The UAE and KSA insurance sectors remain resilient despite economic headwinds

• The UAE and KSA secured 10th and 11th place from 22 countries assessed in terms of opportunity for ‘significant premium growth’ and 6th and 7th place respectively in terms of ‘least amount of risk’
• Rise of internet and mobile technologies to speed the adoption of new insurance products

EY and Oxford Economics recently developed the ‘Emerging Markets Matter’ report to highlight the potential for insurance growth in 22 countries around the globe. EY created a risk opportunity matrix to illustrate the most attractive markets for investment and those that pose the greatest risks. Highlighting the potential for insurance growth in the Middle East, the UAE and KSA insurance markets have remained resilient despite ongoing economic uncertainty, according to EY.

Sanjay Jain, EY MENA Insurance Leader, says:

“The UAE and KSA insurance markets have performed well despite difficult economic conditions. Both of these 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. Even though the drop in the price of oil has introduced new vulnerabilities across the wider region, in the long-term, rapid urbanization, growth in the middle class, and the use of mobile technologies, offer the 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.”

Based on the report’s unique matrix measurement of which insurance markets are poised for the most significant premium growth, and which should be considered the least risky, the UAE and KSA insurance sectors 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 6th and 7th in terms of ‘least amount of risk’. In the overall ranking, China was ranked the highest in the opportunity index, whilst Singapore topped the risk index with the lowest risk score.

Insurance rating in the UAE: modest growth, lower risk

The size of the insurance industry in the Gulf has more than tripled since 2006, and insurance premiums have increased with it. Premiums in the UAE are projected to grow by 12% CAGR to 2020. However, this growth has also spurred increased competition and reduced overall profitability of the sector. A new law requiring compulsory health insurance for all Dubai residents, which is being implemented over two and a half years, is also expected to be a key driver for the industry. In addition, new regulations aimed at strengthening governance, compliance and risk management are expected to spur a round of consolidation.

Insurance rating in KSA: lower growth, lower risk

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%, meaning there is a high degree of untapped growth potential in the market. Premiums are projected to grow by 9% CAGR through to 2020.

Additionally, because of a lack of product differentiation, insurers tend to compete on price rather than on value-add services or unique product features. Health insurance has been the primary generator of premiums. However, the potential of new legislation to require many public facilities like shopping malls, restaurants and schools to have insurance cover, could rapidly expand the size of the property and casualty market.

The elements of the matrix

The opportunity index included the elements such as market size, forecasted premium growth, insurance penetration, and macro-economic factors. Whereas the risk index included, political, regulatory and corruption risk; macroeconomic risk; sovereign and trade credit risk.

Outlook for the global insurance market

“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 carriers. In the Middle East region, despite day-to-day fluctuations in the oil and commodity prices, the demographic growth and urbanization in the region continue to take hold, as does middle-class growth. The rise of internet and mobile technologies will also accelerate the adoption of new insurance products tailored to new customers and their needs,” concludes Sanjay.