MANAMA: The profitability of the insurance industry in the GCC has been deteriorating over the past four years.

The top 30 conventional insurers saw profitability dropping from 28 per cent in 2007 to 9pc in 2011, according to a report by global management consultancy A T Kearney.

Strong market pressure on all insurance segments is driving down the profitability of GCC insurers.

Motor premiums, for example, have decreased by 23pc over the past three years in the UAE.

In medical insurance, healthcare provider costs have increased as much as 50pc over the same period, while the return on investment still remains low at 3.9pc down from 10.9pc four years ago.

"Insurers are competing on prices for motor to gain market share at the expense of profitability," said A T Kearney partner and head of financial institutions practice in the Middle East Cyril Garbois.

"In medical, insurers without a structured approach to managing healthcare provider network management are failing to limit price increases and struggling to pass on the full cost increase to clients.

"Administrative and staff expenses have increased two times faster than business activity," he added.

"This is mostly due to inefficient processes combined with a lack of proper integrated systems," he said.

"Increasing size should provide insurers with the opportunity to leverage scale and decrease their costs," he added.

According to the study, unsuitable investment strategies have reduced investment income profitability by 17.5 percentage points.

The A T Kearney expert said insurers must consider that financial markets might not provide strong returns.

Establishing dedicated asset and liability management (ALM), distinct from the traditional finance function, secures commitments to policyholders by ensuring capital is always available to meet periodic asset value shortfalls. Effective ALM permanently evaluates liquidity needs and develops appropriate investment and asset allocation strategies limiting volatile financial returns.