Global Investment House – Kuwait – UAE Economic and Strategic Outlook – Insurance Sector– UAE’s stable economy and the development of economic and social activities in the country have positively reflected on the insurance sector with the gross premium collection growing at a CAGR of 25.4% during the period 2001-2006. The boom in both oil and real estate had much to do with this sterling performance. Dubai and Abu Dhabi are considered the hub of insurance industry. In Abu Dhabi insurance sector focused on servicing the needs of the fast growing hydrocarbon and construction industries, while Dubai insurance sector was focused mainly on servicing real estate. During 2006, the total gross premiums collection of the insurance sector has grown by 31.2% to reach AED10.31bn (US$2.8bn) as compared to AED7.86bn in 2005. As a result, the UAE insurance sector continues to be the largest insurance sector among GCC countries followed by Saudi Arabia at US$1.6bn.
However, the insurance sector from world standards remains relatively small. Total premium revenue for insurance is about 1.7% of GDP, and as per IMF data, below the average in emerging market economies with 3.5% of GDP, and significantly below that of OECD countries with 9% of GDP.
Industry structure…
UAE's domestic insurance market remained relatively fragmented. There are 48 insurance companies, out of which 24 are national insurance companies incorporated in the UAE, and 24 foreign insurance companies incorporated abroad with 11 national companies and 2 foreign companies carrying out all insurance activities (Life Insurance, Savings, Money Making and General Insurances). The number of companies carrying out general insurance activities only are 13 national companies and 18 foreign companies, while the number of insurance companies carrying out Life, Saving, Money Making insurances) only are 4 foreign companies. Local groups such as Oman Insurance, Abu Dhabi National Insurance Company, Salama, Arab Orient and Al Ain hold strong market positions, while many smaller players focus on niche product lines or distribution channels, with foreign companies focusing on the insurance needs of expatriate communities. The number of employees in the insurance companies operating within the UAE during 2006 reached 4850. However, the percentage of UAE nationals is considerably small at 7%.
Recent Developments…
Since enactment of the 1984 Insurance Law, insurance supervision has been carried out on a limited basis by a small section in the Ministry of Economy. Only about fifteen professional staff members are assigned to supervise insurance companies and with limited personnel and other resources, supervision has focused on regulation and compliance rather than on risk.
In January 2007, the MOE issued new, tougher regulations on insurance brokers in order to further improve professional standards in the industry. The new regulations set out eleven guidelines which include raising the bank guarantee for the main branch of a company from AED300,000 to AED1.0mn, and from AED150,000 to AED500,000 for branch offices.
A new insurance law was promulgated on February 28, 2007 and was scheduled to take effect August 31, 2007. The law 24 establishes a more independent Insurance Commission, albeit remaining under the Minister of Economy as Chairman of the Board of Directors.
In 2007, the Health Authority - Abu Dhabi (HAAD) required that all employers arrange for medical expenses cover for expatriates and their families resident in Abu Dhabi. Dubai is also in the process of introducing similar legislation, with implementation expected soon.
Clyde & Co, an international law firm in the Middle East, estimates that new compulsory health Insurance schemes for expatriates and their dependents could conservatively cost employers up to AED 4bn across the UAE, and over AED1.5 bn in Dubai alone.
Life insurance contribution still underdeveloped despite high growth….
During 2006, life insurance segment has grown by a substantial 37.0% to reach AED1.65bn as compared to AED1.21 achieved in the previous year.. However, despite the segment’s growth, it still forms a mere 16.0% of total premiums collected in the country while non-life segment accounted for the remaining 84.0% in 2006. This is inline with other GCC countries where life insurance is less popular. The segment is still underdeveloped and dominated by foreign insurers with products mostly designed for expatriates. Local companies work mostly in the general non-life segment supplying services to state owned companies.
Accident and liability segment dominated non-life insurance….
In the general insurance category, accident and liability premiums continued to dominate with a share of 55.5% of the total general insurance premiums in 2006. Premiums from accident and liability policies increased by 25.7% and stood at AED4.80bn for the year 2006 as compared with AED3.82bn in 2005. This was followed by Fire, Marine, Aviation and Transport and Medical Insurance with 14.7%, 14.1% and 12.2% respectively. It is noteworthy that the demand for medical insurance has grown by a whopping 123.1% following a recent law mandating health coverage for expatriate workers.
The insurance companies operating in the UAE have become more proactive which helped them reduce the average claims to 50.7% during 2006 from 63% during 2005
There remains a considerable potential for further development and growth in the insurance industry. The rapidly growing private sector and the opening of real estate markets are expected to increase demand for property insurance. Rising income levels and a growing population of expatriates should also widen the market for life insurance policies with a savings component. To capture potential growth in this promising market segment and withstand foreign competition, insurance companies would need to enhance their asset management and risk underwriting capacities, and raise their level of risk retention.
