A price war is gripping the GCC insurance market as a glut of insurers offer coverage at prices too low to be sustained, said the chief executive of the biggest non-life international insurance company in the region.
Jerome Droesch, the chief executive of Axa Gulf, foresees a shake-out of the healthcare, motor and property insurance sectors in order to bring premiums closer into line with real costs.
"There is a price war in the region," he said. "We will probably see the market changing in the coming months as the cost of the premium should increase in the coming months as most of the competitors are making losses.
"They were running at any price to get market share. It is time to have a consolidation phase and have a more sustainable strategy in the region."
His comments are the latest indication of the pressure building in the regional insurance market after years of insurers providing low-cost premiums across several sectors in a bid to capture market share. Growing populations and rising waves of claims are straining insurers' bottom lines.
Better access to medical care and an ageing population were pushing up the frequency of healthcare insurance claims, said Mr Droesch. The challenge besetting medical insurance has been highlighted by several insurers already.
Operational profits at the UAE's 10 biggest insurers were estimated to have slid by 30 per cent in the first half of last year. The motoring sector was facing a similar squeeze, said Mr Droesch.
"The frequency of accidents is increasing and, in my view, will continue and the cost of repair has started to increase, meaning it is not possible to accept a decrease in premium every year. Progressively, there will be a change in the market and we will have to adjust the level of pricing accordingly to have a sustainable operation."
Low premiums in the property market reflected years of undervaluing home and content insurance, he said.
The extent of the premium rise he expected this year in some insurance segments could be "double-digit", he said.
Fareed Lutfi, the secretary general of the Emirates Insurance Association, which represents insurers, sees unsustainable pricing as a deep-rooted problem for the industry. "It's partly a lack of regulation and partly a lack of management," he said. "Managers of local insurers are not being loyal to their shareholders. They're not scientifically addressing the issue within their companies."
Despite the tricky regional backdrop, the French insurance group achieved a more than 20 per cent growth in its premiums last year to US$626 million across five of the six countries in the GCC.
At a time when European markets are treading water due to low economic growth, Axa sees opportunities for stronger growth in the Middle East, Asia and Latin America, said Henri de Castries,the chairman and chief executive of Axa Group during a visit to the region last week.
The company intended to recycle capital freed up by the disposal of some operations in the United Kingdom, Canada and Australia, he said.
"We have large potential in the Middle East," he said. "The growth here is larger than in developed countries and the margins are greater.
"The region still records low insurance penetration levels. Risk awareness of the population is increasing, thus there are growing insurance needs to address."
One way Axa is increasing its presence in the region is by opening shops to help to promote its products, which include property, motor, medical and life insurance, as well as asset management. It has 15 shops in the region and is planning to open more than 10 additional ones this year. The shops' services will be supported by call centres and the company's website.