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Though the insurance market in the UAE faced certain difficulties in recent years, 2016 witnessed a return to growth, and 2017 promises to be marked by strong profits. Traditional and […]

Though the insurance market in the UAE faced certain difficulties in recent years, 2016 witnessed a return to growth, and 2017 promises to be marked by strong profits. Traditional and takaful insurance providers enjoyed strong growth in 2016, with top-line premiums expanding at 11.1% in traditional providers and 5.5% for takaful providers, according to the consulting firm Milliman. Gross written premiums (GWP) for traditional insurance firms listed on the UAE’s stock exchanges sit at almost AED16 billion, while GWP for takaful firms is around AED3 billion. According to the UAE’s Insurance Authority (IA), gross premiums across all insurance classes sit at around AED37 billion, while the total volume of assets invested in the insurance sector is AED45.7 billion.

According to the most recently available statistics from the IA, foreign firms accounted for 79.4% of written premiums for insurance of persons and fund accumulations operations, and national companies accounted for 20.6%. In terms of property and liability insurance, however, the balance was reversed, with national firms accounting for 74.1% of written premiums and foreign firms accounting for 25.9%. Medical insurance accounted for the majority of written premiums in this category, representing 47.8%, and accidents and liability, fire, and land, sea, and air transport were the other major categories, accounting for 34.3%, 8.4%, and 6%, respectively. According to the most recently available statistics from the IA, there were more than 1.3 million policies underwritten in the country. Limited Liability Automotive captured the largest share of the policy pool, accounting for more than 630,000 policies. Comprehensive Automotive, Personal Accident and Aviation insurance were the next largest categories, representing 289,322, 30,458, and 30,084, respectively.
Since 2007, the UAE’s Insurance Authority has been the oversight body in charge of regulating the insurance industry in the Emirates. The authority is responsible for a host of activities, including regulating all activity related to the insurance sector, encouraging national savings and investing in responsible ways, stimulating competition, promoting the insurance industry in a transparent and prudent fashion, and ensuring high-quality products are being sold at reasonable prices. Under the IA’s watch, the insurance industry in Abu Dhabi and the country has expanded its bottom lines and increased coverage and profitability while insulating the market.

In response to market volatility in 2014 and 2015, the IA introduced new regulations that restrict the kinds of assets insurance companies are allowed to invest in. Insurance firms are allowed to invest only 30% of their assets in real estate and equity vehicles, and only 20% of those equities can be outside the UAE. Firms are allowed to be fully invested in UAE sovereign debt instruments. The regulations also require that external and internal auditing controls be established, and a third phase of new regulations are set to be implemented by the end of 2017. These regulations have helped the market return to a more natural equilibrium, setting the stage for responsible growth in 2016 and 2017. Insurance companies across Abu Dhabi are preparing to implement the latest round of regulations, and officials are confident that the new requirements will undergird sustainable long-term growth. Government regulators and Abu Dhabi insurance executives alike view the regulations as key steps in the development of the Emirate’s financial service sector, and they are optimistic that increased oversight will spur the sector to greater heights.

However, not all new regulations from the IA have been met quite as warmly. New tariffs on vehicle insurance have the potential to increase premiums by as much as 35%, according to the Gulf News. These new regulations are expected to disproportionately impact customers at the middle and lower levels of the market. With automotive insurance representing the largest policy pool in the market, consumers and industry leaders are watching these developments closely.

In its most recently published report, the Abu Dhabi National Insurance Company (ADNIC), one of the largest insurers in the Emirate and the country, disclosed its decision to increase capital reserves in order to both adhere to government regulations and better insulate itself against fluctuations in the oil and gas sector. Additionally, ADNIC has been spearheading a digital transformation of the industry, introducing new e-services and smart systems technology. Founded in 1972, ADNIC is one of the oldest insurance companies in the UAE and is working to position itself as the largest insurer in the country by developing a new line of innovative and bespoke insurance products to the UAE market such as wedding insurance products and enhanced home insurance products. Insurers in Abu Dhabi see product innovation as one of the most important methods of stimulating continued growth in the market, and new lines and products are being unveiled this year.
Abu Dhabi National Takaful had similarly impressive results in 2016, recording 16.4% growth in net profits. Despite market volatility and low oil prices, insurance firms in Abu Dhabi have been able to record strong growth. Khamis Buharoon Al Shamsi, Chairman of the Board of Directors of Abu Dhabi National Takaful Co. PSC, attributed his company’s robust growth to prudent operations strategies and a sound grounding in the takaful model. These sharia-compliant alternatives are a growing aspect of the financial services market in Abu Dhabi and the GCC.

Emiratization has been a strategic objective of the IA for a quite a while, and insurance companies in Abu Dhabi have been making inroads. Still, according to the most recently available data from the IA, the number of employees working in the technical departments of insurance companies totaled 2,900 people, and only 340 of those, or 11.7%, were UAE nationals. Abu Dhabi insurance authorities have been working with the IA to develop more vocational interest in the insurance sector among the Emirate’s youth. This plan includes a long-term vision that relies on training and awareness programs aimed at both stimulating growth in Emirati employment and instilling the technical and business training required for Emiratis to take mid and upper level management positions within the insurance industry.

In recent months there has been some discussion regarding the impact oversupply could have on the insurance market in the UAE, with some market observers noting that increased competition has led to declining prices. With more than 60 providers insuring less than 10 million people, falling prices have been a boon for consumers but a headache for insurance companies. Profitability has fallen as result, but the rise of compulsory coverage has the potential to offset competition-driven price declines. Moving forward, the insurance industry in Abu Dhabi is ripe for some form of consolidation, but the potential for healthy profits remains.