not highly concentrated, while being in high demand. The product is a viable alternative for traditional car insurance, as it saves money for both the company and its customers. In order to explain the opportunity, I would like to share with you the state of the market, potential competitors, and the description of the target customer base.

Usage-Based Insurance Basics

It is essential to understand how the product works for the customer in order to succeed in the market. This technology uses the Internet of Things as a foundation to expand the traditional car insurance system. According to Gupta (2020), “UBI plans based on driver behavior are ideal” for light-duty vehicles, which constitute approximately 95% of all car sales. Telematics devices and phone applications that collect statistics about car usage allow companies to create programs that greatly benefit people who are known for their safe driving. Analyzing this data and setting appropriate pricings on miles driven and other related parameters enables companies to cut expenses on insurance claims, while transferring these savings onto customers.

The State of the Market

To provide a closer look on the opportunity, it is vital to take into consideration both competitors and the target customer base. After some research, I came to the conclusion that the state of Colorado serves as an ideal starting point for this firm, as the local customer base constitutes of 1.82 mil. potential customers (Ely & Propheter, 2018). Due to the high demand for this product, analysts estimate that this market will grow at a 23% compound annual growth rate during the next seven years (Gupta, 2020). By entering the market now, it is possible to experience the benefits of its future growth.

Competition

There is a presence of several large insurance companies in Colorado. However, they tend to provide discounts on premiums based on the customer’s behavior on the road, instead of calculating premiums based on these statistics (Sims & Walker, 2020). Competition on the usage-based insurance market is currently in the development stage, as many major companies do not cover all the states or do not have all the options available for their customers (Sims & Walker, 2020). Annual costs of insurance for many people across the United States stay relatively high, especially for high-risk categories, such as students or beginner drivers, despite their actual behavior on the road.

Marketing Approach

As the product of my company is an obligatory service, it is held in high demand among low-income households. The customer base for this product seeks to cut on their expenses or to control their behavior on the road via monetary rewards in the form of lowered insurance premiums. The average annual car insurance cost in Colorado is approximately $1200 per car, while the average mileage is 12,825 miles (Ely & Propheter, 2018). By setting the price per mile between $0.07 and $0.11, it will be possible to create a sustainable company that will appeal to safe drivers from low- and middle-income families.

Conclusion

In conclusion, with the right marketing tactics, it will be possible for my company to successfully acquire a share of the rapidly growing market. As new technologies for data analysis continue to be developed, the expansion of available options and lowered costs of operation for insurance companies will be ensured. Usage-based insurance is a service that will continue to gain popularity, yet currently, it only becomes to be available for people in the United States. Therefore, I advise opening the UBI insurance company in Colorado, as it is the most suitable place with a large target population and relatively small presence from competitors.

References

Ely, T. L., & Propheter, G. (2018). Colorado’s middle-class families: characteristics and cost pressures. The Bell Policy Center.

Gupta, S. (2020). Usage-based insurance market worth $125.7 billion by 2027. Markets and Markets. Web.

Hunt, J. (2019). The 7 best usage-based insurance options of 2020. The Balance. Web.

Motor1.com Team. (2020). Allstate insurance: Reviews and our take (2020). Web.

Sims, M. B., & Walker, D. (2020). Usage-based car insurance and telematic systems [Easy guide]. AutoInsurance. Web.

The plan to venture into overseas markets represents strategic goals and missions that an organization has for its future. With the current economic down surge, most companies are not able to make investment decisions for fear of uncertainties that are likely to befall them. In these situations, investors are ever skeptical about the market and risk assessment becomes a critical activity in the entire organization. In the dynamic economic environment, successful are firms that take advantage of such prevailing circumstances to invest their funds with an expectation of good returns while many players remain unwilling.

