Health to all

The UAE as a whole wrote some $9.1 billion in policies in 2014, according to Swiss Re, representing some 41% of the GCC market. While Saudi Arabia is slowly eroding the UAE’s regional leadership of the insurance industry, both countries are increasing the penetration rates for insurance through the implementation of extended non-life mandatory lines, especially in the fields of motor and healthcare. In terms of the penetration rate of the insurance industry, the UAE as a whole was at 2.2% in 2014, above the GCC average of 1.4%, though still behind the emerging market average of 2.7% and the global average of 6.3%. Per capita insurance premium levels were at $974 for the year, seeing the UAE narrowly beaten into second place in the GCC region by Qatar ($979) in relation to premium density. The non-life business saw 14.9% growth over 2014, in line with Swiss Re estimates, coming in at $6.91 billion and claiming 75.8% of the insurance market. As for life and the remaining 24.2% of the market, it also saw strong growth in 2014 of 14.9%, with premium volumes worth $2.2 billion. The balance between life and non-life lines is likely to skew toward the non-life sector over the 2015-2016 period as a result of the more broader introduction of compulsory medical cover for employees and their dependents in Dubai. Boosting the life side of the insurance market has long been a target by market leaders, but this has often been hampered by the transitory nature of the key working age demographic, with the majority being temporary residents in the UAE.

In late 2015, Standard & Poors (S&P) estimated that the UAE insurance market had seen gross written claims of AED13.5 billion ($3.7billion) over the first three quarters of 2015, indicating 9% growth in YoY terms. However, despite this seemingly rosy result, the highly competitive nature of the UAE market, especially in compulsory lines, saw the 29 listed companies in the UAE report a net combined ratio (NCR) of 103%, with net profits down by a substantial 90% in annual terms, and 10 companies reporting losses. Of the 29 locally listed insurance companies, 13 of them have a presence on the Dubai Financial Market (DFM), with nearly half of these having an open takaful, or sharia-compliant type, insurance profile, including Dar Al Takaful, Takaful Emarat, and Islamic Arab Insurance.

The presence of 60 insurers in the market, both foreign and local origins, makes for crowded times, and cutthroat premiums. This lack of consolidation is often pointed out by leaders in the industry as an area in need of reform. The CEO of RAK Insurance, Andrew Smith, underlined this when he explained to TBY that the UAE, “is a very competitive market, and there are too many insurers.” While in late 2014 the UAE Insurance Authority took some moves to encourage broker consolidation, by upping their capital requirements from AED1 million (some $273,000) to AED3 million ($817,000), other avenues may need to be investigated by the regulators to address insurer numbers more directly.

On the takaful side, the UAE Insurance Authority has been looking to increase capital requirements, regulate risk management and asset classes, as well as provide for a single sharia board to determine what is appropriate for the industry. Of the 60 insurance companies present in the UAE, 11 are takaful specialists. Ernst and Young (E&Y) estimated that takaful companies made up 14.3% of the UAE’s insurance market in 2014, worth some $1.31 billion. In 2015, the UAE government decided to retain the AED100 million ($27.25 million) minimum capital requirement for insurers and AED250 million ($68.12 million) for reinsurers, though may address these levels in the near future. Where the government has made changes is to the asset mix for takaful companies, with real estate assets in the UAE to compose no more than 30% of the total portfolio of a takaful company. As many companies have a high exposure to the UAE real estate market, the compliance date for local takaful operators was pushed back to 2018 to assist them in adjusting their portfolios. Other requirements included allowing for a maximum of a 30% exposure to local equities, with a maximum of 10% to be in a single listing, and no more than 50% of a portfolio to be held in non-UAE assets. For many companies, profits have been achieved through investment income, which can be retarded during market dips such as in 2015 and 2016. Ayman El Hout, Deputy CEO of Al Sagr National Insurance Co. (ASNIC), put the problem succinctly: “The focus should always be on technical profitability rather than investment income.”

MEDICAL A MUST

Compulsory health insurance for workers, first passed as a law in January 2014 and supervised by the Dubai Health Authority (DHA), came into full implementation in mid-2016. The adoption of compulsory cover for all employees in the Emirate came about in three stages that should see coverage raise from 1.5 million individuals in 2014 to 4 million by 2016. At first, only organizations with 1,000 or more employees were required to provide compulsory healthcare as of October 2014, while employers in the 100-999 worker category had to do the same by July 2015. The third and final stage was implemented in June 2016, and covered all employees, including domestic workers. While the imposition of compulsory medical has seen both it and motor lines dominate premium collections, competition between insurance providers for market share may inspire unsustainable premium levels, which could be challenged in the face of rising hospital costs or a spike in claims. However, at the basic end of the market, for employees earning less than AED4,000 ($1,090) per year, an essential health benefit package (EBP) has been created.

The EBP is regulated to cost employers between AED565 and AED650 ($154-$177) annually, and provide up to AED150,000 in cover. Of the 45 insurers approved by the Insurance System for Advancing Healthcare in Dubai (ISAHD) to provide medical insurance in the Emirate as of end-2015, just nine are authorized to provide the EBP. While employers may extend coverage to the dependents of employees by paying a further AED650 per dependent under 60 years of age, most employees are required to provide coverage out of their own pockets. As such compulsory coverage is a requirement for an employee to sponsor a dependent already, this is unlikely to significantly raise coverage levels.

DIFC COVERAGE

The Dubai International Finance Centre (DIFC) also acts as a hub for insurance providers. However, it is limited to writing business either outside of the UAE or within the DIFC, or can act as a source of reinsurance for business written within the UAE proper. So far, some 70 companies have established branches within the DIFC zone, with new entrants including Lloyd’s of London. Gross written premiums were estimated at $1.2 billion within the DIFC in 2014, showing significant room for development. One major area that insurance agents are examining is the growing importance of the maritime sector in the UAE following the establishment of the Emirates Maritime Arbitration Centre (EMAC) in Dubai. EMAC will help Dubai join the ranks of cities such as Singapore, New York, and London as global hubs for shipping arbitration, and hopefully write some insurance premiums on the side. At end-2014, marine cargo and hull policies written in the UAE totaled 282,110 policies according to the UAE Insurance Authority, though growth was sluggish, less than 1% in CAGR terms.