Why your insurance premium could surge soon

Rapid urbanisation, growth in the middle class population and the use of mobile technologies offer potential for faster growth for UAE insurers in the long term.

A new law requiring compulsory health insurance for all UAE residents, which is being implemented over two-and-a-half years, is expected to be a key driver for the insurance sector growth.

In addition, new regulations aimed at strengthening governance, compliance and risk management are expected to spur a round of consolidation for the sector.

In a report on the insurance sector, EY and Oxford Economics said that in the UAE, the industry remains resilient despite economic headwinds, with premiums projected to grow at a compound annual growth of 12 per cent to 2020.

Saudi Arabia is also showing resilience in insurance, with premiums projected to grow by nine per cent to 2020.

Sanjay Jain, EY Mena insurance leader, said the UAE and Saudi insurance markets have performed well despite difficult economic conditions. "Both markets' insurance sectors are going through structural evolution with the introduction of stronger regulations, aided by a welcome shift towards the right level of technical pricing."

Jain said even though the drop in the price of oil has introduced new vulnerabilities across the wider region, in the long-term, rapid urbanisation, growth in the middle class and the use of mobile technologies offer potential for faster growth for insurers.

"Enforcement of regulations to eradicate fraud, corruption and other abuses will also be critical for the increased growth of this sector, as will be enhanced efforts towards educating consumers."

According to the report, insurance markets in the UAE and Saudi Arabia remained resilient, securing 10th and 11th place respectively out of the 22 countries assessed, in terms of opportunity for 'significant premium growth'. They also placed sixth and seventh in terms of 'least amount of risk'. In the overall ranking, China was ranked the highest in the opportunity index, while Singapore topped the risk index with the lowest risk score.
The size of the insurance industry in the Gulf has more than tripled since 2006 and insurance premiums have increased with it. "However, this growth has also spurred increased competition and reduced overall profitability of the sector."

Saudi Arabia's insurance market is now one of the largest in the region, having grown to rival that of the UAE. The traditional prominence of corporate business in Saudi Arabia means that brokers and agents play a larger role in the kingdom than in other more developed markets. While growth over the past half decade has been vigorous, the penetration rate is just 1.1 per cent, meaning there is a high degree of untapped growth potential in the market.

The report pointed out that the global macroeconomic outlook has not been kind to emerging markets in the past year, but over the longer term, powerful structural changes will continue to make emerging markets vital to the future growth of insurance firms.

"In the Middle East, despite day-to-day fluctuations in the oil and commodity prices, the demographic growth and urbanisation in the region continue to take hold, as does middle-class growth. The rise of the Internet and mobile technologies will also accelerate the adoption of new insurance products tailored to new customers and their needs," concluded Jain.

- issacjohn@khaleejtimes.com

Issac John

issacjohn@khaleejtimes.com