By taking a considerable amount of risks in different portfolios, a firm is likely to benefit most. Depending on the investors’ confidence and market perception, risk accepting organizations stand a better chance to yield a high required rate of return to their shareholders both institutional and individual than risk aversive organizations. This article, therefore, tries to demonstrate the qualities of good financial investors. China life is a large insurance group with the capacity to trade at both international and domestic levels. With an ambition to expand into external markets through acquisitions especially now when most economies seem to be in the recess, the company stands to benefit in two ways;

Financial advantages: these include acquiring most entities at less than their market values. This is likely to offer an organization a splendorous economic opportunity to position itself in new markets. The organization can invest at a lower cost than if the economy was vibrant. This adds to additional investment income to the shareholders as well as the management. The general interest rates are down and that an organization can utilize this opportunity to secure a loan from a financial institution to finance its long-term investment. Though is considered aggressive financing, if its managed well contingent benefits are likely to materialize. Another advantage is to expand in market share. By using the available funds to invest in overseas markets the organization is secretly expanding into those regions which with time may turn into large market niches. With the current increasing competition in the domestic markets organizations are shifting their attention to international markets. This is to take advantage of the untapped opportunities and potentials.

In my opinion, I fully support this decision purely on economic grounds. it is obvious that the company is going to gain tremendously this is because most troubled organizations are likely to sell their assets at less than market values to remedy their liquidity positions. By undertaking to sell these assets at less than market values the acquirer stands a golden moment to gain. Secondly, foreign investment is one of the strategies of venturing into overseas market niches. The company could one day expand to those markets when domestic pressure becomes uncontrollable.

The rationale behind this article should be to provide the reader with knowledge on investment policies. I can therefore say that this is instrumental to me by expanding my knowledge on making investment decisions. However, some factors should be considered before these decisions are made. These are important questions that may trigger off the actual investment process or lead to the abandonment of these investment decisions. the internal situation including domestic lending and borrowing rates, the general interest rates, the existing environment in the domestic market, and the prevailing political, economic, environmental conditions in the chosen foreign country. These are some of these questions (Geoff & Patti, 2008).

Work cited

Geoff Dyer & Patti Waldmeir. China Life plots overseas insurance buys. 2008

Introduction

The modern United Arab Emirates (UAE) is striving to diversify the economy and minimize the influence of an obscure sector on the development of the country. In this regard, federal legislation stimulates local and foreign investment by providing easier access to the country’s market for foreign companies. This report reviews the existing legal framework that regulates the activities of foreign insurance companies in the UAE. In particular, it examines what forms of partnership are available to enter the market and what legal provisions should be considered. However, with regard to foreign insurance companies, the reformed legislation does not provide significant advantages over the past.

Literature Review

Currently, the UAE is active in enhancing economic development through diversification. This trend is reflected in The Abu Dhabi Economic Vision 2030, which emphasizes that “the Government wishes to see the creation of higher-value employment opportunities, especially for Nationals, and maximizing participation of women in the workforce” (The Government of Abu Dhabi, 2008, p. 5). In particular, the focus is on “enhancing the business environment through further legislative reform and by ensuring that all economic policy is formulated with reference to rigorous data sources and statistical information” (The Government of Abu Dhabi, 2008, p. 5). Thus, the economic development plan implies attracting not only local but also foreign investments for integration into the global economic environment and accelerating the process of diversification of the UAE economy.

Due to existing needs, federal laws have been transformed in recent years to facilitate the entry of foreign companies into the country’s market. The main document that regulates doing business in the UAE is Federal Law No. 2 of 2015 on Commercial Companies (CCL) (Federal Law No. 2, 2015). The document “applies on any economic entity which practice any commercial, financial, industrial, agricultural, real estate or other kinds of economic activity on the mainland” (Business regulations, n.d, para. 4). Exceptions are companies participating in power, oil, or gas sectors, as well as companies wholly owned by federal and local authorities. The activities of these businesses are regulated by other acts and documents. Foreign company activities may also be conducted in Free Zones, which are not covered by Federal Law No. 2 (Federal Law No. 2, 2015). There are also legal features for companies providing private security services (Business regulations, n.d). Thus, insurance companies such as Jordan Insurance Company are governed by CCL.

