Emerging Stronger While Pivoting To Thrive

The biggest markets for insurance in the region are Saudi Arabia and The UAE, and while the sector remains resilient in the face of challenging times - with increasing M&A activity and good growth prospects for Takaful - it faces the need to speed up digitalisation

The insurance market in the Middle East region is proving to be remarkably resilient in the face of significantly reduced revenues due to the prolonged pandemic and the impact of business interruption disputes on insurers hit by the resulting class actions.

Most insurers in the region seek to leverage the innovation that emerged following the outbreak of COVID-19 as business activity in the region continues to pick up on the back of a rebound in oil prices and the lifting of pandemic-related restrictions. “While 2021 saw the pandemic continue to shape the economic and political landscape, rising prices across all product lines, even those perceived as difficult, generated healthy top line growth for many insurance businesses,” said Clyde & Co.

The region’s ongoing economic recovery on the back of higher oil prices, government spending and increasing activity in the non-oil sector is expected to boost insurers’ gross written premiums (GWP) growth and growth prospects throughout the year.

However, the sanctions that the US and its allies imposed on Russian energy imports after the invasion of Ukraine are driving inflationary pressures and reinsurance carriers are starting to feel the pinch of soaring operations costs.

The UAE and Saudi Arabia remain the two biggest insurance markets in the Middle East with health insurance businesses dominating in both countries. The health division has been the fastestgrowing insurance product in the region following the implementation of compulsory cover in the UAE and Saudi Arabia since 2005 and 2006 respectively.

Following the business trends that

emerged following the outbreak of the coronavirus, insurance companies in the region are also digitalising their businesses as legacy insurers are starting to pay attention to new business models.

Meanwhile, tech firms, that are capable of speeding up the process for customers buying insurance and making claims, are seen as having an edge over traditional insurers. PwC said that legacy insurers have become some of the largest funders of these insurtech startups as they recognise that joining forces with tech firms can be a game-changer.

Insurtech is also on the radar of techsavvy governments in the Middle East as well as private equity and venture capital firms which is evident by soaring investments in insurance technology companies since 2018. Industry experts expect insurtech to bolster strength and resilience for insurance and reinsurance to thrive in the post-pandemic world.

M&A activity

Though there are new avenues to growth in the insurance sector in the Middle East, mergers and acquisitions (M&A) continue to provide attractive opportunities for regional insurers to grow their businesses, expand their footprint and acquire new customers.

The challenging operating environment which was was exacerbated by an exodus of expatriates who mostly require health insurance, is putting more pressure on Middle East insurers’ GWP, which will likely fuel a surge in consolidations as companies seek to remain profitable and maintain a competitive edge.

Kuwait’s Gulf Insurance Group (GIG) completed the acquisition of AXA Group’s operations in the GCC region last September for a total cash consideration of $474.8 million. The deal includes AXA’s shareholding in AXA Gulf, which entails operations in Bahrain, the UAE, Oman and Qatar as well as AXA Cooperative Insurance Company in Saudi Arabia.

Dubai-based Oman Insurance acquired the UAE life insurance portfolio of Italian insurer Assicurazioni Generali for an undisclosed sum in March 2022. ADQ, the youngest of Abu Dhabi’s three sovereign funds, also bolstered its healthcare and pharma portfolio with the acquisition of a 20% stake in Daman from reinsurance provider Munich Re in October 2021. ADQ already held 80% shareholding in Daman and the deal made the UAE insurer a wholly-owned subsidiary of the Abu Dhabi-based holding firm.

S&P Global said that with GWP growth picking up again in the UAE’s insurance market thanks to higher economic activity, “we expect 2022 to exceed 2019 levels.”

“We expect strong M&A activity to continue as we head into 2022, driven by divestitures of non-core businesses, continued competition for distribution targets, the hardening of specialty property and casualty insurance and significant levels of deployable capital,” said PwC.

