Category: Insurance

Introduction

Each and every country has there own set of rules and regulations regarding tax and specific criteria for taxable income. In general, a tax is a financial charge or other levy forced on an individual or an organization by a state or a government. For example, if an individual earns X amount of income a part of it is deducted at source or the individual is entitled to pay a part of his annual income as tax. In the case of a restaurant or any small-scale business, the owner of the restaurant is liable to pay a part of its profit as tax. If an individual has property, he is also supposed to pay a property tax to the government.

There are two basic forms of taxes, direct tax or indirect tax, and may be paid in money or as corvée labor. In simple terms, tax can be defined is as follows: “pecuniary burden laid upon individuals or property to support the government [ …….] a payment exacted by legislative authority.” (Black’s Law Dictionary 1307) These funds are collected by the state as tax is used for various purposes such as expenditures on the enforcement of the law, protection of property, economic infrastructure such as roads, legal tender, enforcement of contracts, etc., and the operation of government and the political system itself. Besides, public services such as education systems, health care systems, pensions for the elderly, and public transportation, energy, water, and waste management systems are public utilities that are taken care of with these taxes.

Main body

There has been a lot of discussion about what taxable income is and how these are calculated for an individual or an organization. In general, it can be said that taxable income is the portion of an individual’s income that is the subject of taxation according to the laws that determine what is income and the taxation rate for that income. To be more specific, taxable income refers to an individual’s (or organization’s) gross income, adjusted for various deductions allowable by law. The main questions put by most individuals in any jurisdiction are “what makes up my taxable income” and what tax rates should be applied such that I can work out my tax liability to the state. For example, suppose within a year, an individual earned $50,000 from work or restaurant business, made an additional $10,000 profit from selling stock, and won the lottery for $1,00,000. This person has a total income of $1,60,000. However, some of this income may be taxed at a lower rate, or perhaps not taxable at all. In most countries the income taxes of regular salary above a certain limit is taxable. Besides, income from various other sources is also taxable.

National Insurance (NI) is a system of taxes and related social security especially for the United Kingdom and was first introduced as early as 1911. In this system the tax component of taxes paid by employees and employers on weekly earnings and other benefits-in-kind. Additionally, the self-employed for instance a small-scale industry or a business owner are taxed based upon profits. Such taxes are said to be National Insurance Contributions (NICs).

There is a difference between the normal income tax and NIC. Contrasting income tax the limits for class 1 NICs for ordinary employees are calculated on a periodic basis, usually weekly or monthly depending on how the employee is paid and not on an annual basis. On the other hand, those for the higher-level officers or CEOs are always calculated on an annual basis. This is to make sure that the correct levels of NICs are collected irrespective of how often they choose to be pay. The following are the various classes and the percent of taxable income:

• Class 1A: In this group of taxpayers contributions are paid by employers on the value of company cars and other benefits in kind of their employees and directors at the rate of 12.8% of the value of the benefits in kind (from their P11Ds).
• Class 1B: This class was introduced on 6 April 1999 and is payable whenever an employer enters into a PAYE Settlement Agreement for tax. It is important to note that Class 1B NICs are payable by employers and payment does not provide any benefit entitlement for individuals.
• Class 2: All the self-employed come under this group and contributions are fixed weekly amounts. It does not matter if they are under trading profits or losses, they are supposed to pay tax. However, there is a provision for people with fewer earnings to apply for an exception from paying and those on high earnings with liability to either Class 1 or 4 can apply for deferment from paying.
• Class 3: In this group contributions are voluntary NICs paid by people that wish to fill a gap in their contributions record which has arisen either by not working or by their earnings is very less. The primary reason for paying Class 3 NICs is to ensure that a person’s contribution record is preserved for entitlement to the state pension, generally, a person requires either 10 or 11 years for a minimum state pension, even though in certain cases fewer years may be required.
• Class 4: Here contributions are paid by self-employed people as a portion of their profits, calculated with income tax at the end of each financial year, depending on figures supplied on the SA100 tax return (Wikipedia n.pag).

Conclusion

The advantage of the NIC is that people who are not able to work for some reason may be able to claim NIC credits. These are the same as for Class 1 NICs, though are not paid for. The rules for tax payment may vary from country to country. However, it is important to note that each and every individual has to pay the tax and is liable for punishment if they are not paying the tax.

Work cited

1. Bryan A. Garner, editor, Black’s Law Dictionary 5th ed., (West Publishing, 1979), pp 1307. ISBN 0-8299-2041-2.
2. Wikipedia National Insurance Wikimedia Foundation, Inc., Web.

Introduction

The insurance sector is one of the highest-ranking areas of investment in the Saudi Arabia Stock Exchange (Tadawul). The sector presents itself with a myriad of opportunities, especially since it is a young and growing one. The amount of potential that the sector presents is an attractive one for an investor, especially one who is beyond average risk tolerance. Tadawul has in itself different sectors whose indices appear in daily stock exchange reports, and these range from Banks and Financial Institutes, Cement, Retail, Energy, Insurance, Petrochemical Industries, Telecommunications and I.T., Multi-Investment among many other players in the market (Saudi Stock Exchange, 2010, para.1). Most of these generally register positive figures in the indices, an indicator that the economic environment in Saudi Arabia is a good one.

In this report, we are going to look deeper into the Insurance sector, and give an analysis of its overview, its nature and its size within the Tadawul. We are also going to look at some of the statistics released about the sector by the government. We will pick a number of companies that are strong in this sector and do a financial analysis on them, comparing and contrasting their numbers and finally choosing which company will best suit the investor’s needs in form of a recommendation.

Sector Overview

The Saudi stock market seems to be the largest market in the Arab world as it ranks thirteenth in the International Fuel Gas Code (IFGC) markets. Its turnover is about $14billion annually. However, compared to other emerging markets, this does not much most well-performing markets probably because of the policies that government is having as pertains to business in the region, having its hands on the larger, untraded chunk of the firms in the region (Bakheet, 1999, para.9-10). The insurance sector is a small sector with a contribution to the GDP at 0.5%. Nevertheless, a constant growth of 25% as from 2003 is making the insurance sector an attractive one, having had come from a dark past of an unregulated insurance policy. Some of the biggest names within this sector have emerged from reforms within the government, and some of these names will include an indigenous insurer, that is, Tawuniya or NCCI. The other companies are foreign based and will include companies like Med gulf, AXA and BUPA. These are big players in the market yet, do not have as big a say as Tawuniya has.

A World Trade Organization report has noted that due to the licensing of various companies in the insurance sector, the sector now realizes an average growth rate of between 20-25%. Islamic Insurance (Takaful) insurance premiums have grown with a rate of 50% every year from 2000 to 2005, putting the total earnings from premiums to $2.24 million.

The industry has come from an age of cynicism whereby Saudi Islamic legal rulings (fatwas) placed insurance under the convectional Islamic financial principles, which were in a heavy clash with modern day insurance. This was in the 1980’s where small numbers of retail operators worked as insurers. They were unregulated, until in 2003 when the government decided to regulate these companies through the Sharia governed principles (Oxford Business Group, 2007, p.84). This has left the door open for both and domestic competitors as well as foreign ones to exploit the market. Nevertheless, NCCI and Med Gulf, both of which are domestically based companies have an upper hand against BUPA and AXA, which are on of the only remaining top foreign insurance companies Saudi Arabia. This seems so due to the emergence of high capital requirement for licensing, which stands at a whooping $26.67million according to the same report. This is in exclusion of a 10% statutory deposit. In the view of such massive deposits flowing in terms of direct investments, many of the smaller companies have lost their market share to larger insurance companies established in the kingdom.

In Saudi Arabia, there are some measures that the government has put into place to regulate financial activities in its markets. The policies affect the market operations in many ways. For example, in 2006, the government introduced compulsory motor vehicle insurance, as well as compulsory health insurance cover. In effect, these regulations forced motor vehicle owners to take precautionary measure to avoid road accidents. The compulsory health insurance cover forced employees to pay annual subscriptions including premiums for their workers. An approximation has it that 10 million vehicles have been registered under insurance cover by 2008, and this has caused a raise I the total premium to $1.33billion (Oxford Business Group, 2007, p.90). According to the 1998 legislation, foreigners must take a private insurance cover. About 500 foreign workers had already complied by 2007. This has further increased the income acquired through these bonds.

Stock Selection and Financial Analysis

In this segment, we shall compare some of the big companies in the insurance market, and assess the capitalization ratios of the five top companies that are in the insurance sector. We are going to look into the history of the companies involved and therefore make an analysis on the potential growth, that the company has, gauging whether the company’s future is bright or whether it is deteriorating, or even whether stagnating. In doing so, we are going to settle on one company, which is worth investing in.

NCCI

The NCCI is a group of companies that form a Non Governmental Organization, which is the main domestic structure in the insurance business. It continues to dominate this market, although in 2003 the Institute of Banking (IOB) declined from publishing further reports about the group of companies. Conversely, gross premiums for the firm amplify at 16% in 2006. Entire revenues rose at the same time by 6% from sr 1,218 million to sr 1,289 million. There was a 6% payment of gross claims in the year 2006. The liquidity ratios for the year 2005 were quite promising. Considering the year 2003, its gross premiums rose by 43%, with a premium retention rate of 55.6% in the year 2004. This put NCCI at a good financial position to deal with risks in financial constraints. During the period from 2001 to 2004, the company recorded the following ratios.

Projected return ratios for NCCI between 2004 and 2009:

Med Gulf

The company currently ranks third in Saudi Arabia, as it possesses capital worth SR2.62billion. Its shares jumped 167.50% after opening at SR42. 1.5 million Saudi’s took part in purchasing its shares which are worth RS200 million, with the National Bank being named the biggest shareholders. As at 2005, the premiums in MedGulf grew by 84% according to an annual report released by the company. The total investments for the company reached sr 803 million, though this was a decrease compared to year 2005. Net income from the shareholders’ operations increased at 50%. There was a recorded increase in the company’s total asset form SR4164 to SR 4252 millions. This provide a good financial base for expansion of operations.

BUPA

BUPA is one of the biggest internationally based insurance companies that have spread its wings even to Saudi Arabia. Foreign policy in Saudi has not really affected the working environment in the area and therefore it has been relatively easy for BUPA t operates in this region. Its capitalization in the region is currently lying at $106.6 million. BUPA provides health cover for 11000 employees in Saudi Arabia, as it closed in a contract to serve in the health sector as at 2006. During the year 2007 and 2008, BUPA recorded the following figures for cash flow financing:

AXA Cooperative Insurance

AXA is another of the top five insurance companies in this region and is a new player, which recently secured large contracts with other industries like the energy and telecommunications industry. The mighty that AXA reveals is in its capacity to pay asserts. Over $15 million, worth of the same amount went into people’s claims over a period of 12 months. Its capitalization lies at $95.24 million and is well on its way to being one of the top most insurance companies Saudi Arabia has seen yet. As it stands, AXA is recording a growth rate of 14% annually.

The value of the top companies in insurance indicates in the above short analysis. All these companies contain their shortcomings yet all of tem have their own strengths. It is interesting to note that different insurance companies aim at different goals, depicted from the analysis for AXA. It is rather a small insurance company yet it ranks first in making sure that most of the claims subscribed to insurance cover met appropriate pay on due time.

Some of the companies like BUPA take specific contract to provide health insurance for employees on behalf of companies. The move for AXA to sign in contracts with the telecommunications industry is a move that will find the company specialized in a certain insurance field, or if not, will be having a greater influence than other insurance companies in that particular field. for AXA, the ratios for the year 2007/8/9 were as follows.