In modern economic conditions, federal legislation is being transformed to meet current needs. This process is carried out through amending existing laws, in particular, Federal Law No. 2 of 2015. The most significant of these are Federal Decree-Law No. 07 of 2018 and Federal Decree-Law No. 26 of 2020. Federal Decree-Law No. 07 of 2018 changes the attestation process of the Memorandum of Association, which must now be issued in Arabic (UAE President issues Decree, 2018). This amendment is relevant in resolving the claims of partners regarding “the invalidity arising from not writing or attesting the Memorandum or the amendment” (Federal Law No. 2, 2015, p. 5). Federal Decree-Law No. 26 of 2020 declared more fundamental changes to commercial law, as it is aimed at promoting direct foreign investment in the UAE economy (UAE companies law, 2020). In particular, this Decree amended 51 articles of the existing legislation and introduced 3 new provisions (UAE companies law, 2020). In particular, in its modern form, the law significantly facilitates the entry of foreign companies into the UAE market.

The main changes that the Decree implies concern the share of national contribution in foreign companies. Article 10 of CCL stated that “any company established in the State shall have one or more UAE partners holding at least 51% of the share capital of the company” (Federal Law No. 2, 2015, p. 4). This provision did not apply to Joint Liability Companies and Simple Commandite Companies, which is a partnership of UAE nationals. The 2020 amendment declares that Limited Liability Companies (LLC) can be 100% foreign-owned unless they are involved in strategic activities (UAE amends Federal Companies Law, 2020). The list of such activities is determined by the Strategic Impact Resolution No. 55 of 2021 (Sovereign, 2021). This resolution includes insurance in the list of activities of strategic impact (Sovereign, 2021). Additionally, overseas companies no longer need to have a UAE national agent (Sovereign, 2021). Significant changes also affected the conduct of banking and insurance activities.

Prior to the 2020 amendments, the CCL implied strict restrictions on such companies. In particular, Article 11 stated that “only Public Joint Stock Companies may conduct banking and insurance activities” (Federal Law No. 2, 2015, p. 5). The 2020 amendment removes the restriction on investments to third parties and allows other legal entities to conduct banking and insurance services (Sovereign, 2021). In relation to insurance companies, these provisions are the most important. Title 9 of CCL separately regulated the activity of foreign companies in the UAE. In particular, companies registered outside Free Zones could not function without the agent that is UAE national (Federal Law No. 2, 2015). The 2020 amendment changed this article, making it easier for foreign companies to enter the country’s market.

Methodology

The study is a report; therefore, it involves the collection and analysis of theoretical information on the particular case. The main source of collection of the necessary data is the current and relevant legislation adopted by the federal government of the UAE. The chosen approach is the most effective for the purpose of this study, as it allows one to assess the regulatory framework that exists in the country for doing business. The most important aspect is to consider the recent amendments, as well as federal laws and decrees specific to the activities of insurance companies. The research process includes the identification of relevant documents for consideration of the case, the identification of key provisions, and their assessment within the framework of the task.

Results and Discussion

CCL regulates the activities of agents for foreign companies in the UAE. In particular, a foreign company can create a representative office in the country who will act as an agent of the company in the local market (Federal Law No. 2, 2015). According to Article 329, the agent is not financially responsible for the activities of a foreign company (Federal Law No. 2, 2015). All partner losses and profits, in this case, are also reflected in the Memorandum of Association. Representatives and agents of a foreign company “should not enter into contract/write business of their own accord, but rather refer customers to the services/products of their parent company” (Holman Fenwick Willan, n.d, p. 4). Agents or representatives are not a separate company and are not a legal entity; therefore, a foreign company is fully responsible for its activities, as well as losses and profits.

