UAE Insurance Market Records Steady Growth

UAE Insurance Market Records Steady Growth

By Hina Navin

The UAE insurance sector has sustained steady economic growth over the years. Strong underwriting has fuelled industry profitability, while premium growth has remained stable due to the softening of rates and stable medical trends.

The first half of 2019 saw an overall increase in profitability by 2 percent, and it received a considerable surge in income by 9 percent, as per a recent report by Badri Management Consultancy, an actuarial consulting firm in the Middle East.

The profits in the first six months recorded at Dh1.02bn ($278m) while they amounted Dh1bn in the previous year the same period, showcasing a growth of 2 percent, as per the Consultancy’s report titled ‘Performance Analysis of UAE Listed Insurance Companies for the First Half of 2019’.

Current Scenario

The insurance sector in the UAE is maintaining year-to-year growth. Jihad Faitrouni (pictured right), CEO, Dubai Islamic Insurance & Reinsurance (AMAN), says this industry is moving from a non-regulated environment to a disciplined regulated environment.

“UAE has surpassed Saudi Arabia in premium income (for the past several years), becoming the largest Arab insurance market. The market has witnessed radical changes in life insurance in Takaful. DIFC has attracted many global reinsurance providers, including Lloyds, to the region.”

He expects the UAE insurance sector to grow as a result of sustainable economic development in the next few years. “Insurance penetration in the region is low, and the UAE still has more potential for higher growth. The government’s efforts to diversify the economy will also help the sector to grow.”

The market will also receive a boost from Expo 2020 Dubai as tourism numbers increase, fuelling job creation and private consumption. “Abu Dhabi’s total oil production increased in 2019 and will grow substantially in 2020,” he adds.

The Regulations

The UAE insurance sector enjoys an enhanced regulatory framework with improved monitoring and control, encouraging players to be disciplined and fostering sustainable growth.

Giving examples, Faitrouni says, “The Unified Motor Policy and tariff have helped to avoid unhealthy competition and improved performance of the motor portfolio. Moreover, traffic fines and penalties played a major role in reducing claims.”

“With regard to Property and Marine, local insurers are adjusting their underwriting appetite to match with reinsurance demand for pricing and reduced capacities (the market increased the rate and reduced capacity after the Address Hotel incident). For medical insurance, the mandatory health insurance laws in Abu Dhabi and Dubai and subsequent higher penetration of the Lower Salary Band (LSB) segment fuelled the growth.”

Looking Back

Insurance in the UAE has been primarily regulated under Federal Law No. 6 of 2007 concerning the Establishment of the Insurance Authority and Regulation of Insurance Operations (the Insurance Law).

Carole Khalifé-Chammas (pictured left), General Manager – Strategy & PMO at Al Futtaim Willis Co. LLC notes that back in 1976 when Al Futtaim Willis began operations in the UAE, insurance was a rarity. “Both awareness and penetration of insurance were extremely low. General insurance was practiced at a minimal level, mostly within international organizations and limited mainly to marine cargo covers and the like. Private medical insurance was practically non-existent in any meaningful form. Employers only ever provided it in rare circumstances for expats seconded to UAE.”

“The real change happened when a major Group in Dubai decided to provide medical insurance to their employees that led their competitors to follow suit,” she says. It was in 2007 and 2008 when the Dubai International Financial Centre started operations; the new reinsurance markets brought in additional capacity, new products, and new lines of business, says Khalifé-Chammas.

However, as a result of recent global and regional influences (losses, pressure on underwriting results, and risk appetites), a number of these markets have suffered losses / poor underwriting results, which has seen them exit from the region.

“Recently insurance rates on certain lines of business, particularly financial lines (Directors & Officers, Professional Indemnity) and Property & Casualty lines, have hardened in the wake of several large, well-publicized fires in respect of tall towers, as well as storm/rain damage to warehouses (stock) and shopping malls, and significant losses in the industrial and power sectors. As a result, insurers are now looking to limit their participation in such risks, impose higher deductibles and premium increases to better understand and underwrite the risk via the commissioning of risk engineering reports,” she adds.

Khalifé-Chammas sees the introduction of mandatory coverage in Abu Dhabi (2006) and Dubai (2014-2016) as a significant milestone for the sector. “The implementation of these laws has had a huge impact on health insurance in the UAE, not only on the number of people covered under insurance but also in the way it is sold and regulated. The remaining emirates are yet to follow suit of mandatory insurance that is expected to be implemented in the future.”

Digitalization Trends

The insurance industry is implementing new technology at various stages, be it actuarial analysis, pricing, operations, and claim service, or customer relationship.

Digital transformation is impacting all areas of insurance business in the UAE, says Faitrouni. “The advanced data analytics tools help actuaries to produce more detailed analysis and provide optimized pricing. BI tools help in faster decision making, artificial intelligence in addition to Blockchain and machine learning to ease the operations and customer service and for fraud detection. Fintech and the acceleration culture continue to position it and boost the business.”

E-commerce is also becoming more and more active in the insurance business. “Recently, UAE has seen technology companies entering the insurance sector, such as claim recovery platforms using blockchain technology, virtual risk engineering solutions, and remote claim assessment.”

“We have witnessed the expansion and improvement of the insurance aggregators where consumers have access to different prices and different options to choose from. Going forward, we expect the aggregation model to continue developing in the Middle East. In more developed markets, where aggregators account for around 70 percent of insurance sales, we’d expect the aggregator to be the most common sales channel for Middle East insurers by 2022,” explains Faitrouni.

Khalifé-Chammas believes a successful digitalization is not about focusing on technology, but to enable people’s needs and wants. She notes, “Dubai Health Insurance Corporation (DHIC), a subsidiary of the Dubai Health, is working on and has completed projects which are expected to add great value to people’s lives. For instance, the launch of Current Procedural Terminology (CPT) 2018 aims to unify claims data, which would later facilitate the introduction of Artificial Intelligence (AI) to study the data and identify patterns. This will be particularly beneficial in identifying Fraud, Waste and Abuse (FWA), enhancing the overall patient experience.”

However, she considers this insurance market is yet to benefit from the full capabilities of AI. This is because the data that is being collected and the way it is collected can be improved upon, she says. And it’s a space to watch in the future. “AI, mainly machine learning and deep learning, will have a greater role to play in underwriting, fraud detection among other functions, which will allow insurers to offer a faster, better, and cheaper service to customers.”

The Journey Ahead

Khalifé-Chammas sees the insurance on demand to become a huge growth sector amongst retail markets as millennials shun home and car ownership. “The UAE is also one of the most targeted countries globally by fraudsters. The cybercrime market is a growing risk projected to reach 1 trillion in losses by 2025. This will drive demand in the region for more sophisticated corporate and retail cover,” she says.

As the UAE diversifies its economy, “improved and increased regulation will demand more D&O, cyber, professional indemnity for the service industries. Due to increased regulation, we will see better consolidation amongst insurers and brokers alike,” says Khalifé-Chammas.

While Expo 2020 Dubai will create opportunities for local travel insurance markets, government expansion of non-oil revenue, and planned infrastructure projects, coupled with rising life expectancy and increasing oil prices will support the industry’s growth in the coming years.