Expense ratio:

• 2007-12.3%,
• 2008-13.2%,
• 2009-15.0%

Recommendation

As the NCCI is the leading company in terms of numbers in the insurance company’s stocks, I would advice any investor to try this company. From our findings of the company in the Arabian Stock market, analysis of the company shows that its stability may likely continue into the next decade. NCCI will probably remain to be the market leader. The analysis reflected its customer confidence with the products and this in turn promoted the confidence of investors to buy big stakes in the company. With a trading of SR151 per share there would be a chance to gain something from investment in this company. Besides, the NCCI has a wide range of scope for its consumers, from medical cover, to energy, to the aviation industry, to engineering and the property industry. This scope gives the company a wider consumer base, meaning that its value appreciates in terms of capital.

The company shows strong management and a very competitive position in the stocks. This appears vividly by the amount of premiums that are sold and the amount of trading in its shares that the company does. Capitalization is quite strong and this increases the company’s ability to remain on top of the charts.

The only disadvantage in going for such a company as NCCI is that it will be very hard to find one of its shares in the market. IPO’s for this kind of companies are almost impossible to obtain unless one will wait for a particular opening in order to make a bid. This though is the case for all the companies that I have mentioned, since all these companies are big ones, recording significant growth in their markets. This logistic therefore gives a level playing field amongst all companies that one would consider to invest in. A bid of SR180 per share would be a good start for bidding. It will be hard though to estimate target price owing to be market vibrant. It would be better to take the prices that the market forces of demand and supply creates.

Reference List

Arab News, (2006). Saudi NCCI Ratings Raised to ‘A’; Outlook Stable. Gulf base. Web.

Bakheet, Beshr. (1999). Developing GCC Stock Markets: The Private Sector Role. Middle East Policy Council. Web.

Oxford Business Group. (2007). Islamic Insurance-Takaful. The report: Emerging Saudi Arabia. Oxford: Oxford Business Group.

Saudi Stock Exchange.(2010). General Information. Web.

Introduction

Insurance plays an important role in our lives. It involves financial protection that can occur unexpectedly or during unpredicted loss. When a person buys insurance, he or she pays an insurance company a monthly premium which can guarantee financial compensation in cases of uncertainties which can occur such as bodily damage or property loss among other misgivings.

This paper explores the conventional and Takaful insurance. It points out the aims of and objective of conventional and takaful insurance. Besides, it gives a brief history of takaful and explores Takaful Company of South Africa as one of the company which has embraced takaful in delivering services compliant with Sharia. Further, the paper discusses the products that Takafol produces such as commercial takaful and personal takaful. The papers further assess Takafol with compliance with Sharia principles.

In conclusion Takaful helps in promoting solidarity and comradeship among the Islam community by embracing Sharia. Besides, efficient and customized Takaful product provides a competitive advantage for Takaful to gain international presence in untapped markets such as Europe and the Americas.

Conventional insurance

Conventional insurance entails an agreement whereby an insurer in return for a premium accepts to pay the insured a sum of money or its similar in any kind in case of happening that might occur. This is contrary to the other party, in this case the insured i.e. “Financial interest” (Archer et al, 2009, p.36). Conventional insurance is action based for instance; most clients of conventional insurance expect that their policy will be rewarded when their premiums are paid. For example, if an accident or a fire ensures after the policy period ends it will compel the policy owner to be covered under any other relevant policy that can apply except when the policy was renewed.

Conventional policy applies where awareness of the insured event such as accident or fire is possible to track the event by itself (Archer et al, 2009, p.44). This helps in inducing a claim on the insurer to be instituted during the period of the policy or rather after it results. But, other types of insurance cover are emblematic because theyy deliver unlike in tandem with their founding objectives. For example, cargoes or ships in case they are lost or not, may be insured and specialized indemnity insurance is provided on claims made basis. Conventional insurance is noted as commonly non-compliant because certain aspects for example the shareholder benefit more than the policy owner. Also, it encourages discrimination when weighing risk i.e. Diverse premiums are cited based on gender, age and financial grade of an individual (Archer et al, 2009, p.77).

Aims of Conventional Insurance

Conventional insurance aims at encompassing its business operations under the guidance with the principle of contract (Culp, 2006, p.56). A contract ensures the business is legally compliant and both parties are protected. Secondly, conventional insurance aims at increasing profit for its shareholders and policy owners to promote its expansion and growth (Culp, 2006, p.68). Lastly, conventional insurance aims at transferring the risk of indefinite economic losses in return for a preset premium. This ensures uncertainties are mitigated.

How Conventional Insurance works

Under conventional insurance, the company invests in surplus premiums when the paid premium exceeds the planned expenses (Muslehuddin, 2006, p.87). Thus, the insurance company invests in various assets that it conserves for each entity insurance strategy.

The venture which is accrued is credited to the employer. But, if an employer earns more than the interest fixed, it is worthwhile to condense the transfer of funds to the insurer (Muslehuddin, 2006, p.980).

Takaful Insurance

Takaful is an Islamic insurance which is founded along the compliant principle and on the code of separation between the resources and procedures of the shareholder (Aly, 2004, p.37). This therefore transits the ownership of the insurance resources or money and processes to the policy owner.

The premiums collected from the policy owner are regarded as donations and they settle the insurance fund by which privileges are compensated. The money held by the company after the financial year is returned to the policy owners in form of premiums and distributions (Aly, 2004, p.44).

The investments a possession that represents Takaful insurance fund accrues in capitals, excess, and supplies that are invested by the stakeholders who oversee management of the company on behalf of policy owners. The stakeholders are rewarded with an agreed percentage of the profit accruing from the investments (Aly, 2004, p.56).

History of Takaful

Takaful has been in existence for over 1400 years. The first official Takaful insurance company came into existence in 1979. The Islamic Insurance of Sudan was the first company to adopt Takaful business (Billah, 2003, p.47). Takaful was founded on the principle of solidarity, comradeship and common backing. This principles provides for collective financial help and support to the contributor in time of need (Billah, 2003, p.57)

It integrates Sharia doctrines which are unlike conventional insurance History points out that Muslims of Medina and Mecca had started communal support program. The communal program called for Takaful existence to provide an effective way of handling unforeseen uncertainties (Billah, 2003, p.68). Besides, trade practice between the Asians and Arabs which was provoked by increased risks of loss and robbery contributed to Takaful emerging.

The Sharia guiding principle for introducing Takaful was; Gharar. Gharar means doubt, it referred to the economical improbability which was impulsive and had no measurable prospect. Maisir, which means gambling, was wealth that had a possibility of being taken and Riba, which means interest which stipulated that no interest should be charged in any given transaction (Jaffer, 2007, p.87).

The Takaful consist of two parties; the Ra’sul mal and Mudharibu. The Ra’sul mal earmarks a party or an investor who can provide the capital which in Takaful insurance means “premium”. Mudharib is a part which provides the needed skills or efforts in a business scheme (Jaffer, 2007, p.96).

The Takaful history brings into focus two models which are used as methods in making the Takaful system work. The Mudharabah and Wakalah. Mudharabah ensures the profit accrued in the business is shared equally using a percentage depending on the contract agreement (Jaffer, 2007, p.106). Wakalah earmarks that a fixed fee is shared by the shareholders in case of a profit or a loss.

Takaful Global

Takaful business has developed significantly as an Islamic substitute to conventional insurance. It has advanced from being regional to a global outfit. The resurgence in communally accountable Financing and customer claim for Sharia obedient has heightened the communal grounded business request of Takaful and its linked products (Chin, 2004, p.68).

Major markets of Takaful are found in Iran, Saudi Arabia, Malaysia, Indonesia, Pakistan and Sudan among others. The yearly average of distinctive market evolution ranges between 15-30%. Takaful Insurance has a leading market slice of the global product in Iran and Middle East regions.

Aims and Objective of Takaful

Takaful business is guided by its aims and objectives in meeting its business goals. First, Takaful aims at performing its business objectives in line with Sharia.

Secondly, Takaful is aimed at fixing a business which guarantees comradeship, unanimity and shared relief which delivers a common financial relief to members by encouraging equal contribution to mitigating an agreed purpose (Siddiqi, 1985, p. 67).

Thirdly, the Takaful aims at safeguarding people life, faith, future and their property. By encompassing social morals, Takaful improves public interests and contributes to a business which is socially accepted. A society which is free from exploitation provides an environment for satisfactory capital development (Siddiqi, 1985, p. 79). Mohammed, the Islam prophet detested begging and influenced forming capital. For example history points out that he advised a poor acquaintance to dispose off his property to buy an axe for which he would use to collect firewood and sell to potential customers in the market.

Fourthly, Takaful aims to provide equitable wealth distribution. Islam inspires people to selfless help one another by encouraging the sense of sympathy. Takaful therefore provides a platform whereby people can be exhilarated to give money for a common help during time of uncertainties (Siddiqi, 1985, p. 87).

Fifthly, Takaful aims at combating the growth of wealth and absorption in the hands of minority. Takaful gives an insight that alters the dissemination of wealth in a method that is unidentified in other legal framework. For example, it can divide a property of a deceased person among his or her recipients and not to a single heir. Wealth is regarded as an element which serves the interest of the whole community.

History of Takaful Insurance Company

Takaful is an insurance company that incorporates Islamic principles in its business operations. The company is based in Johannesburg, South Africa.

Takaful is committed in strengthening uprightness; transparency and fostering establishing long-term association which is grounded on respect and trust. The commitment and trust ensure Takafol fulfills its objectives and goals (Takafol, 2010).

The company has formed strategic alliance with other companies such as ABSA Insurance Company which helps Takafol provide insurance license and LIREAS HOLDINGS which helps provide stability and improve Corporate Governance responsibility.

Aims of Takaful Company

Takaful Insurance aims at strengthening transparency and integrity in fixing a long lasting partnership with its associates and other players in the insurance industry. This ensures that it delivers quality and affordable products for its swelling customers (Takafol, 2010).

Further, Takafol aims at urging Islamic code in tandem with insurance to simplify understands in of customers needs and wants in protecting customers possessions. And lastly, the company aims at ensuring that its services and products correlate to Sharia law to promote Islamic Economic environment.

Takaful Products

Takaful provides four major products this products include; personal takaful, commercial Takafol, Takafol assist and Takafol lifestyle. Personal Takafol involves insuring all risks. It covers personal portables that a person carries as he or she moves from his or her home. Portable possessions comprise items which are general which can be worn or carried along either in a car, handbag or a sports bag (Takafol, 2010). Portables listed under this category include; watches, clothing, jewelry, iPods, photographic equipments among others. Personal takaful is made up of two all Risk covers.

The first one is; Unspecified items. It covers items which are fewer than R 100 of each item. The item covered is, clothing, personal effects designed to be carried by a person and items which are won while a person is engaging in sports. Secondly, mentioned all risks stuff includes stuff which has a value beyond R1000 which either belongs to an individual or an immediate member of a family.

The item under mentioned all risks are independently listed and its cover extends worldwide despite of where a loss or damage can occur. The Takaful agreement will guarantee your custody is either repaired or replaced. Items in this category comprise of; contact lenses, cellphones, cameras, MP3, coin and stamp collections and navigations devices (Takafol, 2010).

When a person undertakes to contribute in All Risk Takaful, he or she makes payment to universal takaful fund in a form of participative payment (Tabarru’). A contract is undertaken (Agad) to be eligible participant. This ensures that common agreement is made to help one another in case any of the participants bear a loss or damage to his or her contents.

Commercial takaful entails all business risks. It provides coverage of business items that are always carried around. The cover in this category is diverse except the risks that are distinctively disqualified. It is one of the major broad forms of property cover that has worldwide coverage (Takafol, 2010). Items covered under this category include; laptops, trade tools, mobile phones and photographic items among other items. Commercial takaful idea is that when a person contributes to the broad takaful fund, he or she is responsible in mutually obliged to help one another. It applies in cases where the other party bears a loss or damage to his or her property.