A foreign company can also establish a branch office in the UAE, which is also regulated by the provisions of the CCL. on the contrary, they are completely independent entities that have the right to enter into contracts and are also responsible for losses during the partnership (Holman Fenwick Willan, n.d). At the same time, the parent company must comply with the regulations of the Insurance Authority and have a minimum capitalization to conduct business. There is also a standard form of partnership for insurance companies, a public joint-stock company, but its formation requires a minimum of five members (Federal Law No. 2, 2015). Although the 2020 amendment allows the formation of an LLC, with regard to strategic activities, which include insurance, it is not clear how the authorization of the activity can occur and what conditions for partnership are established.

The activities of agents or branches of the company are regulated by various laws. In addition to the CCL, the listed company types must comply with the provisions of the Insurance Authority Decision No. 25 of 2014 Concerning the Financial Regulations for Insurance Companies (Insurance Authority United Arab Emirates, 2014). Insurance company contracts are regulated by Federal Law No. 5 of 1985 on the Civil Transactions Law (Civil Code) (Federal Law No. 5, 1985). The activities of companies must be properly licensed in the UAE.

To obtain a license, the foreign company must enter the national agency agreement or with a company that is 100% owned by UAE nationals. All companies conducting insurance activities in the UAE are regulated by the Insurance Authority. Additionally, different Emirates have separate bodies, such as the Dubai Health Authority or the Sharjah Health Authority (Wakerley & Barlow, 2020). However, foreign companies may not be regulated in the UAE but are regulated by their country’s jurisdiction (Wakerley & Barlow, 2020). To be licensed, a foreign company must meet the provisions of Article 4 of the Insurance Authority Board of Directors’ Resolution No. 27 of 2020 Concerning the Instructions for Licensing Insurance Producers (Insurance Authority Board, 2020). The company must also comply with Article 3 of Cabinet Resolution No. 42 of 2009 Concerning Insurance Company Minimum Capital Requirements (Cabinet Resolution No. 42, 2009). Thus, the company must first obtain permission to operate in the relevant Department of Economic Development of the Emirates, and after initial approval, apply to the Ministry of Economy. The ministry must be provided with documents in accordance with the CCL regulation, as well as a bank deposit.

All disputes between branch directors or agents are resolved under f the Memorandum of Association. However, when disputes arise outside the scope of this document, the preferable method is international arbitration (Latham & Watkins LLP, 2017). In this case, the solution can be enforced by a foreign parent component or agent/branch. Disputes that arise can also be resolved at the Dubai International Financial Center (DIFC) (Latham & Watkins LLP, 2017). However, in this case, the enforcement of decisions in relation to foreign companies is not regulated by certain guidelines outside the UAE.

Conclusion

The report achieved the goals that were originally set and provides a fairly detailed overview of the legal framework available for partnership with a foreign insurance company in the UAE. The main difficulty with regard to the entry of foreign companies into the UAE market is the choice of a company form that is quite limited for this sector. Although the recent amendments have made it easier for foreign companies to partner with local businesses, these conditions do not apply to insurance as the activity with a strategic impact. In this case, the company must comply with all the conditions that are provided by the provisions of the CCL. However, the tweaks made partnerships with agents and the opening of branches for insurance companies available, which is a significant advantage.

Recommendations

Based on the report, Jordan Insurance Company can be recommended to consider opening a branch in the UAE. This form of the partnership will ensure a sufficient level of autonomy, as well as comply with all regulatory requirements. Companies need to take into account that validity in the UAE requires both prior approval and minimum participation of local capital from them. All of these features need to be considered for compliance with regulatory features.

References

Cabinet Resolution No. 42 of 2009 Concerning Insurance Company Minimum Capital Regulations [PDF-file]. Web.

Business regulations. (n.d). The United Arab Emirates’ Government portal. Web.

Federal Law No. 2 of 2015 on Commercial Companies [PDF-file]. International Labour Organization. Web.

Federal Law No. 5 of 1985 on the Civil Transactions Law of the United Arab Emirates State. Ministry of Justice. Web.

Holman Fenwick Willan. (n.d). A guide to setting up a business in the UAE: The legal requirements [PDF-file]. Holman Fenwick Willan. Web.

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