"The industry needs to provide customers with high service standards and to obtain greater economies of scale in the industry in addition to the need for adjusting to lower profitability," Rasheed M Al Maraj, Governor of the Central Bank of Bahrain, told the seventh Middle East Insurance Forum (MEIF) 2011.
In his opening remarks at the event, the Governor also underlined the importance of consolidation of the industry, which according to him would enhance the scope of growth and development.
"We are currently living through a period of adjustment. Once shareholders and investors recognize that they will need to accept lower returns on their investments than during the boom years, the process of industry consolidation is likely to begin," he said.
"The CBB has introduced a comprehensive set of requirements for insurers, both conventional and Islamic, as part of Volume 3 of the CBB rulebook that has been progressively introduced since 2005. Over the year ahead, the process of refining and modifying these requirements will continue. The changes we have made are to reflect the provisions of the Kingdom of Bahrain,s Code on Corporate Governance which was introduced last year. At the same time, one of the lessons of the global financial crisis has been to put corporate governance arrangements under the spotlight. Several of the firms that failed during the crisis appear to have suffered from serious shortcomings in their corporate governance," he said.
"Regulators will have to consider ways of strengthening the effectiveness of boards of directors in overseeing the operations of the firms they run. This applies especially to ensuring high standards of risk management. We may also make changes to our framework with respect to the regulation of insurance brokers in the near future," he said.
In addition, he said the CBB would continue to monitor new recommendations originating from the international standard setting bodies, including the Islamic Financial Services Board (IFSB) and the International Association of Insurance Supervisors (IAIS).
"The development of the insurance industry is a major component of the Kingdom of Bahrain's Vision 2030 strategy that outlines the competitive, dynamic and diversified economy we aim to develop for a post-oil era. In our latest national economic strategy we have identified insurance and asset management as two sectors of the financial industry that have enormous potential for future growth. However, my point is that while regulators can provide the conditions for industry development, whether these opportunities are seized is a matter for shareholders and the managers of insurance firms," he said.
"In many of the MENA countries locally-incorporated insurance firms remain relatively small and are therefore unable to compete with large internationally active firms that have the benefits of scale. These benefits range from the ability to construct large diversified investment portfolios to efficiencies in IT for claims handling and processing. Over the long run, there is a need for locally-incorporated insurance firms to achieve greater scale economies if they are going to be able to compete on level terms with their international competitors," he said.
"Successfully supporting the next phase of development for the regional insurance markets is a process that must be led by the industry itself, particularly by its shareholders and managers. The next phase of the development of the insurance markets is likely to require the consolidation of firms, the development of new product offerings, the expansion of insurance firms in the region, and high standards of customer service that only the private sector can deliver," he added.
"Improved returns on investment will require greater efficiency, better standards of customer service, and new product innovation, all of which are more likely to be delivered by larger more diversified insurance firms," the Governor said.