Takaful Assist plays an important role in relieving customers in case of emergencies. Takaful assists in various ways. It includes; AA fleet Road Patrols. It is a 24/7/365 days service. The aim of the service if need on the spot mobility at roadsides. Takaful provides this service in key metropolitan cities such as Johannesburg, Cape Town, Durban and Nelspruit among other leading metropolitan cities. Services that AA fleet Road Patrol provides include; minor roadside repairs, change of tire, key-lockout service, fuel help and roadside repairs.

The second assistance service provided by Takaful assist is the locksmith service. It is a 24/7 service. It occurs when the AA patrols may not open a vehicle and regain the keys for the vehicle. The locksmith service is constrained to R 300 and covers the first 40 Km.AA is not held accountable for repairs, lock replacement and cutting of new keys (Takaful, 2010.

The third Takafol assist involves AA tow trucks. It is a 24/7 service and provides the service of towing a vehicle to a nearest franchised merchant or nearest allowed AAQA repairer. The service is only available in major metropolitan cities such as Johannesburg, Durban, Tshane and George among other cities it is constrained to R500.

The fourth takaful assist entails car hire service. This service is exercised when a car has broken down more than 100km from a customers’ home and the vehicle has been towed by AA. AA takes responsibility of hiring group B car hire service for the customer to simplify completion of his or her journey. The service is subject to accessibility and the customer should own a valid driver’s license and credit card. The service is restricted to R500 and houses the costs insurance fees and car rental.

Other services that fall under Takafol assist includes overnight accommodation, vehicle repatriation, accident tow and message relay service.

Takaful and Sharia Compliant

Takaful has slighted the conventional insurance because the model does not cater for the needs of Islam. Takaful has embraced Takaful practices because of its compliant with Sharia laws. Takaful practices help strengthen brotherhood and cohesion among the Islam community which entails bearing your neighbors load for the benefit of the community (Takaful, 2010.

Takaful has incorporated Muslim ethical practices such as fixing two different funds in conformity with Takaful. One fund is settled for the policy holder and the fund for the shareholder. Takaful has created Sharia board to ensure the company continues to improve in delivery of blended products compliant to Muslims and Non-Muslims to foster communal and friendship.

Underwriters

Underwriters refer to a business or any other unit that govern the issuance and grant of securities from a company or other issuing organization. An underwriter has to work directly with the issuing business. This is important so that he or she can decide the value presented for the securities or buy them from the issuer and later sells them to a shareholder by means of the underwriter’s distributor’s network (Venardos, 2010, p.53).

However the major roles associated with the underwriters include; supply of information about companies. Investors and customers get great information from the underwriters towards financial and policies of different businesses. Secondly, underwriters help in exchange of securities. They do this by providing a stability of security prices by upholding equilibrium towards supply and supply therefore keeping the market healthy (Venardos, 2010, p.66).

Lastly, they provide other useful services such as financing projects that a company is undertaking and telling of investors about existing opportunities. Takaful underwriters contribute to the growth and development of the company. They are important in providing useful information and advice to manage the company (Venardos, 2010, p.74). Besides, they contribute in setting up a cordial business between the company and the outside world.

Claims Process and How It Work

To streamline the claim, Takafol recommends that all and necessary documents be provided to simplify efficiency in-service delivery. For example, motor theft or hijack involves filing; a claim form, SAPS case number, a copy of drivers license, an identification document, vehicle registration documents among other documents (Takafol, 2010).

When these documents are presented, they are verified to find out their authenticity. After confirmation is done, a registered claim number is posted by means of a broker. In cases where a missing or awaiting documents is noticed, a customer maybe asked to present it. A follow up will be followed if no documents are received. This happens within 24 hours timeline.

An investigator is then appointed to find out the motor vehicle theft and once he or she finishes, a report is sent to Takaful. This takes 7 days at the onset of investigation. After a report is received, a confirmation report will be sent to a broker and if vehicle merits financing, suitable formalities will be sought in terms of payment. This takes place within 48 hours.

When all correct documentation is settled, an accord of loss will be drawn and delivered to broker. It normally happens within 24 hours. And finally, the payment will be paid back to all parties concerned once the necessary documentation is received. This takes 3 days on receiving necessary supporting documentation (Takafol, 2010).

Takaful Model and how it works

Takafol uses the wakalah model of Takaful. The Wakalah model ensures that the takaful operator acts as a Wakeel for other of the participants. The Wakeel responsibility is ensure proper management of the dealings of the team with a distinct fee.

The fee for Wakalah maybe stipulated upfront mostly ranges within 30-5% of the total teams contribution. It is then transferred or deposited to shareholders account. The remainder of the share may be deposited to the takaful account which is then used to facilitate payment of claims, takaful expenses and other.

The amount remaining may be either located aside to benefit the members or retained as an emergency reserve. The balance is disseminated to members in ratio to their contributions (Takafol, 2010). The shareholders accountability is to ensure that operating cost linked to; their salaries, marketing, management among others would emanate from expenses being lower than the fee and investment capital.

Takaful insurance vs. Conventional Insurance

Differences arise between Takaful and conventional insurance. In Takaful, the insured party sells his or her risk at a fee to a counter party; this includes “Gharar” which means uncertainty, in an agreement (Ayub, 2010, p.96).

Under Sharia, an agreement of improbability exists when counter party does not know the counter price that they are trading. For instance, a house may be brought down by a fire, causing the insurer to pay much than expected. Alternatively, it may not burn therefore; in this case the party insured and paid a premium may collect nothing as a return.

Conventional insurance is not clear and transparent. Companies exercise discrimination when analyzing risks cause (Ayub, 2010, p.102). For example, altered premiums may be quoted based on gender, age and financial strength. Besides, most insurance company is involved in other different investments which accrue interests which are contrary to Sharia.

However, conventional insurance is not communally favorable. Because shareholders for instance benefit instead of others I.e. conventional insurance gives priority to shareholders first before the policy owners. Conventional insurance is largely influenced by commercial reasons such as increasing client base therefore gaining more profits (Ayub, 2010, p.119). Takaful centers its business duty by guiding Islamic principles which foster social acceptance and universal solidarity. This increases harmony in Islam and the society.

The Future of Takaful Globally

Potential markets are still untapped by Takaful. Prospective and unexploited markets still exist for Takaful products in the United States, Europe and Asia. However, Takaful is creatively designing its products with appeal, customer preferences and convenience, attractive packaging to ensure that they gain entry and provide a competitive advantage across, life and health industries (Ayub,2009,p.35). This will swell more market penetration for both Muslim and Non-Muslim customers worldwide.

European countries such as the UK, Germany and France have sizable Muslim populace. In Asia, India, China and Indonesia provide more opportunities for Takaful business. Muslim countries such as Malaysia, Bahrain and UAE have transformed themselves into centers of Islamic product excellence therefore providing much needed products for the Muslim world (Ayub, 2009, p.51). Besides, countries such as Saudi Arabia and Pakistan are changing so fast with creative Takaful product design hence providing an apt environment for future expansion to other strategic market regionally and around the world.

Conclusion

Takaful insurance encompasses Islamic principles such as brotherhood, solidarity and respect which are Sharia compliant. This builds a sense of community and common backing to one another. Besides, Takaful has grown and gained international presence, not only in Asian countries, but it is penetrating the western world such as the United Kingdom and United States.

Takaful insurance is widely embraced by the Islamic community than the conventional type because of its sense of communal belonging and inability to impose extra costs to the policy holders. By using creativity in product customization, Takaful has the potential of penetrating the unexploited and potential markets across the world.

Reference List

Aly, K., 2004. Islamic Insurance: A Modern Approach to Islamic Banking. New York: Routledge.

Archer, Karim et al., 2009. Takaful Islamic Insurance: Concepts and Regulatory Issues”.New York: John Wiley & Sons.

Ayub, M., 2009. Understanding Islamic Finance. New York: John Wiley and Sons.

Billah, M. M., 2003. Islamic and Modern Insurance: Principles and Practice. Selangor: Ilmiah Publishers.

Chin, Y. W., 2004. Risk and Insurance Management. New Jersey: Prentice Hall.

Culp, C. L., 2006. Structured Finance and Insurance: The ART of Managing Capital and Risk. New York: John Wiley & Sons.

Jaffer, S., 2007. Islamic Insurance: Trends, Opportunities and the Future of Takaful. Singapore: Euromoney Books.

Muslehuddin, M., 2006. Insurance and Islamic Law. New Delhi: Adam Publishers.

Siddiqi, M. N., 1985. Insurance in an Islamic Economy. Leicester: Islamic Foundation. Takafol, 2010. Web.

Venardos, A. M., 2010. Issues in Islamic Banking and Finance: Resilience and Stability in the Present. Singapore: World Scientific.

Introduction

Industry outlook

Over the years, there has been tremendous growth in the insurance sector of the Gulf Cooperation Council (GCC). The GCC is made up of seven countries. These are, Kingdom of Saudi Arabia, the United Arab Emirates, the Kingdom of Bahrain, the Sultanate of Oman, Qatar, and Kuwait (Moody’s Investors Services, Inc., 2013). The growth in the insurance sector in the Gulf region matches with the growth of the economy, population growth, improved regulatory framework and increased responsiveness of the products offered by the industry in these regions. The growth of the insurance sector in the Gulf region can be explained by the compulsory implementation of the health insurance in member countries. Statistics provided by various groups indicate that the insurance sector reported a decline in the net profit margin over the past five years.

However, in the next five years, the sector is expected to report growth in performance. The growth rate is expected to increase to 18.1% between 2012 and 2017. Within this period, the non-life segment of the business is expected to perform better than the other sectors. Besides, with the extensive sensitization and awareness of the risks that are related to projects, it is expected that the project insurance will grow in the coming years. The size of the industry will reach a size of $37.5 billion (Alpen Capital Group, 2013b). Further, the amount of gross written premium grew on a yearly basis to reach $16.3 million. It is equivalent to 10.4% increase. Out of the $16.3 billion, 86.5% relate to general insurance while the remaining 14.5% relate to the life division. Despite the high growth rate reported in the industry, the sector is considered to be relatively underdeveloped. A number of market indicators show that the performance of the sector is below the world average. For instance, the size of the gross premium equals to the size of the Portuguese insurance market.

The industry is characterized by a low penetration rate. Based on the report generated by Aplen Capital Group, the penetration rate in 2012 was 1.1%. The penetration rate of the sector is lower than the global average which currently stands at 6.6%. However, it is expected that the penetration rate will increase to 2.2% in 2017. The low penetration rate gives room for the existing insurance companies to prosper. This can be explained by the fact that low penetration rate reduced the rate of entry into the market. The low penetration rate has attracted number foreign investors in the market. This has created a high rate of competition in the market. The largest insurance market in the GCC region is the United Arab Emirates followed by Saudi Arabia. The Saudi market is expected to drive the forecasted growth between 2012 and 2017. The industry continues to grow and the various industry drivers indicate that the industry will grow at a faster rate to reach the global standard (Motivate Publishing, 2013).

Aim of the paper

The paper seeks to carry out analysis of the GCC insurance sector. The analysis will focus on evaluation of performance and the process of development in the sector. Data will be collected to evaluate the rate of growth and the rate of return in the sector.

Literature review

Several research studies have been carried out to evaluate the performance, growth and development of the insurance sector in the Gulf region. An example of such study was carried out by Khalid Al-Almri, Said Gattoufi, and Saeed Al-Muharrami (2012). The aim of their research was to analyze the performance of the insurance sector in the Gulf region. The research also carried out a relative study of the member countries in the GCC region. The authors used the “DEA methodology and the Malmquist Productivity Index to evaluate the technical efficiency of insurance companies in the GCC countries” (Al-Amri, Gattoufi, & Al-Muharrami, 2012). The aim of using the two models was to break-down the change in efficiency into two constituents. The first constituent shows the individual change in the technical efficiency. The second component shows the change in market technology on the individual technical efficiency of the insurance companies. Further, the authors used a sample of 39 insurance companies in the GCC region with sample picked from the seven member countries (Al-Amri, Gattoufi, & Al-Muharrami, 2012). The panel data used was collected for a period between 2005 and 2007. The research revealed that the insurance companies in the GCC region are reasonably efficient. Further, the results showed that there is a great opportunity for enhancement. Therefore, based on the findings carried out by the authors, it can be pointed out the insurance companies in the GCC are operating under capacity. It implies that the insurance companies have a great opportunity for growth (Al-Amri, Gattoufi & Al-Muharrami, 2012).