Saudi Arabia’s SABB Takaful signed a binding merger agreement with Walaa Cooperative Insurance in February 2022. Upon the completion of the deal, SABB Takaful’s assets, liabilities, and rights will be transferred to Walaa Insurance and the former will “cease to exist”. The potential tie-up between the Saudi insurers follows the consolidation of Walaa Cooperative Insurance and MetLife in March 2020.

The Saudi insurance market maintained GWP growth of about 5% in 2021, according to S&P Global and the growth is expected to remain in the same range for 2022, driven by the Gulf state’s economic recovery and further supported by the Hajj and Umrah medical insurance program.

“Pressure on solvency and certain regulatory incentives have led to a number of mergers in Saudi Arabia over the past year and we expect this trend to continue throughout 2022,” said S&P Global.

Al Sagr Cooperative Insurance and Gulf Union Al Ahlia Cooperative Insurance, two Saudi insurers, also started preliminary talks to study the feasibility of a merger last December. However, the much-anticipated merger between Saudi Enaya Cooperative Insurance and Amana Cooperative Insurance was rejected by the former’s shareholders earlier this year.

Meanwhile, the overhaul of the Kuwait insurance regulatory regime in March 2022 could increase pressure on small and unprofitable Islamic insurers, forcing them to raise capital to meet the new requirements.

Digitalisation

The insurance operating models are on the verge of a fundamental change as the pandemic and its global impact on economic activities is increasingly driving a rapid shift in customer behavior and expectations amid competition and changing regulations.

Though the insurance sector has lagged other financial service industries in digitalising its core business and embracing customer experience-led approaches, insurtech is expected to advance the development of the industry.

“Core trends suggest the insurance industry is not immune to the tech-based disruptions facing other industries; customer demands are changing, traditional operating models are under pressure, and new players are emerging,” said McKinsey.

The GCC is one of the world’s fastestgrowing insurance markets. However, growth has slowed in the last three years, ramping up the pressure on regional insurers to out-innovate the competition.

As more insurers in the Middle East are increasingly focusing on adding new technology capabilities to their businesses, acquiring mature insurtech firms could be increasingly attractive for legacy insurance firms provided they can make a near-term impact on operations.

Dubai’s I-Insured launched an artificial intelligence (AI)-based SafeDriver PayHow-You-Drive (PHYD) app that offers policyholders lower premiums and incentives based on their driving behavior. Addenda, a Dubai-based insurtech firm that uses distributed ledger technology to streamline processes between insurance companies is collaborating with more than five major regional insurers including

Aman Insurance, Al Wathba Insurance and National Takaful Company (Watania) as part of their digitalisation strategy.

“As the insurance sector expands in the GCC, regional players now have the perfect opportunity to reap the rewards of being early movers in the global digital transformation story,” said Kearney.

UAE’s Union Insurance Company also uses AI, which uses natural language processing to extract data from documents, to issue motor policies in less than one minute while Aqeed allows customers to compare and buy insurance policies from its platform. Through Aqeed’s dashboard, users can access documents and policies in force, contact insurers and compare prices among other services.

Globally, automated digital platforms are being used by some insurers to file and record insurance claims, including Suncorp in Australia and Tata-AIG in India. Meanwhile, India’s ICICI Lombard uses an AI-based cashless claims settlement process that can be completed in just one minute.

Insurers are leveraging their abundant data to find new areas of growth, with an industry-wide push to make use of technological innovations such as AI and machine learning (ML). The deployment of AI-powered platforms by insurance firms in the Middle East will enhance data capture and analysis, boost overall operational efficiency as well as enhance customers experience and reduce customer acquisition costs.

Takaful

The economic recovery across core Islamic markets in the Middle East, Africa and South Asia (MEASA) region and strong investor demand for Shari’ah-compliant insurance products will continue to support investment into the sector.

“We expect takaful contributions (insurance premiums) to keep growing moderately over the next two to three years, helped by rising demand for medical insurance as more GCC, African and Southeast Asian countries introduce compulsory health cover,” said Moody’s.

