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Central bank of Bahrain urges insurers to improve risk assessment

Central bank of Bahrain urges insurers to improve risk assessment

Insurance companies must be able to assess and price risk more accurately, in order to be Saudi-banking-assets-rise-to-$-462 billionprofitable and maintain growth, according to a leading Central Bank of Bahrain (CBB) official. Insurers would be much better served if they underwrite business in a way in which all the inherent risks are considered, he said.

Currently, many firms determine premium rates based on those being charged by competitors, often ignoring the risks involved, said Mr Abdul Rahman Al Baker, Executive Director, Financial Institutions Supervision, at the CBB, in a speech at a recent regional conference, Middle East Insurance Forum, organised under the patronage of the central bank, excerpts of which are reported in the latest issue of its publication, The Review.

“The CBB is firmly of the view that in order to overcome competitive pressures and capture profitable growth, insurance companies must ensure that the risk is assessed and priced properly,” he said.

In addition, it is important for insurance entities to ensure that their investments are highly diversified and are not concentrated in a particular sector or in high risk assets. Furthermore, employing asset liability management techniques and methodology ensures that the asset portfolio matches the liability profile of the insurance company. Without proper investment management, it is not possible to offer savings and investment-linked products to the public and this may restrict the company from realising its true potential, he said.

It is important to enhance the quality of services provided to customers, to overcome competitive pressures and capture profitable growth. In order to be profitable, an insurance company must distinguish itself from its competitors and, to do so, it must offer superior services.

Product innovation is another area which can add significant value to both conventional and Islamic insurance companies, said Mr Al Baker.

Training and competency of the workforce is also very important for profitable growth of the company and it is necessary that the insurance firms continue to improve the level of expertise and professionalism of their workforce.

For sustainable business growth, it is vital that the proper line of business is chosen for business expansion, Mr Al Baker stressed. Due to the huge potential for long-term insurance business in both Bahrain and the GCC, it would be sensible to invest in this line of business, he said.

“By pooling the resources of existing insurers and through active support and involvement of GCC governments, long-term insurance institutions could be established,” said Mr Al Baker.

Another line of business with tremendous growth potential is medical insurance. Mandatory health insurance, coupled with growing populations and increased government spending, is expected to lead to
a sharp rise in business for medical insurers.