A separate research was carried out by A.T. Kearney Korea LLC in 2012 (A.T. Kearney Korea LLC, 2012). The institution is an autonomous legal corporation operating in Korea. The company reviewed the performance of the insurance industry in the GCC between the year 2007 and 2011. Besides, the entity suggested ways that the insurance sector in the GCC can improve its profitability. The company established that the profitability of the industry declined from 27.9% in 2009 to 10.7% in 2010. It declined further to a lower value of 9% in 2011 (A.T. Kearney Korea LLC, 2012, p. 2)

The report further highlighted the three major causes of the decreasing profitability margin. The first cause was the declining technical profitability. The loss ratio of the industry increased from 50% to 60% within a period of four years. However, some insurance companies were able to reduce the loss ratio by using well-organized reinsurance programs (A.T. Kearney Korea LLC, 2012). This action resulted in a moderate increase in the loss ratio. The second reason provided by the company for the decrease in profit margin is that the insurance companies in the regions are operating without a scale. Thus, the firms in the industry reported a significant increase in the operational and staff costs. This also contributed to the massive loss in profit. Economic theories suggest that an increase in size of operation of a company results in a reduction of costs of running the business, economies of scale. However, insurance companies in the GCC region are characterized by disorganized internal processes. Besides, the systems of the insurance sector are not properly integrated. These factors make the insurance companies to experience an increase in operational cost and human resource cost as the scale of operation increases. Statistics provided by the company show that the rate of increase of the administrative and staff expenses was twice as much as the rate of increase of gross written premium. The gross premium grew by 71% while the costs grew by 136% over the four-year period (A.T. Kearney Korea LLC, 2012, p. 3).

The third cause of the decline in profitability highlighted by the report was inappropriate investment strategies used by the insurance companies in the industry. Specifically, the report indicates that “GCC insurers do not typically have a dedicated asset liability management strategy to reduce volatility risk and meet current and future liquidity needs” (A.T. Kearney Korea LLC, 2012, p. 3). The study shows that the insurance companies have opted to “use aggressive risk returns investment strategies with heavy exposure to local equities and property” (A.T. Kearney Korea LLC, 2012, p. 3). However, this strategy was not used by the top tier insurance companies in the industry. The use of aggressive strategy increased the risk exposure of the investment made by the companies. This in turn resulted in a decline of the yield earned from 10.9% in 2007 to 3.3% in 2011 (A.T. Kearney Korea LLC, 2012).

The report further suggested that the insurance sectors in the GCC can change the current status by altering the operating models that they use. The report point out that the insurance sector in the GCC has great potential and the sector can be quite profitable if proper strategies are employed. The report suggests that the profitability of the sector can be improved through sales effectiveness, portfolio optimization, product design and an improvement in pricing, improvement in underwriting, network and claims management enhancement, reinsurance optimization, capacity management, business process reengineering, organizational optimization, asset liability management optimization, and IT process and infrastructure optimization (A.T. Kearney Korea LLC, 2012, pp. 4 – 7). Therefore, the report issued by the company indicates that the insurance sector in the GCC has a great untapped potential. Further, the sector has a great potential for robust growth if right strategies are put in place. Therefore, the research is consistent with the results provided in the research carried out by Al-Amri, Gattoufi, & Al-Muharrami in 2012 (Al-Amri, Gattoufi, & Al-Muharrami, 2012).

Further, Alpen Capital Group provides periodic reports on the performance of the GCC insurance market (Alpen Capital Group, 2013a). The most recent reported was published in July 2013. The report suggests that the growth experience in the sector can be attributed to the mandatory health insurance schemes in the region. The report reiterates that the performance of the company ranks below the global performance of insurance companies. It also indicates that the sector has a high potential for growth. It further points out the growth driver that can stimulate the rate of expansion and development of the sector. Some of the growth factors are demographic factors, investments made by the government, the mandatory health insurance, increase awareness of insurance, and improvement framework for regulation. In terms of performance, the report outlines that the industry experience a declining trend in the profit margin over the past years (Alpen Capital Group, 2013a). Apart from the causes pointed out by A.T. Kearney Korea LLC (2012), the report point out other factors that could have contributed to the decline in profitability of the sector. Some of these factors are small market size, lack of skilled employees, global economic uncertainty, and political instability.

Data collection and data analysis

Size of the insurance market in term of the gross written premium

As mentioned in the literature review section above, there has been growth (measured by the gross written premium) in the GCC insurance market since 2008. The combined gross written premium increased from $10.4 billion in 2008 to $16.3 billion in 2012. The table presented below shows the size of gross written premium of each member of the GCC between 2008 and 2012.

Source of data – Alpen Capital Group, 2013a.

It can be noted that the United Arab Emirates has the highest amount of the gross written premium. It takes about 50% of the total industry. The growth of gross written premium over the five-period in the United Arab Emirates was $2.2 billion. It is followed closely by Saudi Arabia. The two countries experienced a steady growth in the value of the gross written premium over the period. The gross written premium in Saudi Arabia increased from $2.9 billion in 2008 to $5.5 billion in 2012. The growth over the period was $2.6 billion. The gross written premium increased from $0.7 billion in 2008 to $1.0 billion in 2012 in Kuwait. Therefore, it can be noted that the growth of gross written premium over the five-year period was only $0.3 billion. In the case of Qatar, the gross written premium increased from $0.8 billion in 2008 to $1.3 billion in 2012. The total growth was $0.5 billion. There was no significant change in the amount of gross written premium in the Bahrain insurance market. The gross written premium increased from $0.5 billion in 2008 to $0.6 billion 2012. Finally, Oman reported a growth in gross written premium of 0.3 $billion over the period. The value increased from $0.5 in 2008 to $0.8 billion in 2012. The bar graph presented below shows the make up of the GCC insurance market measured in term of gross written premium.

The composite bar graph above displays growth in the gross written premium over the years. The graph shows that the United Arab Emirates and Saudi contribute significantly to the total growth of the GCC insurance market. The composition can also be drawn as presented below.

The graph above gives a better display of the size of the insurance market in each of the countries. The table presented below shows the shows the percentage composition.

Source of data – self generated.

Based on the table above, it can be pointed out that the United Arab Emirates take the highest percentage in term of the gross written premium followed by Saudi Arabia, Qatar, Kuwait, Oman, and finally Bahrain. It can also be observed that the market share of the United Arab Emirates declined by about 4% while the market share for Saudi Arabia increased by about 5%. It is anticipated that the Saudi insurance market will grow and overtake the United Arab Emirates. Therefore, it can be noted that the insurance industry in the GCC is dominated by insurance firms in the United Arab Emirates and Saudi Arabia. The size of the two regions is over 75% of the total industry. The statistics are presented in the table below.

Source of data – self generated.

Further, it can be observed that the contribution of the two regions has been increasing over the period. The remaining, about 25%, is shared among the four remaining regions. The statistics are presented in the table below.

Source of data – self generated.

It can also be observed that the contribution of the four countries declined over the period. The statistics above can give an indication on the uptake of insurance products over the period. The percentage composition for the year 2012 is presented in the pie chart below.

The percentage growth of gross written premium in each country in the Gulf region can also be analyzed. The table presented below shows the percentage growth over the five years.

Source of data – self generated.

The table presented above shows that the highest percentage growth was reported in Saudi Arabia (89.66%). It is followed by Qatar (62.50%), then Oman (60%), United Arab Emirates (44.00%), Kuwait (42.86%) and finally Bahrain at 20%. The total growth in gross written insurance premium the industry amounted to $5.9 billion. It is equivalent to 56.73%. About 50% of the growth in insurance industry came from the growth in in the Saudi market. The graph presented below shows the trend of growth of the various markets.

Therefore, it can be pointed out the no country displayed a continuous rate of growth over the years. The countries displayed no specific trend in percentage growth over the years. The trend can be attributed to the several challenges that face the insurance sector in the Gulf region. The first challenge is that the insurance sector in the Gulf region is overcrowded. It implies that there are several insurance companies in the market chasing a few customers. It creates competition in the industry and makes the insurance companies to charge aggressive prices. The small market size limits the ability of the insurance firms to grow continuously. Secondly, it can also be noted that the small market size is not well informed of the insurance products offered by the company. Therefore, the uptake of the insurance products has not reached its potential. Further, the global economic instability creates uncertainty in the performance of the insurance sector. It significantly affects the operations of the insurance companies. Other non economic factors also affect the growth of the insurance sector. Finally, the gross written premium for the market can be analyzed based on the life and non-life insurance premium. The table presented below shows the proportion of life and non-life insurance premium for the region.

Source of data – Alpen Capital Group, 2013a.

It can be noted that the proportion of non-life insurance premium has higher than the percentage of the life insurance premium over the five year period. The lower level of life premium can be attributed to the high per capita income in the gulf region. Further, such covers did not exist in some countries such as Saudi Arabia due to their non-conformance with the Islamic law. Health covers and motor insurance dominates the non-life insurance premium. The composite bar graph presented below shows the proportion of life and non-life premium.

Insurance density

The performance of the GCC insurance market can also be analyzed based on the insurance densities. Insurance density can be defined as the premiums per capita. Statistics show that the insurance density in the gulf region is slightly higher than that of most emerging economies. However, the insurance density of the GCC insurance market is much lower than the density in developed economies such as the United States. For instance, the population of Netherland is about thirty percent of the total population of the GCC region. However, the total insurance premium of Netherland is about seven times higher than that of the GCC. The table presented below shows that insurance density on the GCC insurance market. It also shows the density for developed economies and emerging economies for comparison.

Source of data – Alpen Capital Group, 2013a.

It can be noted that Saudi Arabia has the highest insurance company in the Gulf region. This can be attributed to the high uptake of insurance products especially life insurance. Qatar follows at 707. However, it can be pointed out that Saudi Arabia has the least insurance density in the Gulf region despite having the second largest amount of gross written premium as discussed above. The low insurance density can be attributed to the high population in the region. The average insurance density of the GCC region is 367. The value is way below the global industry average of 656. The difference is 289. Further, it can be pointed out that the GCC average is slightly greater than some emerging economies such as Jordan and Lebanon. However, the value is quite lower than the industry average for developed economies such as the United States and the United Kingdom. The high ratio in developed economies can be attributed to low restriction on insurance activities, a well developed regulatory framework, government policies that make certain types of insurance mandatory and high uptake of insurance products. The low insurance density in the Gulf region can be attributed to the low insurance coverage in the region. The information in the table above can be presented in a graph as shown below.

Insurance penetration rate

The development and performance of the GCC insurance market can be evaluated in terms of penetration rate. The penetration rate is the ratio of gross written premium to the GDP. The insurance penetration rate is important because it gives an indication on the rate of development of the insurance industry. Statistics indicate that the insurance premium in the Gulf region has been growing at a faster rate than the rate of growth of GDP. This has contributed to the growth of penetration level in the region. Further, the insurance penetration of non-life insurance is higher than that of life insurance. The table presented below shows the insurance penetration rate of the GCC insurance market. It also shows the penetration rate for developed economies and emerging economies for comparison purposes.

Source of data – Alpen Capital Group, 2013a.

