When most insurance industry analysts look at the Middle East, they think of the high premiums charged to shippers and the dangers of terrorism and war that mandate those high rates.

But the Middle East, and the Persian Gulf region in particular, is also a potentially vast market for U.S. insurance industry services, ranging from individual health and life to commercial property and casualty policies.Despite the rise of Arab nationalism, reflected in the creation of many government-owned insurance companies and laws favoring firms owned by local nationals, U.S. insurers still have many business opportunities.

In a recent survey of insurance in the gulf conducted by Gulf International Bank, the domestic industry's premiums exceeded $1.5 billion and the reinsurance industry collected premiums exceeding $370 million.

Tom Sams, an international trade specialist in the U.S. Commerce Department's Office of the Near East, said U.S. firms can reap substantial benefits as key providers of insurance in the gulf region.

But he added that companies wanting to succeed in the area must become more sensitive to local conditions before they can develop a customer base. Companies must take a long-term approach to the market, Mr. Sams added.

The state of the insurance industry is quite sophisticated, said Frederick W. Weston, an associate at CMT International, a Cambridge, Mass.-based economics and sectorial development consulting firm. They use a full line of products.

The area is both one of the most recent and one of the oldest insurance markets in the world.

Rudimentary forms of insurance were used to share risk 4,000 years ago, referred to in the Hamurabi code. Modern or Western-style insurance did not come to the region until well after the turn of the century, protected by the British, who ruled much of the area under mandate of direct colonial rule.

Between 1920 and 1953, British and U.S. companies, such as Provincial Insurance Co., Guardian Insurance Co., Royal Insurance Co., Sun Alliance and American International Group, started operations in Bahrain, Iraq, Kuwait and Saudi Arabia.

Today, Western insurers active in the region face competition in the form of state-owned, private and Islamic insurance providers.

Arab governments began to set up their own insurance companies in the early 1950s, led by Iraq's National Insurance Co.

By the most recent count, the gulf countries, excluding Iran, now have at least 75 domestic insurers and reinsurers.

Islamic insurance systems have been set up in countries as diverse as Malaysia, Saudi Arabia, Switzerland and Sudan, for a variety of reasons.

In Sudan, the Islamic insurer reflects the creation of an Islamic banking system. The Swiss-based operations compliments the nation's Arab-oriented banking and financial services industries.

A number of specialized fields of Islamic insurance is developing to comply with tenets set forth in the Koran and the Sunnah - the formal sources of Islamic law. Islamic insurance enables Arabs whose religion forbids the use of western forms of risk insurance to obtain coverage.

The Islamic Reinsurance Corp. was set up with the goal of capturing about 10 percent of the Arab market for reinsurance, a market that now represents more than $4 billion in premiums, paid only policies mostly sold by Western companies.

Life insurance has been a problem, Mr. Weston said. The Islamic prohibitions against gambling have been applied: Some see life insurance to a degree as rolling the dice against Allah. They believe that when you have to go, you have to go, and you shouldn't take stakes against that, Mr. Weston said.

He points out that the Islamic laws that are applied to the insurance industry are subject to interpretation. There are Islamic tenets on protection of the family, Mr. Weston said.

To a certain extent, the ability to offer and buy life insurance boils down to a careful interpretation of Islamic law, he said. If you look at life insurance as pre-funded socialized protection, it is quite palatable to conservative Muslims.

Islamic insurance is, at heart, a cooperative venture. Unlike Western insurance, where policies are based on an individual buyer's risk and the seller's gamble that the risk will not be realized, Islamic insurance buyers pay contributions to a common pool that pays out to those who suffer losses. The insureds are also the insurer.

This system not only is sanctioned but also encouraged in the Koran and under Islamic law. The payment of money from an individual policyholder into a common pool is made with the intention of fulfilling one's duty as a Muslim to help one another, in the name of Allah.

Islamic insurance, like Islamic banking, is still largely in the developmental stages. But its development is indicative of the Arab world's efforts to develop an insurance industry to meet local needs and requirements.

Western insurance companies seeking a share of the region's growing market need to demonstrate that they can provide the kinds of cost-effective coverage local consumers will buy.