Though Saudi Arabia, the biggest Islamic insurance (takaful) market in the Gulf region, registered a plunge in premium due to declining new car sales, S&P Global projected that GWP in the kingdom will grow by as much as 5% this year boosted by higher premium volumes for medical business through an extension of existing and new covers. The UAE, the second-biggest Arab economy, is experiencing a significant increase in consumer confidence and the government’s changes in visa requirements to attract more talent is

expected to boost premiums for smaller takaful players.

Growth prospects for takaful remain buoyed by strong investor demand, digitalisation and improving regulations that makes it easier for Islamic insurance operators to obtain licenses. “The recent adoption of risk-based capital regulation in core takaful markets, and takaful insurers’ continued embrace of digitalisation are further positive factors,” Moody’s said.

Takaful insurers mainly focus on retail lines of the business and players in Oman, Saudi Arabia and Kuwait are set to benefit from compulsory health insurance requirements as well as similar measures that are being implemented in Saudi Arabia’s motor insurance division. Mandatory medical cover is also driving growth in Southeast Asia and Africa.

Outlook

As economies in core Islamic markets in MEASA are emerging from the pandemic insurers must consider implementing a mix of offensive and defensive actions to accelerate sustainable recovery efforts and pivot to the thrive phase when growth is re-emphasised, despite the challenging operating conditions.

Takaful operators’ capitalisation will likely remain strong throughout this year as more governments are introducing risk-based capital regulation. “Risk-based capital regimes encourage better risk

management, thereby improving insurers’ capital adequacy, underwriting, reserving and investments,” said Moody’s.

Regulatory changes that are being introduced in nascent takaful markets such as a simpler licensing process for players are also creating a framework for increased growth and penetration of Islamic insurance in countries including Kenya, Egypt, Algeria and Morocco.

The Islamic insurance sector stepped up its investment in digitalisation in response to the pandemic over the past two years amid changing customer demands and expectations, which is expected to enable small takaful players to reach more customers at a lower cost. The resumption of nonessential medical treatment pushed the volume of claims to more normal levels last year and the growth is expected to continue throughout 2022.

WHILE 2021 SAW THE PANDEMIC CONTINUE TO SHAPE THE ECONOMIC AND POLITICAL LANDSCAPE, RISING PRICES ACROSS ALL PRODUCT LINES, EVEN THOSE PERCEIVED AS DIFFICULT, GENERATED HEALTHY TOP LINE GROWTH FOR MANY INSURANCE BUSINESSES

– Clyde & Co.

MEAFINANCE

Summit & Awards 2022

19 MAY 2022

ARMANI HOTEL, BURJ KHALIFA DUBAI, UNITED ARAB EMIRATES

Continuing Innovation in Banking & Finance

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Raja Al Mazrouei

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Ahmed Mohamed Al Naqbi

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Head of Transaction Banking & Digital Services Commercial Bank of Dubai Amit Malhotra

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Arjun Vir Singh

Head of Financial Services - MENA Arthur D. Little Ayesha Abbas

Managing Director - Head of Affluent, Priority & Premium Banking, and Branch Network Standard Chartered Bank Devid Jegerson Head of Customer Experience and Platform Development National Bank of Fujairah PJSC Anand Krishnan

Director, Head of Technology Emirates Investment Bank Anthony Habis

Managing Director, Head of Middle East & Africa Bank of New York Mellon Anirudha Panse

MD & Head of Trade Finance Product Innovation First Abu Dhabi Bank

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Managing Director & CEO Consumer Bank – Middle East Citi Domenico Scaffidi

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Director - Product Management Middle East & North Africa Mastercard Dr. Nouran Youssef

Senior Financial Sector Specialist Arab Monetary Fund Olivier Crespin

Co-Founder & CEO Zand Onur Ozan

Head of Middle East, North Africa & Turkey SWIFT Peter Smith

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Chief Consumer Banking Officer Dubai Islamic Bank

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Regional Head, Middle East Backbase Region Head - Middle East and Africa Xebia

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Sriranga Sampathkumar Tarek Soubra

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Viji Varghese

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