In the Gulf region, Bahrain had the highest penetration rate at 2.3%. The value is quite low when compared to the penetration rate of some countries such as Lebanon and India. Further, the value is much lower than the penetration rate of developed economies such as the United States and the United Kingdom. Despite the high penetration rate, Bahrain reported a low amount of gross written insurance and low rate of growth over the five-year period. Therefore, it can be observed that the high penetration rate can be attributed to the low amount of GDP in relation to the gross written premium. The United Arab Emirates follows closely with a retention rate of 2.0%. The retention rate indicates a high level of development in the region. Oman follows at 1.0%, Saudi Arabia at 0.8%, and Qatar at 0.7%. Kuwait had the least amount of retention rate (0.6%). The average insurance penetration rate in the Gulf region was 1.1%. The value was much lower than the global penetration rate of 6.5%. Further, it can be noted that the penetration rate of developed countries such as the United States and the United Kingdom are much higher than the global average. The graph presented below gives a pictorial depiction of the insurance penetration rate of the various regions.

Rate of return

The rate of return on investment in the region has been quite volatile. This can be explained by the investment strategies adopted by the firms operating in the insurance sector. The rate of return on investment increased from 7.9 percent in 2010 to a higher rate of 9.0 percent in 2011. However, the rate of return decline in the year 2012 to a lower value of 8.7%. Analysts estimate that the investment return will remain volatile in the future because the current portfolio of most insurance companies is made up of a large proportion of equity and real estate.

Takaful Market

Takaful insurance follows the principles of the Islamic religion because it does not focus on generating profit. It aims at sharing risk with the customers. The market also has non-life and the life segment. The market has been growing at a faster rate due to the conformance to the Islamic faith. The annual average rate of growth has been 28.4% since 2006. Further, the estimated size of the market in terms of gross contribution was $7.6 billion in 2012. The Saudi insurance market takes more than 75% of the Takaful market share.

Future outlook

The research conducted by Aspen Capital Group outlines the future trend of the market. First, the report states that a massive inflow of foreign investors is expected in the region. The region will benefit from “higher technical know-how, distribution capabilities, customer orientation, and financial strength” (Alpen Capital Group, 2013). Secondly, the report outlines that the completion of enterprise risk management will guide the insurance businesses in risk management. Further, there is the development of modern distribution channels such as Bancassurance. Finally, the report outlines that efforts are being put in place to mitigate the volatility that causes fluctuations in the amount of returns expected (Nader, 2010). There are a number of other factors that will play a significant role in the development of the sector. The first factor is the growth of insurance products that are Shariah compliant especially in the Takaful segment. Further, the invention of the captive insurance model will also play a key role in the growth of the sector. Finally, the development of surety bond markets will also encourage investment in the insurance sector because the market will minimize the volatility of expected returns. The forecasts presented in the subsequent tables are based on the assumption that the GDP will grow at a rate of 4.2%. Further, the GDP per capita will grow at 1.7%. Finally, the total population of the Gulf region will increase from 43.3 million reported in 2011 to 49.9 million reported in 2017. The estimated growth of the gross written premium between 2012 and 2017 is presented in the table below.

Source of data – Alpen Capital Group, 2013.

The compounded annual growth rate for the period is expected to be 18.1%. Further, it is expected that the Saudi Arabia market will outgrow the United Arab Emirates market. The expected insurance penetration rate and insurance density are presented in the table below.

Source of data – Alpen Capital Group, 2013a.

Findings and conclusion

The countries in the gulf region have been known to have a substantial amount of national income. This can be attributed that the fact that the country has a rich endowment of natural resources. The performance of the region can be likened to the economic status of the developed economies. Thus, a well-developed insurance sector is required to facilitate the rate of development and diversification. The insurance sector will eliminate the risks that businesses face and improve overall economic performance of the country. However, the discussion above indicates that the GCC insurance sector is disorganized. The sector lacks a proper regulatory framework. Besides, it has a low penetration rate and a high potential for growth.

The discussion above indicates that there has been continuous growth in the amount of GDP over the years. Further, the rate of growth of GDP is lower than the rate of growth of the insurance premium. However, the rate of growth of the insurance premium misleads because the region lacks insurers who are based domestically. Therefore, the impact of the growth is not felt in the regions. Further, the insurance density and the penetration rate of the GCC insurance market lie below the global average. Further, the performance of the region, in terms of insurance density and penetration rate, lies below those of the developed economies by a large margin. Therefore, based on these two indices can be it can be observed that the GCC insurance market is underdeveloped. In terms of profitability, it was observed that the industry has experienced a declining trend in profitability over the years. This can be explained by factors that relate to the internal operation of the firms in the insurance sector. Therefore, it can be pointed out the GCC has a weak insurance market. This can be explained by a number of factors. First, it can be pointed that the region has a high savings rate. This limits the uptake of insurance products. Further, the proportion of the life insurance market segment is quite low. This segment is a key driver of growth in the insurance sector. Thirdly, the region has a low retention rate. The rate is much lower than the world’s average. Also, the cession rate is quite high, about 46% of the gross written premium. Further, high competition also impacts negatively on the performance of the sector. It results in low profit margin due to low pricing (Rettab, & Bakheet, 2006). Further, the industry faces lack of skilled workers. Therefore, some products cannot be offered in the market due to the lack of expertise. Finally, the Islamic laws act as an impediment to the growth of the sector.

Despite the dismal performance of reported in the sector, there is high potential for robust growth in the future. This can be attributed to a number of factors. First, it is anticipated that the current population will grow in the future by about ten percent. This will increase the current market size. Further, the region is made up of a young population. Secondly, the government is investing in infrastructure that will support the insurance sector. Finally, the implementation of the compulsory insurance by the government will enhance growth in the sector (audio & Groen, 2013). Therefore, the players in the industry have to put in place several measures that will change the current state of the sector.

References

A.T. Kearney Korea LLC. (2012). GCC Insurers at the crossroads in 2012: Rebound or collapse. Web.

Al-Amri, K., Gattoufi, S., & Al-Muharrami, S. (2012). Analyzing the technical efficiency of insurance companies in GCC. The Journal of Risk Finance, 13(4), 362 – 380.

Alpen Capital Group. (2013a). GCC insurance industry. Web.

Alpen Capital Group. (2013b). Robust growth potential for the GCC insurance sector, says Alpen Capital’s latest industry report. Web.

Ayadi, R., & Groen, W. (2013). Banking and insurance in the GCC countries: Is there regulatory Convergence with the EU? Web.

Moody’s Investors Services, Inc. (2013). Moody’s: GCC insurance industry continues to evolve, with rapid premium growth expected.Web.

Motivate Publishing. (2013). Special report: The future of GCC insurance. Web.

Nader, F. (2010). Regulatory challenges in the Levant and GCC insurance market. Web.

Rettab, B., & Bakheet, B. (2006). Impact of market access on the UAE insurance sector. Web.

Introduction

Insurance is an essential financial service for risk management to the public and businesses. It implies the compensation payment in case of insured events covered by the contract, also called the policy document, between the company and the recipient of services (Guirguis, 2018). For example, insured cases can include fire, car accidents, theft, illnesses, or other situations. Insurance is a convenient risk transfer mechanism that helps reduce adverse circumstances’ impact and protects from financial losses (Guirguis, 2018). Insurance companies benefit from their services as their customers make regular contributions to pay for them. Each country has different insurance systems, companies, and related regulations. This paper focuses on comparing insurance services in UK and Germany.

Insurance companies constitute significant markets in UK and Germany and offer many services. Various insurance products are present in countries, which can be divided into life and non-life markets (Bonnard et al., 2020; Korte, 2020). Insurance within the framework of the first category is aimed at maintaining the well-being of citizens and, in the second – reducing financial losses in the event of risks to property. As the further analysis shows, insurance in Germany and the UK have similarities and differences in products, regulations, and trends.

Comparing the UK and German Insurance

Regulations

Insurance in Britain and Germany are significant markets that require regulation. The primary law for the insurance industry in both countries is the Solvency II Directive, adopted in the European Union (Scoville et al., 2020). However, after Brexit, it is subject to changes and adaptation to improve regulation within the UK (Scoville et al., 2020). The UK Association of British Insurers (ABI) is a leading insurance industry representative body that helps protect parties’ interests in the market (“Insurance in the UK,” 2022). According to their data, Britain is characterized by a twin peaks system of regulation, as two key bodies that represent it are the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA) (“How our industry,” n.d.). The PRA protects policyholders and maintains the reliability of insurers, and the FCA regulates the behavior of insurance companies (“How our industry,” n.d.). Such a system is designed to ensure the stability and reliability of the industry.

The regulation of the insurance market in Germany is different from the British system. The primary law for the industry is the Insurance Supervisory Act, which was reformed under the influence of Solvency II (Gal, 2020). The Federal Financial Supervisory Authority (BaFin) is the primary regulator, and insurance representatives are united within the German Insurance Association (“Insurance in Germany,” 2022). In addition to insurance, BaFin regulates the entire financial system, ensuring the reliability of markets and the professional behavior of their representatives (“Functions & history,” 2020). Their united system aims to protect the population’s and industry’s interests.

Comparing the two insurance systems, one can assume that each has disadvantages and advantages. A single system of financial services regulation controlled by BaFin can ensure a more consistent and coherent operation of the entire industry. However, this feature makes BaFin the dominant player in the sphere, which can affect its objectivity and lead to abuse of duties. In addition, Britain previously had one key regulator, the Financial Services Authority (FSA), which was reorganized into the PRA and FCA (“How our industry,” n.d.). Now, their system can provide greater transparency and control over market representatives and authorities. Nevertheless, both countries strive to protect their citizens’ interests and well-being through insurance.

Insurance Types

Depending on what is protected by the policy, insurance has different types. Following ABI, insurance products in the UK cover business, health, home, motor, pet, travel, mobile phone, life coverage, savings and pension issues (“Choosing,” n.d.). These areas may include their subtypes; for example, employees’ liability, building insurance, and other insurance forms are present in the business sphere (” Insurance in the UK,” 2022). German insurance products include life, pension, health, home, motor vehicle, travel, accidents, and cyber insurance (“Insurance products,” n.d.). Third-party liability insurance is a special type in Germany, which includes payments to other individuals who have suffered due to policyholders (“Insurance products,” n.d.). Thus, citizens of the considered countries can provide insurance in many aspects of their activity.

At the same time, countries prioritize various types of insurance in different ways, making them mandatory or optional for the population. National Insurance (NI) payments are mandatory in the UK for employees and self-employed workers (“National Insurance,” n.d.). NI usually accounts for about 12% of an individual’s earnings and is directed to social benefits – pensions, childcare payments, and unemployment benefits (“Insurance in the UK,” 2022). The purchase of insurance is mandatory with a motor vehicle as well. The policy document is a mortgage offer condition and obligatory for landlords (“Insurance in the UK,” 2022). Other areas of insurance are optional but provide significant benefits to policyholders. For example, although health care is free, insurance can guarantee faster receipt of services, making it possible to contact private providers without staying on the waiting list. Considering all insurance products, the prioritization demonstrates the country’s emphasis on social well-being.

The German population is very responsible in addressing insurance issues. The policy document for healthcare is mandatory for residents of the country (“Insurance in Germany,” 2022). Health insurance is related to the place of work – the employer covers half of the costs (“Insurance in Germany,” 2022). The working individual also makes additional insurance payments for pensions, unemployment benefits, and accidents (“Insurance in Germany,” 2022). Finally, motor vehicle insurance is mandatory, and other forms are optional (“Insurance in Germany,” 2022). The country also emphasizes the importance of ensuring population security and social well-being.

Thus, German and UK insurance products have several similarities and differences. Both countries emphasize social benefits and the safety of vehicles. However, health insurance is not mandatory in the UK like in Germany. Home insurance is not requested in mortgage offers in Germany compared to the UK. This choice of priorities has its features and implications. For example, health insurance can become a financial burden for an individual. However, the free health care system not requiring insurance has drawbacks, like the difficulties of making an appointment with a specialist. Home insurance has advantages in reducing financial risks, but one may consider it an unnecessary obligation. The differences reflect some peculiarities in the country’s laws and established activities.

