Mahmoud Kassem
UAE insurers will get a boost this year from the expansion of mandatory Dubai health coverage and a new nationwide unified motor policy, according to S&P Global Ratings.
But while premiums may rise, profitability may be patchy because data on customers is often not always comprehensive enough to assess the risks they pose. To boot, new regulations that will require insurers to maintain higher reserves of cash to cover any write-offs may further dampen profitability, the rating agency said.
“We expect that the expansion of the Dubai Health Scheme and the implementation of a new unified motor insurance policy will continue to contribute to UAE insurance earnings,” said Emir Mujkic, a Dubai-based primary credit analyst at S&P.
“In contrast while we expect that the formal adoption of actuarial pricing is likely to lead to rates increases across the board, the introduction of new risk-based regulations also creates operational uncertainty.”
The UAE beefed up regulations for motor policies last year that took effect at the beginning of this year. The new rules offer customers more clarity and benefits such as courtesy cars. Under the new rules, motorists have had liability coverage extended to husbands, wives, children and parents – as well as having a sharp increase in cover for property destruction. Damage inflicted on property belonging to others in an accident is now insured to a maximum of Dh2 million from Dh250,000.
The changes – which bring civil liability, or third-party cover, and comprehensive loss and damage cover under the same policy – will come with increased costs for insurers, some of which will be passed on to customers. S&P Global sees a win-win situation for the consumer and the corporations.
“We view the introduction of a new unified motor policy – which provides enhanced third-party liability cover and additional rental car benefits – as positive for both insurers and policyholders. This new policy has already led to rate increases of around 20 per cent,” the agency said in its report.
When it comes to health insurance, the rating agency said that while there would be growth in premiums it may not be as high as in previous years, when the industry was getting the full benefit of the introduction of mandatory health care in Dubai.
The emirate’s Health Insurance Law, which came into effect in January 2014, makes every sponsor liable to provide insurance packages for all employees.
Overall, while there have been a number of catalysts for the growth of the insurance industry in the UAE over the past year, the profitability of the industry has been weighed by cut-throat competition. Many insurers have popped up in recent years and a number of them are struggling to be profitable. That has made it difficult for some to stay afloat, especially those that made risky investments in the stock market and suffered heavy losses.
There are 91 registered insurance companies in the UAE, according to the Insurance Authority. While this has been good for consumers, it has led to losses among many insurers as prices for insuring everything from cars to houses fell.
Some have quit the non-life insurance business altogether in the UAE, such as Zurich, which exited in November 2015.
The Insurance Authority’s expected move towards actuarial pricing this year will mean that policies have to be priced to produce a technical profit.
“This should help reduce cut-price competition, especially on compulsory lines,” according to S&P.
Other analysts including those at the consultancy firm PwC are also upbeat about long-term growth for the industry in the region. PwC has said the insurance market in the Middle East has significant growth potential, with an average insurance take-up of just 0.3 per cent in life insurance and 1.1 per cent in non-life insurance.
The National
