UAE, UAE, ABU DHABI - Finance
Gautam Datta is currently the CEO of the national takaful company, Watania. He has over 36 years of experience in non-life insurance industry, of which over 25 years were in senior management positions in international markets. Datta has diverse experience in various aspects of the insurance business: underwriting, claims, reinsurance, distribution, and managing green-field ventures. He is an active participant in regional takaful events and has published numerous articles on takaful and its challenges.
How has Watania evolved, and how do you meet the demands for sharia-compliant insurance products in the UAE?Watania is a takaful company established in 2011 by Abu Dhabi National Insurance Company (ADNIC); Abu Dhabi National Islamic Finance (ADNIF), the sharia arm of National Bank of Abu Dhabi (NBAD); Aldar; and Abu Dhabi National Energy Company. In 2014, some of these founder shareholders decided to sell their stake in Watania, with the UAE’s MB Holdings and Oman’s Al Madina Takaful buying major shares of the stake. Meanwhile, the Insurance Authority (IA) established a well-regulated takaful system: Each takaful company has its own sharia committee, and we certify and approve our products through the committee. Watania’s core products are medical and motor, though it also does property, casualty, engineering, and others to complement our product portfolio. As a takaful company, it is important to create a policyholders pool and retain a significant portion of that contribution pool. With the capital structure being what it is, writing middle-of-the-road businesses, which includes small business units, retail, individuals, and so on, aligns itself well with these basic principles. It is important for a takaful company to be conservative in terms of using its capital wisely to write business in segments that generate surpluses and are sustainable.
How do you assess the role of the IA in the development of the sector?
The IA assesses the industry, which is comprised of conventional and Islamic businesses. Regulations are always viewed from the perspective of the industry, as opposed to a particular segment. Takaful insurance regulation was introduced in the UAE in 2010, so the industry is still young and will continue to evolve as the regulators review and update regulations to keep pace with the sector’s growth and development. Meanwhile, the IA’s introduction of e-forms go a long way in creating a level playing field for companies and implementing financial discipline that adopts a uniform approach for all the companies. Regulations require all stakeholders to come together and draft laws and regulations that provides the right framework. Many scholars and practioners believe that existing laws are not aligned with takaful principles when it comes to the minimum capital requirement. Risk-based capital structure could be a more viable and possibly equitable alternative to the current regulation and could have a significant impact on takaful company’s business model.
What will be the significance of further consolidation and mergers across the local industry?
We have seen some M&A activity in the insurance sector, with Takaful Emarat taking over Al Hilal Takaful as the latest UAE example. The IA’s initiatives focusing on strengthening capital, reserves, and governance could result in a significant consolidation of the market. While this will not resolve the challenges of a fragmented market, it will be an improvement on the current situation, where 66% of the market is controlled by six companies and 34% is between 56 companies. Consolidation will lead to better use of capital; investment in new technology; optimization of operational expense; and improved service and offerings, thus increasing insurance penetration.
What is your outlook for the coming year, and how do you expect demand to evolve?
While we did not grow as planned in 2018, we were well ahead of the market growth of less than 1%. We expect growth to be more modest, if not flat. The lack of liquidity and general economic conditions will impede market growth. We are optimistic about the medium term as there are number of development items on the anvil. Overall, the insurance industry’s future, including takaful, is bright for two reasons: GDP is still expected to grow at around 3%, and this growth will drive the industries relevant to insurance sector. Second, current conditions are influenced to a great extent by the current political climate, which has created volatility in the financial markets. After this is resolved, things will move in the right direction.