Key Trends

The insurance industry in the UK and Germany is changing under the influence of various factors. Nowadays, the key trends that affect all countries are digitalization, the problem of attracting talented employees, and the global pandemic (Deloitte, 2022). Companies are increasingly dependent on technology to improve their efficiency and remain competitive; therefore, digitalization is one of the most influential factors. The use of technology requires new skills from employees, so the issue of attracting people with needed competencies to the organization arises (Deloitte, 2022). Finally, the global pandemic caused by COVID-19 has created additional threats to the population’s safety and, consequently, new problems for insurance, especially in health care. Moreover, the need for distance and remote work emphasized the importance of technology in the activity of any company. Therefore, insurance firms in the UK and Germany are busy adapting their work to new realities.

External influence also changes customer preferences on insurance products and market stability. In particular, the situation in Britain remains uncertain – insurance prices have risen for many products (Staff, 2021). At the same time, the population is increasingly turning to cybersecurity insurance products (Staff, 2021). In Germany, the key focus remains on health and auto insurance (Meredith-Miller, 2022). Moreover, experts note the country’s economy’s recovery and the industry’s gradual growth (Meredith-Miller, 2022). However, development has slowed due to the pandemic and the recent geopolitical crisis in Europe – Russia’s invasion of Ukraine (Meredith-Miller, 2022). Thus, the insurance industry is quite sensitive to external influence, and companies must adapt to changing conditions in both countries.

Conclusion

In conclusion, insurance is an integral part of financial services in both Germany and the UK. Insurance does not protect against accidents, diseases, and other risks but helps cover losses and mitigate the financial consequences of various incidents for policyholders. The considered countries have different systems of industry regulation – in the UK; it is represented by two key bodies, and in Germany by one. They have similar insurance products with only a few differences. In some cases, the purchase of insurance is mandatory by law, and in other cases, citizens choose its use on their own. In the UK, vehicle and home insurance are compulsory, and in Germany – healthcare and vehicle.

The insurance market is changing under the influence of various factors and trends. Germany and the UK suffered from the pandemic, which brought new tasks for insurers, and the impact of the geopolitical crisis in Europe slowed economic development. Significant trends in the industry are digitalization and attracting talented employees with appropriate skills and competencies. New technologies are used in various work processes, drawing attention to cybersecurity issues. Therefore, insurance companies in the UK and Germany are changing and developing to continue to attract customers.

References

Bonnard, R., Reid, B., Burtwell, S., Tufts, J., & Reed, R. (2020). 2020 UK insurance outlook. Ernst & Young Global Limited.

Choosing the right insurance. (n.d.). Association of British Insurers.

Deloitte. (2022). 2022 Insurance industry outlook. Deloitte Center for Financial Services.

Functions & history. (2020). Federal Financial Supervisory Authority.

Gal, J. (2020). Corporate governance of insurers in Germany. German national report. Zeitschrift Für Die Gesamte Versicherungswissenschaft, 109(1), 41-64.

Guirguis, M. (2018). The UK insurance market.Social Science Research Network (SSRN), 1-48.

How our industry is regulated. (n.d.). Association of British Insurers.

Insurance in Germany. (2022). Expatica.

Insurance in the UK. (2022). Expatica.

Insurance products. (n.d.). Federal Financial Supervisory Authority.

Korte, T. (2020). 2020 Germany insurance outlook. Ernst & Young Global Limited.

Meredith-Miller, B. (2022). German insurance industry could grow to $229.6 billion by 2026. Property Casualty.

National Insurance: Introduction. (n.d.). Gov.UK.

Scoville, J. C., Swirski, C., & Lyon, B. (2020).Insurance and reinsurance in the UK (England and Wales): Overview. Practical Law.

Staff, R. (2021). A more stable UK insurance market but challenges remain for 2022. Aon.

Industry and Operation Environment

According to the Central Bank, The tremendous economic performance of the country has continued to form a basic element of the development of insurance in Bahrain (CBB, 2013). For instance, statistics pointed to the fact that in 2013, the Kingdom wrote 258.41 million insurance covers, which presented an 8% growth. There was also an increase in the contributions of Takaful, a principle of Islamic insurance, by about 7% and registered 57.22 million. In this case, the country had a total of 25 insurance firms registered locally on principles of both Takaful and conventional insurance (CBB, 2013). There were a further 11 companies, which were branches of international insurance companies that run their businesses in the Kingdom of Bahrain. In the same year, the value of the aggregate assets in both conventional and Takaful insurance increased by approximately 5% and brought a total of 1698.33 million.

A look at the structure of the insurance industry of Bahrain reveals that it is made up of two types of firms, the Takaful institutions and the conventional insurance companies (CBB, 2013). In this respect, data from the same year indicated that the nation had six incorporated Takaful insurance companies, which gave a gross contribution at a rate of 7% to the national insurance. The rest of the insurance industry of the Kingdom was made up of conventional insurance companies. The chart below is a representation of the structure of the insurance industry in Bahrain in 2013.

Zurich- Kingdom of Bahrain Company Outlook

Size of Assets, Equity, and Market Share

Zurich Insurance Company is one of the overseas companies that have a significant impact on the insurance industry of Bahrain. The business entity plays a leading role in the provision of multi-line insurance and engages in the provision of such services to both the locals and people abroad. Today, the corporation boasts of an employee base of about 55, 000 workers while offering a wide range of insurance contracts that range from general to life assurance and coupled with other types of services (ZIG, 2015). The company is not discriminative of the type of clients that it serves because it gives its services to all categories of customers such as individuals or companies both locally and abroad. To crown such a landmark, Zurich insurance company has operations in more than 170 nations across the globe.

In 2014, the company realized 27% of its profits from farmers, 22% from global life, and 50% from general insurance. By the end of December of 2014, the business had a total of $ 4.6 billion as its operating profit. The quoted figure was a slight decline after 2013, though a much better performance than what the business realized in 2012 (ZIG, 2015). At the same period, the company owned about 34.7$ billion in shareholders’ equity, which was the largest in the three consecutive years comparatively. The comparison of such data is as shown in the two charts that follow.

Organizational Structure of the Company

Zurich Insurance Ltd is a firm that has an efficient cooperation structure between its management board and other departments of the business. The institution has a board of directors comprising of eleven members with a director as the leader (ZIG, 2015). The eleven members are charged with the responsibility of establishing committees that deal with specific areas within the business, as well as the delegation of duty to other members of the business committee. The second category in order of rank is that consisting of the executive committee with the CEO as the leader (ZIG, 2015). This group of leaders plays the role of the strategic planner in a variety of issues that affect the business from all three perspectives; financial, human relations and corporate responsibility. It means, therefore, that the company’s executive group determines the various business strategies that they institute from their perspective of leadership. Next, there are departmental managers that have the responsibility of engineering the performance of the company at the departmental level. As observed, the company has a top-to-bottom style of management which places the chief executives in prime positions of strategic planning and ensuring that the plans materialize at departmental levels.

There are several departments within the corporate institution, which the company recognizes as group management. From this perspective, there are three management groups within the company, namely, group risk management, group compliance, and group audit (ZIG, 2015). In the first place, Zurich Insurance Ltd grants the group administrators roles in regulating processes as well as the provision of technical issues in their relationship with insurance. The risk management group is charged with the execution of a framework that assesses the approach that Zurich Insurance Company should take regarding risk management. The leadership of this group depends on the creativity of the Chief Risk Officer who reports directly to the CEO (ZIG, 2015). Group compliance is a section of the managerial layout of the company that deals with the provision of insurance to management. The principal personnel for this group is the group compliance officer who reports to the chief audit officer. The group audit has the responsibility of auditing risk management and the process of governance (ZIG, 2015). The head of this group has established links with the board chairman. Therefore, the above analysis depicts Zurich Insurance Company as a tightly knitted organization in which the members have close communication with one another.

Range Of Services and Policies Provided

Zurich Insurance Ltd is among the most well-known insurance companies in the world because it provides an extremely wide range of services for its customers to choose from. The company provides insurance covers to individual customers in such areas as recoveries from natural disasters, for example. Other services provided to individual clients include home insurance, life insurance, critical illness, general liability, investments, and savings, planning for pensions, and retirement among others. Zurich Insurance Ltd also engages in the provision of insurance covers for SMEs (ZIG, 2015). It does so through property insurance, casualty insurance, worker man’s compensation skills, car insurance policies, corporate life and pensions among others. Another category of services concerns the big multinational corporations. In the first place, Zurich Insurance Ltd provides captive services for all parties interested in such a policy (ZIG, 2015). In addition, the organization also provides casualty services to parties interested in protecting themselves against the uncertainties of industrial operation. The company also helps its clients to make plans, administer the same projects, as well as manage corporate benefits through the provision of corporate life and pension schemes. Another service entails specialized underwriting as well as management of risks and its support for construction projects. Zurich Insurance Ltd also undertakes to ensure engineering risks in the field of energy production and supply. There are varying types of marine policies that the company provides for both domestic and international cargo transits. There is a couple of other insurance services that the company provides to parties in this category (ZIG, 2015). The company also offers brokers for hire at both local and international scenes. Such a service makes a company boast of provision diversified range of products.

Utilized Marketing Channels

The firm utilizes several channels in the marketing of its products, which are common in other insurance companies. One of such channels is the website. The site forms one of the best methods of selling a full range of coverages. The firm also utilizes the web through the use of social media advertising (ZIG, 2015). For this case, there is a realization that it runs a theme that seeks to establish proper and healthy relationships between itself and the market. In this respect, the firm runs a campaign called HumanConnections, which involves an interactive interface between the company and its customers on LinkedIn (ZIG, 2015). Through the use of such a channel, the company has an opportunity of strengthening its brand and capture a wider market base, which is essential for its productivity. The professionals that interact with customers from the company’s LinkedIn page have the effect of raising its popularity among the people and is a unique method of fitting in the target market. Apart from the website and social media, the company also utilizes other conventional means of product promotion such as print media in articles, newspapers, magazines, and periodicals. There is also a considerable level of utilization of visual media such as television, which gives the company a competitive edge against other institutions in the industry.

The Financial Highlights of the Company

According to data available at the Market Watch (2015), the company has a total of $197.48 billion in investment in the value of assets. The principal source of revenue for the company is the premiums earned from the underwriting processes that it engages in doing and they amounted to $ 44. 23 billion. The primary investment assets ($178.23) that the business owns are categorized as income on securities investment, which accounts for $1520.66 billion while bonds account for $ 152.66 billion. The company also has a redeemable preferred stock of $7.95 million. There is also total equity investment that amounts to $16 billion, real asset investments of 8.7 billion. The company’s syllabus reflects that it has 18.54 billion in mortgage and other Loans. Unspecified investments of the insurance group amounted to 1.53 billion (Market Watch, 2015). At the same time, the firm has the category of assets called premium asset receivables that amounted to 10.2 billion. The distribution of this type of asset was in the categories that follow; net property, unconsolidated assets, variable and separate assets, deferred charges, other tangible assets, and intangible assets. The values of the assets mentioned following as 1.26, 69.56, 170.95, 133.56, 19.42, 8.61, and 7.81 respectively. The business also holds its assets in the form of cash for which it had 7.55 billion and brought the value of total assets to $387.8 at the end of the 2013-2014 trading period (Market Watch, 2015). The two major expenses that the company incurs are the categories of capital expenditure, one for fixed assets, and the other for other assets. In this case, the cash flow data of the company indicated that the business had $1.27 billion in fixed assets and no expenditure on other assets. Lastly, the company had a gross loss reserve of $ 43.44 billion and an adjusted loss reserve of $ 31.64 billion (Market Watch, 2015).

Calculations and Interpretations Of

The Loss Ratio= (Incurred Losses + Loss Adjustment Expenses)/Premiums Earned

= (43.44+31.46)/44.23

=1.69

Therefore, the ratio indicates that the company is in a stable financial position because it collects more revenues than what it pays in claims. Such a ratio could provide an insight into the methods of financial management as well as the levels of investment required.

