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The insurance sector in the United Arab Emirates is one of the largest in the GCC. This sector plays a significant role in catering to the needs of domestic customers. Still, at the same time, it also contributes to serving the country from the renowned financial free section of the Emirate. This gulf country has an ever-growing and multi-segmented insurance industry with both a traditional market and a robust offshore market that includes specialists and reinsurers that offer coverage to several more markets in the region.

A turbulent economic situation that was catalyzed by the downfall in oil prices and the continuing regulatory reforms have together added to the slow pace of premium growth over the past year in the UAE. However, the best life insurance providers of the region have succeeded in maintaining an overall profit percentage. The combined effect of regulatory reforms and the volatility in the market has remained a challenging force that affects the growth potential of the life insurance policy industry in the coming years. New technological innovations in the distribution process have nevertheless helped mitigate the downward trend of growth in premiums. The factors contributing to the growth of the life insurance­­ policy sector in 2020 are as follows:

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The Market Structure in the UAE

The insurance sector in the UAE comprises an onshore segment that is largely populated by firms focusing on the domestic market primarily. Additionally, there is the offshore segment like the one in Dubai International Financial Centre (DIFC). The best life insurance providers that are onshore carried out their operations within the UAE market, one of the most crowded business avenues in the region. This means that the competition for insurance is cutthroat, allowing policy buyers to compare life insurance to pick the most suitable one. On the other hand, the offshore operators situated in the DIFC have established a regional insurance and reinsurance hot spot. This also serves as a repository for specialist offerings that include captive services, niche risk, and boutique amenities.

The vast majority of the insurance activities in the UAE are carried out along traditional lines. However, a robust takaful, the sharia-compliant insurance sector has contributed immensely to the growth. According to the data available, takaful operators have contributed to around 17 percent of the total GWP in 2018. In the past years, UAE’s sharia-compliant best life insurance providers have grown significantly instead of their more conventional competitors. A lot of this momentum was built up in Dubai with Salama, the largest and oldest takaful firm in the world, with a paid-up capital of AED 1.2 billion. It has generally pioneered in takaful but has also helped push the Emirate’s reputation as a trailblazer in the insurance field with its health and family cover.

Reinsurance with retention

Setting up insurance industries capable of retaining their premium is the top priority of most regulators in the larger GCC region, which is depicted by the high cession rate to world reinsurers. UAE has seen this retention trend move positively, with the retention ratios decreasing in the past years. Domestically, there are no national reinsurers in the country, and there is only one reinsurer functional onshore. Most of the country’s reinsurers are based in DIFC that makes up a major reinsurance market in all the region while also housing the best life insurance providers in the sector.

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The rules and regulations

Apart from a robust insurance infrastructure, UAE’s ability to become a center for insurance lies in its capacity to maintain a competitive edge through regulations. The Insurance Authority or IA is responsible for regulating and issuing licenses to onshore insurers. Insurance providers located in DIFC are regulated by the Dubai Financial Services Authority (DFSA). DIFC has become popular among foreign insurers because DFSA has allowed 100 percent foreign ownership without any national shareholding rules in the financial free zone.

Furthermore, one of the most effective development in the insurance regulations framework in the past years has been the Insurance Authority’s introduction of the new rules and regulations. These new rules have provoked insurers in the country to ensure the solvency of insurance institutions by applying investment limits, the establishment of risk committees, and compliance with technical arrangements since 2016. Later on, the demand to keep sufficient assets to meet the accrued liabilities was also imposed. These regulations offer considerable regulatory pressure to the insurers, prompting the life insurance policy sector boost.

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Additionally, even though life insurance in the UAE, as opposed to the rest of the world, is underdeveloped, amounting to only 8 percent of the total GW, it is the largest market for life insurance in the region. However, there has been a shift in the share of the life insurance sector in GWP’s composition due to the expansion of compulsory insurance.

Distribution

Since 2018 the Insurance Authority has placed limits on expansion without the regulator’s prior approval and rules governing foreign insurers from making deals for distribution with the banks in UAE. There is also a need to finalize written contracts regarding commission and the payment dates between banks and insurance providers coming together. Apart from this, banks have to open their books of account for IA’s inspection regarding the contractual arrangements. All these changes have ensured a regulated distribution process of life insurance policy, further boosting its growth since bancassurance is a practical channel for selling insurance and seeking a larger customer base while also allowing one to compare life insurance effectively.

Moreover, the country’s population is technologically advanced dance, opening up avenues for digital channels for distribution, as is obvious from the UAE’s mobile penetration rate of over 200 percent, which is also the world’s highest. Similar is the case for internet penetration which allows companies to have increased savings while also having more customer retention. Furthermore, the best life insurance providers in UAE use the internet for advertisements, speedy distribution, and automated business processes. They recognize a digitally connected population’s power, offering them an efficient platform to compare life insurance for the best coverage and price.

The entry of big insurers

Since the formation of the DIFC back in 2004, Dubai has emerged as a lucrative financial center attracting insurance companies worldwide who want to set up shop in the UAE. Due to its establishment, insurers in Dubai enjoy a stable landscape for a regulated business and the low tax regime that makes Dubai a destination suitable for employee recruitment.

Despite the competitive environment that has been hard for some insurance firms, resulting in their exit from the DIFC, thus offering a setback, there has been an entry of certain high-profile companies. Like the world’s most popular reinsurers- Berkshire Hathaway Specialty Insurance, some of these big names have given a major boost to the life insurance policy market.

Furthermore, the high cost of setting up a business in the DIFC that might have deterred entrants will be soon resolved with the development of a new DIFC. Set to be complete by the year 2024, this new establishment will increase the capacity of the zone three times, adding 13 square feet meters of space that will be utilized for retail, offices, hospitality institutions as well as include a residential section, thus attracting more investment and growth in the insurance sector of UAE.

The pandemic

The pandemic’s onset has acted as a catalyst for changing people’s attitude towards the need for buying an insurance policy, be it the nationals or ex-pats living in the United Arab Emirates. The uncertainty of life especially hit us in the past year when the entire world came to a halt due to a virus outbreak. We all learned the lesson about the fickle nature of life and how important it is to be prepared for the unforeseen events of life. Making certain that we are protected at all times, especially making sure that our families have a safety net in our absence, has quickly become our top priority. This hanged perspective has been one of the largest contributing factors behind the insurance sector’s growth in 2020, be it a life insurance policy, medical insurance, or any other insurance product; we have become prudent about all the things we value the most.

In a Nutshell

The United Arab Emirates had managed to maintain its top position as one of the largest insurance markets in the world, especially in a year when the entire world was shrouded with uncertainty. It has single-handedly managed to add 44.3 percent to the region’s Gross Written Premium (GWP). The country has maintained this leading position in the insurance sector due to its sustained and diversified ex-pat population along with favorable demography and a business-friendly environment. Contributing to this trend was the high penetration rate of the UAE among the GCC countries at 2.9 percent, amounting to a hefty USD 1194. Furthermore, the UAE government’s initiative to offer infrastructure stimulus and the Expo 2020 together points towards even further growth in the insurance industry.