The insurance landscape in the MENA region has changed rapidly over the past five years, presenting challenges and opportunities for the various players. Mr Irshied Tayeb and Ms Liz Zamorski of Bin Shabib & Associates discuss the developments in the UAE, Saudi Arabia, Bahrain, Kuwait and Qatar, and the interplay with regulations in these markets.
There is plenty of evidence that the MENA insurance sector is moving into a period of growth and regulatory refurbishment. This is especially true in the UAE, Saudi Arabia, Bahrain, Kuwait and Qatar. This is not to underestimate the activities in Northern Africa, though. The constitutional changes in Egypt and the development from the ground up in places like Libya are creating new opportunities in every sector. We also see increased expansion in Morocco, which is already bancassurance-rich and continues to see steady bancassurance growth.
UAE – wide-ranging opportunities
Reformatting of regulations
The UAE’s insurance market has been reporting positive growth over the past five years. This steady change facilitates long-term market awareness, and also creates a sustainable model built on a solid foundation. The Northern Emirates, in particular, are highly competitive in the region.
The Northern Emirates’ market is quite interesting because it is largely broker-driven and has a lot of elements which affect the overall region. The majority of the brokers in the Northern Emirates are from international jurisdictions and they work alongside local brokers who are more closely tied to the region. The international brokers are abiding by the same compliance standards as the offices in their home jurisdictions, which therefore tightens the overall regulatory compliance in the region.
The ambition of the local regulator to reformat the regulations in the UAE also contributes positively towards the strategic regulatory objectives because of the large number of companies coming from highly regulated jurisdictions. There is a huge amount of direct and alternative capital being injected into the market – a byproduct of the large number of new companies moving into the area. The capital injection creates more expansion opportunities in the area, which brings more companies, which brings more capital. This cause-and-effect circle creates the type of growth we are seeing in the UAE. The growth cycle, coupled with the regulatory backgrounds and home office oversight of the companies moving into the UAE, all contribute to the insurance sector building momentum in the UAE and benefitting the region overall.
Opportunities in personal lines in the Northern Emirates continue to grow incrementally with more product innovation and market penetration. There are regulatory issues that apply to bancassurance everywhere, but this is particularly true in the UAE where there is high double-digit growth in the bancassurance area. In some instances, a whole new arena is being established using bancassurance.
Impact of global regulations
There is also substantial growth in the oversight of corporate governance rules and regulations. The fit and proper rule is a pillar of reformation under corporate governance regulations to ensure that there are sound professionals who advise on insurance. As stated before, there are huge amounts of regulatory requirements in these companies’ home jurisdictions. Own Risk and Solvency Assessment (ORAS) and Solvency II are planned to be implemented in the next couple of years and will have a viable impact in terms of the regulatory reforms planned in MENA, particularly in the GCC. The compliance of the home offices in their developed markets will affect the MENA regional offices and provide sound regulatory practice that will have a tangible impact in the region.
Compulsory health insurance in final stages
In Dubai, the mandate for compulsory health insurance is in its final stages and will be enacted soon. This will stimulate the overall insurance industry even further since MENA’s insurance potential and the regulatory role there are presently over two million people in Dubai who will need to be insured or rerouted through some sort of healthcare scheme. The dedicated healthcare authority, Dubai Health Authority (DHA), has begun putting the infrastructure in place and creating a platform for the influx of insureds into the healthcare market. The Authority will need to capitalise on experiences of the Health Authority Abu Dhabi and Council of Cooperative Health Insurance in Saudi Arabia in compulsory healthcare in terms of building the overall infrastructure and need-matching methodology.
Dubai’s approach to mandatory healthcare builds on previously established mandatory healthcare models. Dubai will need to address the law of large numbers, and ensure that the cost, frequency and severity are within the norms and match the technical price modelling of the healthcare
The administration of the healthcare will be through private companies. This will open the market to more providers initially and will also drive the need for a strong regulatory framework and transparent system requirements at the outset. The benefits will be generally in line with the regional standard, which is very much responsive to risk.
