A new takaful (Islamic insurance) model is being implemented by the Central Bank of Bahrain (CBB) this month onwards and is expected to attract new entrants to the market and foster competition.

Speaking at the opening of the 11th Middle East Insurance Forum, CBB executive director for financial institutions supervision Abdul Rahman Al Baker said other key initiatives by the regulator include new rules on client money, protection of policyholders and a new training and competency regime, reported the Gulf Daily News (GDN), our sister publication.

The objective of modifying the existing takaful rules is to facilitate a faster growth of the business in Bahrain while protecting the interest of all stakeholders, vis-a-vis participants, shareholders and operator, he said.

"The new framework was released in October last year," he added.

The new CBB rules on client money aim at enhancing the regulatory framework in relation to appointed representatives and insurance brokers.

The market response to these rules has so far been quite positive, he said.

According to Al Baker, the CBB was of the view that in order to overcome competitive pressures and capture profitable growth, insurance companies should ensure that risk is assessed and priced properly.

"Business should be underwritten and priced in a way that all the inherent risks are considered.

"Generally, it has been observed that companies charge premium rates based on the competition and without regard to the proper assessment of risk."

He said it was important for insurance companies to ensure that their investments were highly diversified and not concentrated in a particular sector or high risk assets.

"Employing asset liability management methodology ensures that the asset portfolio matches the liability profile of a company.

"Implementing risk management policy and strategy whereby underwriting, pricing, investment and operational risks are managed effectively, is vital for achieving profitable growth," Al Baker said.

The official said regulators also ought to ensure that adequate legislation was in place to develop, promote, and strengthen enterprise-wide risk management in the industry.

To overcome competitive pressures and capture profitable growth, it was important to enhance the quality of services provided to customers, he said.

"Product innovation is another area which can add significant value to the profitability and the financial soundness of insurance companies."

Maintaining adequate level of solvency in line with the best regulatory standards is another priority for regulators in the Middle East, he added.

"Such solvency requirements should be helpful to provide early warning to regulators so that they could take the necessary measures should the capital of insurance firm fall below the required level."

Regulators, Al Baker said, should require market players to establish and implement a corporate governance framework which provides for sound and prudent management and oversight of the insurer's business and adequately recognises and protects the interests of policyholders.

Supporting public awareness to enhance knowledge on the basics of insurance and the importance of such financial services to the general public was also a focus area for the CBB.

One such initiative was the annual "Insurance Week" in collaboration with the Bahrain Insurance Association, he said.

"This is expected to further increase the penetration rate of insurance in Bahrain." - TradeArabia News Service