Expense Ratio=Underwriting Expense/Premiums Written

=9/44.23

=0.20

Therefore, the ratio indicates that the company gains about five times on underwriting the insurance policies than it spends on the same.

The Combined Ratio=Loss Ratio +Expense Ratio

=1.69+0.20

=1.89 (189%)

The ratio obtained means that the company makes profits out of its daily operations.

Investment Ratio=Net Investment Income/Premiums Earned

15.23/44.23

=0.34 (34%)

The ratio means that every single unit of investment by the company yields a 34% return. Therefore, the company enjoys a return of 34% on its invested capital.

The overall operating ratio= Operating Expenses / Net Sales

=9/66.7

=0.13 (13%)

The ratio implies that the company spends 13% of its cost to sell 100 units of its products and services. The ratio provides a useful element in the determination of the profitability of its daily operations. The firm therefore remains with 87% of its costs to carter for other non-operating costs.

A Five Year Comparison of the Ratios

Insurance Policies

Life Insurance Policy

This type of policy is the one extended by an insurance company to their client as a cover for their lives. There are two types of such policies, life assurance, and time insurance. The first type of life insurance is one that entails the cover of the lives of the insured for the entire lifetime. The contract becomes binding as soon as the insured agrees to the terms and conditions of the insurer and starts to pay premiums (Gulati, 2007). The requirements of the agreement specify that the compensation claims only be made in the event of the death of the insured. Therefore, it means that the insured usually targets the financial stability of their dependents and not themselves. However, the contract holds only on account that the insured pays premiums throughout their lives and stops only at death. The other type of life insurance entails a different approach because the insured pays premiums for some specified period, and compensation happens at the expiry of the period in the insurance contract. If the time occurs before the insured dies, then they benefit from the scheme, but if they die before the maturity of the contract, compensation benefits the dependents. Life insurance has a considerably high rate of deductibles, which means that the premiums paid by the insured are comparatively low over the period for which the contract holds.

Underwriting Process

The process of underwriting life insurance policies entails an extensive study of the public record of the insured to ascertain their life. The underwriters also consider the blood analysis of their clients as a way of determining their state of health (Gulati, 2007). Other premedical tests will provide essential information concerning the health status of the customers. If the insured has a bad record such as histories of crime, poor health, and other aspects, or if they are aged, the insured will have to pay more premiums.

Workman Compensation Policy

According to Gulati (2007), this type of policy is one that an employer undertakes to cover their workers against injuries sustained while they are at their places of work. The contract becomes practical once the insured agrees to the terms of their insurer and starts paying premiums and will terminate when the insured stops paying premiums or when they violate any provisions of the contract. This type of policy has a considerably low rate of deductibles, which means that the insured persons have to pay higher rates of premiums throughout the period for which the policy holds.

Underwriting Process

The process of underwriting involves statistical analyses of the number of workers that the insured has insured. As such, there is a conclusion that an employer who wishes to protect many workers will have to pay more premiums than the one who only insures a few of them. The premium deductibles for this contract happen for the entire agreed period of the contract, which continues all the time until the occurrence of the insured risks. The policy demands that people who insure their workers who work in dangerous places should pay more than those who work in relatively safer places (Gulati, 2007).

Automobile Insurance

A cover of this type protects the insured from the damages caused to their car in the event of an accident. This type of protection cover ensures that the insured regains their financial status usually in the value of the car. Automobile insurance contacts are among those that have the highest rates of deductibles, which implies that the insured persons have to pay a considerably low rate of premiums for the period for which their contracts are valid.

Underwriting process

The process of underwriting considers mainly the value of the car and its maintenance levels (Gulati, 2007) Low-costing vehicle owners pay lower premiums than those who drive expensive cars. People who pay poorly-maintained vehicles also require paying more than their counterparts who drive better-maintained cars.

Contract Conditions

The first principle is that of insurable interest. This principle entails the fact that the claimer must have an economic interest in the assets that they want to acquire an insurance cover for and will endure monetary losses on the incidence of the insured event. This factor encompasses one of the most vital necessities of any insurance agreement. Hence, an individual can enter an insurance contract of those belongings where he stands to gain benefit if such property gets involved in any damage. There is also the principle of Utmost Good Faith. In comparison to other contracts, good faith is a vital characteristic of an insurance company (Gulati, 2007). In case an insurance contract is acquired through fraud or misrepresentation, it is termed to be invalid.

There is also the need for material facts disclosure. In the process of an insurance contract, the proposer must reveal to the insurer all the objective facts concerning the anticipated insurance. This task of revealing the objective facts not only applies to the object that the insured owns but also extends to objects that they are believed to know. Therefore, where life insurance involves is the subject, the proposer must reveal their accurate age and details of any existing diseases. Similarly, where there is the insurance of a building against damages resulting from fire, the proposer must unveil the details of stored products if any and the risk nature. There is also the principle of indemnity (Gulati, 2007). This rule states that the insurance contract ought to be always a contract of indemnity only and not anything more.

The principle of contribution is a consequence of the principle of indemnity. It applies to all contracts of indemnity in instances whereby the insured has acquired more than one insurance policy on a similar subject matter. In case one insurer clears full recompense then that insurer can allege proportionate claim from other insurers (Gulati, 2007). The nature of the contract is an elemental principle of an insurance agreement that covers approximately all insurable risks. This policy dictates that an insurance agreement comes into continuation when one party makes a bid or tenders for a contract, and the other party accepts the proposal. Besides, the deal ought to be straightforward and be a compelling contract and the individual entering into an agreement must enter with their free consent.

The Process of Claiming Compensation

As much as the insurance policies have their differences, the procedure of seeking compensation has some similarities. First, the insured should report the claims to the insured in the soonest time possible, usually before one week. The insured will then investigate the claims to ensure that the events that led to the loss incurred have a relationship to the insured risks (Gulati, 2007). In this case, they may either have caused the damage directly or were proximate causes of the insured risks. The investigation will also determine that the cause of the loss was not catastrophic and determine the levels of compensation required later on. If the company proves that the events that resulted in the loss had financial interests insured in the contract, they will compensate.

References

Gulati, N. C. (2007). Principles of insurance management: A special focus on developments in Indian insurance sector – pre and post liberalization. New Delhi: Excel Books.

Market Watch. (2015). Annual Financials for Zurich Insurance Group AG ADS. Web.

The Central Bank of Bahrain (CBB). Insurance Market Review 2013. Web.

Zurich Insurance Group (ZIG). (2015). About us Zurich Insurance Group. Web.

Introduction

Investment is the process in which one uses resources to generate income or have some gains. Investment strategies are the models that an investor relies on for decision-making. The investment strategy entails the principles that guide an individual or organization to achieve the established goals when allocating capital. The selected method considers the objectives of the investor, risk tolerance level, and future capital needs. Each element is essential when I consider the amount of money I want to invest in forex. I have to ensure that the investment aligns with my goals, my risk tolerance, and whether the capital will be needed for other purposes.

Rate of Return

The investment return is measured in every venture based on the outcomes of an opportunity. The goal of any capital allocation is to generate income or returns for an individual or organization. The return on investment is calculated by dividing the net profit or loss by the cost (Masters et al., 2017). It is expressed as a percentage that compares a venture’s success or profitability level. The rate of return refers to the total returns or losses the investor incurs from a venture. The rate is essential in determining my profitability in forex investments and whether my approach is effective.

Conclusion

The measures are essential in making investment decisions in every opportunity an organization or individual takes. The basic principle of investment is that an increase in the risk of an investment increases the potential for high returns. The principle refers to the tradeoff between risk and return. It is part of the decision-making process for investors where I measure the probability of making high gains when trading forex. I have to determine whether I am willing to tolerate high risk for the sake of high returns from my forex investments.

Reference

Masters, R., Anwar, E., Collins, B., Cookson, R., & Capewell, S. (2017). Return on investment of public health interventions: A systematic review. Journal of Epidemiology and Community Health, 71(8), 827–834.

Hurricane strike on the U.S. southeastern and Gulf Coast states have increased in recent years. The 2005 storm period was the busiest and most expensive in U.S. record. Though increased rainstorm activity has been the main cause for the increased damage costs from hurricanes, other issues also have contributed. Population growth in the southeastern U.S. coastal areas has improved quickly in recent decades bringing many more inhabitants to areas frequented by storms. Coastal housing costs have been bigger as well. AIR Worldwide (2005) guess that property values in U.S. coastal areas have doubled in the past decade. The eight southeastern coastal states have over $3.3 trillion of coastal property exposure. In coastal areas of Florida, where 80% of the State’s cover assets are located, the assured worth of property was $1.9 trillion in 2004 (AIR Worldwide, 2005).

The mixture of increased hurricane strikes, coastal populations, and assets values has led to radically higher indemnity payouts. Insured sufferers for the 2005 hurricane season were $60.2 billion, which makes it the most pricey hurricane period in history (III, 2008). Reacting to higher payouts, insurance businesses have increased payments and even withdrawn from some markets, which have produced a protest from many coastal peoples. Though, higher indemnity payments are only an indication of the larger problem that many coastal groups of people face.

Condition of property insurance

Coastal populaces that are exposed to the dangers of hurricanes have to turn out to be increasingly worried about coastal property insurance charges and accessibility. In regions where hurricanes are expected to hit, property possessors usually feel obliged to assure against wind and water damage, although lately owing to high cost some property owners have dropped their coverage preferring to self-insure instead. In coastal regions, property owners have to buy a separate insurance plan against wind and frozen rain damage, and an additional policy that offers protection against rising water from hurricane storm rush. The central government is the main supplier of flood insurance, but both private firms and state administrations provide wind insurance. Government guidelines have the main impact on coastal insurance markets and the number of properties bare to coastal storms.

There are thousands of private property insurance companies in the United States (III, 2008). In an aggressive market, a private insurance firm would set a risk-based payment that would be high if the threat of damages is high, such as is the case for hazard-prone coastal areas. If a firm set a cost too high, rivals who offered lower prices would be satisfied with increased clientele and proceeds. Insurers direct their coverage to disastrous risk by holding additional capital and using reinsurance and other monetary instruments to extend the threat. Although insurance companies function in quasi-competitive markets, state, and central policies influence market results with financial support and systems that considerably affect premium charges, amount of coverage, and damage costs. Consequently, results deviate from what might be anticipated from classical competitive models.

Flood and wind insurance

The NFIP has grown extensively since 1978 when 1.5million guidelines provided $50.5 billion of assets cover. Between 1992 and 2008, a time of growing concern over hurricane-caused flooding, the number of insurance policies increased from 2.5 million to 5.6 million and the coverage increased from $236.9 billion to $1.1 trillion (FEMA, 2008). Southeastern states encompass a large amount of NFIP flood insurance policies relative to other parts of the U.S. approximately 70% of all policies are held by the eight southeastern states; Floridians and Texans hold 39 and 12%, correspondingly, of all NFIP policies.

The increased disbursements that insurance corporations have experienced from the 2004 and 2005 hurricanes have led to remarkable changes in wind insurance charges and accessibility. In Florida, the standard wind insurance payment increased from $723 to $1465 from 2002 to 2007, and in Florida’s coastal regions payments have tripled or even quadrupled. Florida had the major total increase, though each state experienced major increases. In South Carolina, the regular payment for coastal wind insurance increased 63% for individual lines from $678 to $1107 from 2001 to 2005. For the equal time, the normal wind insurance payment from the South Carolina Wind Pool increased 49% for individual lines from $931 to $1385.