Growth in DIFC
The Dubai International Financial Centre (DIFC) has experienced an influx of insurers from Asia, underscoring the tremendous opportunity coming to Dubai. Since the DIFC opened its doors in September 2004, it has become renowned for its regulator, the Dubai Financial Services Authority (DFSA), and its reputation for excellence. We have witnessed a high success rate in the last five months for companies who have been in discussions regarding the possibility of incorporating in the DIFC since 2006 and 2007.
We speculate that there are a variety of complex reasons why these companies are moving into the DIFC now. These reasons include the timing of the economic upturn, the inflow of capital into the DIFC and the region, the overall international market expansion, the attraction of adding to an emerging market, the reputation of the DIFC, the number of players already incorporated there, and the overall appetite for international companies for geographic expansion.
Potential in Abu Dhabi
Growth potential continues to rise in Abu Dhabi. One can predict major growth in the Abu Dhabi insurance sector due to innovative risk modelling. Industry professionals are using specific angles of reinsurance placement to ensure that the groups of insured in Abu Dhabi have better positions in terms of the risk they are insuring. Insurers are reformatting overall risk protection and taking more control over their risk. This is positive for the market and should contribute towards an insurance protection that will be responsive to the overall risk mitigation, whereby insurers are not only matching the risk to be insured, but are also not overpaying for that risk. This will no doubt positively contribute to the overall market condition and growth of the GDP.
Qatar – Moving to global standards
Qatar is seeing massive growth as the business environment becomes richer with foreign investors. The Qatar Financial Centre (QFC) has managed to attract more international players alongside its announcement of establishing an integrated regulator. Qatar is also taking positive steps to move the country’s regulatory framework towards a more international standard. The Qatar market is going to continue to be an interesting one to follow and should always be considered for expansion opportunities.
Saudi Arabia – Stability in framework
In Saudi Arabia, the market is stable and well-regulated. Saudi Arabia influences the region since its market is so large, and its regulations are customised to help businesses and individuals thrive in the particular Saudi business environment. The stability and efficacy of the Saudi regulatory framework is evidenced by there being no major changes in the Saudi insurance regulations over the past five years. The strength of Saudi insurance reflects a consistently strong market that is influenced by the local regulations. We anticipate that we will continue to see steady growth in the Saudi market in the coming years due to their capitalisation on the size and structure of its insurance sectors.
Bahrain – Maintaining hegemony
Bahrain has always been a leading regional hub, closely connected to Saudi Arabia both physically and marketwise. The connection is not unlike the market similarities we see between the US and Bermuda. The smaller market in Bermuda is influenced by the US market due to their proximity and cultural matching. Likewise, Bahrain has continued to thrive based on its alliances throughout the world and especially with the Saudi market. Bahrain is likely to remain a leader in the region, especially due to its location and its strategic alliances with the emerging markets.
Kuwait – Need for international focus
Kuwait is another strategically interesting jurisdiction that any insurance or reinsurance professional should keep on their agenda. We are seeing a number of significant transactions taking place, including many mergers and acquisitions, set-ups and transactions outward from Kuwait. The regulations in Kuwait need more focus as Kuwait sets itself up as a major player in the region’s insurance market and attracts more international players. We have recently seen some regulatory talks taking place, and the priority will probably shift in the coming years to building a more internationally focussed regulatory framework to keep up with the increasing insurance activity.
Overall, the price of insuring risk in the region continues to fluctuate due to the changing regulations. We do not foresee a hardening of the insurance prices during this period of rapid growth and emergence for these various markets. We see the MENA insurance market continuing to develop and expand, so long as the regulators are able to efficiently manage the market and its players. The outlook is good for insurance providers and we anticipate that the climate, especially in the UAE and Qatar, will continue to be right for expansion and market increases.
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