A report from A.M. Best says insurance regulators in developing nations need better data and stricter risk-based supervisory models to preserve solvency as the markets in these countries grow.

In a special report, “Changing MENA Insurance Market Poses Regulatory Challenges,” Best says the insurance industries in the Middle East and North Africa regions have expanded due to the “significant economic growth” throughout the regions.

The growth has brought significant investment dollars to insurers.

“Many of the new investors were attracted by the introduction of Takaful, [financial practices based upon Islamic teachings of mutual responsibility], which provided the opportunity to bring insurance to parts of the population that either had not perceived the need for insurance or were unable to purchase it,” the report says.

However, “overly optimistic projections” in insurance penetration and little appreciation for risk have “resulted in many insurers becoming akin to high-risk investment funds.”

Regulators in these countries need to adapt to the changing environment around them and adopt minimal regulatory practices, says the report.

Among the recommended practices:

  • Requirement of minimum aggregate retentions.
  • Development of a risk-based supervisory model.
  • Data reaching regulators that is consistent, timely and high-quality.
  • Separation of life and non-life business.

The report notes that while there have been improvements in regulation, regulators in the MENA regions still find it difficult to “keep pace” with changes in their industry. The regulators, the report asserts, must adapt to the changing financial landscape to preserve solvency and policyholders’ interests. The introduction of risk-management practices and stringent data requirements “will be imperative for the ability to evaluate the viability of insurance operations and take corrective actions.”