In addition to raising premiums, insurance companies have condensed their coverage in coastal areas. In South Carolina, insurers dropped more than 20,000 coastal guidelines between August 2006 and March 2007. In Mississippi, State Farm, the principal insurer in the state, stopped selling new policies in February 2007. Some insurance companies have come to an end including wind coverage in their typical policies for properties situated in areas elected by the state as ‘‘Wind Pool areas.’’ on the other hand, states need insurance firms in service in their state to carry on contribution in Wind Pools (III, 2008). In addition, insurance companies have increased deductibles which can range from 2% to 10% of the worth of the possessions.

Suitable private and public sector participation

Property loss lessening in a district that is subject to destructive storms could be realized through improved construction techniques. In adding up, constructing homes and profitable structures higher above land level than in the past reduces damage from storm flow.

A combination of civic and private action can support storm-resistant construction (SRC). On the supposition that state Wind Pools will persist, a sensible responsibility for the government would be to call for and put into effect storm-resistant building codes for anybody joining the financed Wind Pool. As new belongings are built to higher building principles, storm damage should be reduced. Rather than financing insurance, which promotes more expansion in the areas of high hurricane action, a case can be made for financing storm lessening activities.

Several private insurance companies by now provide economic inducements for SRC presenting reduced payment and lower deductibles for SRC profiting both the insured and the insurer. Insurers have established much more concern in such arrangements since Katrina. Moreover, credit companies profit from SRC because it reduces repair costs and lost time on foreclosures that result from Katrina-like disasters (Ryland, 2006). Finance companies could present lower interest rates to promote SRC.

In light of the likely uselessness of government action, permitting private insurance markets to work may be an efficient approach to support both adaptation and avoidance measures. Certainly, an extreme directive of insurance companies may be counter-productive in this regard. Insurance companies are easy targets to blame for the high insurance payments in dangerous areas, though the corporations maybe only the couriers. If state organizations allow private insurance firms to regulate payments according to market situations, builders and residents would receive appropriate indications about the dangers from storm damage. If competitive markets are allowed to work, risk-based premiums will be higher in regions that are more likely to be subject to storm damage, thereby discouraging expansion in more dangerous areas.

Basing insurance premiums on danger and rely more greatly on SRC ideologies tend to direct homeowners away from coastal areas prone to damaging storms.

The private insurance market is ongoing to get used to varying market conditions. Disastrous links, which are high-yield, insurance-backed bonds that hold a term that causes interest and/or prime payments to be postponed or lost in the incident of loss due to a disaster, may assist insurance markets. Other ground-breaking financial tools such as industry loss guarantees and sidecars assist insurance markets to adjust to possible payouts from increased disastrous risk (Kunreuther, 2008).

Kunreuther (2006) confers the qualities of a complete national disaster insurance agenda that covers all-natural dangers (e.g., earthquakes, hurricanes, and floods). Such a plan would give a better premium base and decrease the discrepancy associated with insurers’ losses. Policy-holders would profit because all losses from wind and water damage would be covered. Charges would require being risk-based and comprise inducements to discourage development in hazard-prone areas. ‘‘Long-term’’ cover, which would last as long as a mortgage and encompass market-determined charges, maybe one more alternative to help defend homeowners (Kunreuther, 2006).

The wish to live in coastal areas will not change; we can anticipate individuals to carry on building new homes and rebuilding damaged homes in regions that are subject to damaging storms. But maybe it is time to distinguish the certainty of the costs of living in hazard-prone sites and effort to balance those costs with the enjoyment of living near the beach. A reasonable approach to paying for damages related to coastal storms is to have those who decide to live in coastal areas bear the costs of their decisions. Those living in non-hazardous areas must not be required to support financially those who prefer to live in hazard-prone areas.

References

Insurance Information Institute. (2008). Hurricane and wind storm deductibles. Web.

AIR Worldwide Corporation. (2005). The coastline at risk: estimated insured value of coastal properties. Web.

FEMA. (2008) Policy & claim statistics for flood insurance. Web.

Kunreuther HC, Michel-Kerjan E O. (2008). Managing large scale risks in a new era of catastrophes: insuring, mitigating and financing recovery from natural disasters in the United States. Wharton Risk Management and Decisions Processes Center.

Ryland H. (2006) Providing economic incentives to build disaster-resistant structures.

In: Daniels RJ, Kett lDF, Kunreuther H, editors. On risk and disaster: lessons from hurricane Katrina. Philadelphia, PA: University of Pennsylvania Press.

Kunreuther HC. (2006) Has the time come? In: Daniels RJ, Kett lDF, Kunreuther H, editors. On risk and disaster: lessons from hurricane Katrina. Philadelphia, PA: University of Pennsylvania Press.

Portfolio Insurance

The insurance business is a game of chances, they must plan their portfolio in such a way that they don’t run into a loss as prices change in the market. Their main investment area is the stock exchange that is subjected to external forces that affect the prices of the shares (Rajegopal, McGuin, and Waller, 2007). Portfolio Insurance is the strategy that is implemented to ensure that they don’t run at a loss. It involves short-selling stock index futures in the effort of hedging out the risk that is associated with the stocks that they hold. This method is, though, used mostly when the market is highly uncertain and volatile. It has the advantage that it offsets shortfalls in the stock but also has the disadvantage that it hinders any gain (Denney, 2005).

Option

The option is a right to buy or sell a specified security at a given price at a given time. Option takes different forms; a Pure option is an option contract that give the holder the right to buy or sell an asset at predetermined price within a specified period of time. These therefore are such investments created by investors that are bought and sold by the investor rather than the issuing company. They can further be classified into naked options, call options, covered options, and money options (Cooper, Scott and Elko, 1998). At the peak of financial global crisis, that is, in the year 2009, I was a shareholder of commonwealth bank of Australia. Due to the trade in the prices of the shares, I authorized my stockbroker to sell my shares when the price increased. This took two weeks but it was eventually successful.

Types of Risk in Fund Investing

Exchange rate risk/ currency

Some businesses engage in international trade directly. If the currency of the home country falls in value, then the business will suffer. This is because the amount that it will get from a conversion into the own country’s currency will be of a lesser value. There is not much that can be done to mitigate this however speculation can assist to some extent (Moteff, p. 34).

Country Risk

This is the possibility that the country of investment will hurt the business; this will range from political unrest to an economic deterioration of the country. There is a low-level risk in some countries especially the developed country for example Switzerland than in some developing countries like Zimbabwe.

Financial risk

This is the risk that the business will not be able to meet the long-term and medium-term financial obligations. This obligation means the financed capital obligation, the shareholders’ interests, and the cost of capital (Alexander and Sheedy, 2005).

Financial risk and currency risk are the most unease because it is the one that is more likely to happen in many circumstances. The investor cannot predict their occurrence correctly (Institute of Risk Management/AIRMIC/ALARM, 2002).

Country risk is not most likely to happen and thus I can take the risk with it, knowing the other risks are well mitigated. On the other hand, it is the loss that can easily be predicted. This is because the factors that lead to it are national and a wise investor can correctly predict them. An example of this is in cases of war (Moteff, 2009).

Reference List

1. Alexander, C. and Sheedy, E. (2005). The Professional Risk Managers’ Handbook: A Comprehensive Guide to Current Theory and Best Practices. New York: PRMIA Publications
2. Cooper, G.; Scott J., and Elko J. (1998). Portfolio Management for New Products. Reading, Mass.: Addison-Wesley
3. Denney, R. (2005). Succeeding with Use Cases: Working Smart to Deliver Quality. Boston, Mass.: Addison-Wesley
4. Institute of Risk Management/AIRMIC/ALARM, (2002). A Risk Management Standard. London: Institute of Risk Management.
5. Moteff, J. (2009). Risk Management and Critical Infrastructure Protection: Assessing, Integrating, and Managing Threats, Vulnerabilities and Consequences. Washington DC: Congressional Research Service. (Report).
6. Rajegopal, S., McGuin, P. and Waller, J. (2007). Project Portfolio Management: Leading the Corporate Vision. Basingstoke: Palgrave Macmillan

Abstract

Insurance in an economic term that is defined as a form of risk management that is used to be prepared against a greater economic loss in the future. The equitable transfer of the risk of a loss is insurance and the transfer occurs between two entities. Risk management is a practice to control risk and to manage the losses that might occur in the future. This is the paper that shall be briefly discussing the history of insurance along with the needs of insurance that has been realized in the past.

History of insurance

History of insurance outlines the development of the laws in a market to ensure that there is lesser risk with the economies. The beginning of the human society is marked with the beginning of the insurance. Chinese and Babylonians practiced the concept of insurance since the 2^nd and the 3^rd millennia BC (Baldwin, 2001). Achaemenian monarchs were the first ones who started insuring there people and the insurance registration were carried out in the government offices. The insurance tradition was followed every Nowruz year, which is also known as the beginning of every Iranian year. The Greeks and Romans established the idea of health and life insurance in 600 A.D when the benevolent societies were created which paid for the funeral expenses. The Romans first introduced the concept of burial insurance. In the 14^th century, the insurance contacts were invented in Genoa (Vollbrecht, and Organization for Economic Co-operation and Development, 2001).

Contemporary insurance goes back to the Great Fire in London in 1666, that destroyed 13,200 houses leading Nicholas Barbon start insurance on buildings. In the 19^th century, the concept of accident insurance came into life. the first insurance company in America was created in 1732 in South Carolina while health insurance policies were first instituted in the beginning of the 20^th century. It has been realized that there is a need for the federal and regulatory systems for the insurance in order to strengthen the policies.

What is insurance

In terms of law and economics, the insurance is a form of risk management that helps in making preparations in case of the major economic losses in the future. There is a relocation of risk between two individuals or corporations in exchange of a payment and the indemnity is thought to be a minor deficiency as compared to the future potentially significant economic loss. Insurer, the company selling the insurance makes sure that the greater number of clients is increased and the clients realize the importance of insurance (Rubin, 2000).

Insurance on the global scale

In the year of 1759, it has been observed that Presbyterian Synod of Philadelphia sponsored the first insurance company in Europe. Massachusetts was the first state to start the insurance by law in 1837 and to maintenance of the reserves. The great Chicago fire emphasized the need of insurance in 1871 (Wagner, and Baker, 2005). These fires struck the denser cities that caused the greater losses. The Workmen’s Compensation Act of 1897 required British organizations to insure their employees so as to provide them the security against any work-related accidents. Since the 19^th century, it has been seen that there is an increase in the interest of the states to ensure that the health insurances are provided to the employees. The need has been realized since the 1980s when there were many natural disasters causing major damages in the cities.

In the 17^th and 18^th century, the British economy was growing. With an increase in the commerce, there was an increase in risk. All the growing companies in this case were chartered with the insurance companies as all the progress was going against the insurance industry. Thereby the first American insurance company was founded in South Carolina and it was seen that the insurance business flourished in Philadelphian and New York afterwards (OECD, 2002).

Conclusion

In the pages of history, it can be seen that the main need of insurance was realized by the major economic damages to the people in the states and the places that were damaged by great catastrophic disasters. In addition to this the employees who were injured during the industrial accidents were also a part of the concern thereby it was realized that the risk management is necessary which lead to an increase in the aware best of the insurance companies on the global scale.

References

Anonymous. (2002). Insurance solvency supervisión: OECD country profiles. OECD Publishing.

Baldwin, G. B. (2001). The new life insurance investment advisor. Edition 2. McGraw-Hill Professional.

Rubin, W. H. (2000). Dictionary of insurance terms, Barron’s business guides, Business Dictionaries Series, Barron’s Educational Series, Barron’s Business Dictionaries. Edition 4. Barron’s.

Vollbrecht, J., and Organization for Economic Co-operation and Development. (2001). Policy issues in insurance: insurance regulation liberalization and financial convergence, Volume 3 of Insurance and pensions, Volume 3 of Policy issues in insurance, Emerging economies transition, Volume 3 of Public Health in Action, Policy Issues in Insurance: Insurance Regulation Liberalization and Financial Convergence. OECD Publishing.

Wagner, G, and Baker, T (2005). Tort law and liability insurance, Volume 16 of Tort and insurance law. Springer.