How do you convince people to buy insurance in a region where most drivers do not even signal when changing lanes? Acquiring car insurance is a legal requirement in much of the Gulf, but other forms of insurance - life, health care, even property - have made little inroad, mainly for cultural and religious reasons. But in a transforming economy where the population is growing and the regulatory environment is changing, a slew of insurance companies are setting up office in the hope of attracting customers.
"The business coming out of the Middle East for foreign companies that are operating here has been growing at about 20 to 25 per cent steadily for the past four years," said Nigel Watson, the sales director at Nexus Group, an insurance brokerage company. "The population has grown significantly and continues to grow. Expatriates all need insurance. There aren't any social security benefits for expatriates, so they need to make their own arrangements. That's why more and more international insurance companies are moving here."
Saudi Arabia and the UAE have become promising markets for insurance companies. David Anthony, an analyst at Standard & Poor's (S&P), wrote in a note last week that regulations introduced in the kingdom in the past few years have forced many offshore companies that served the country to replant themselves in Saudi Arabia. Although insurance penetration in the country is less than one per cent of GDP, it grew almost 15 per cent last year, according to S&P. Mr Anthony wrote that Saudi Arabia's desire to diversify its economy would further drive growth in the country.
Despite it being an under-penetrated market, the insurance industry in the UAE is well covered with 23 domestic and 24 foreign companies. In a country of 4.4 million people, that translates to one insurer for every 94,000 inhabitants. This, together with the push to instil the culture of insuring, has kept premium prices competitive. Pat O'Flynn, the chief executive of RSA Middle East, said that his company was passing on the increased expenses from the country's high inflation rate "as best as we can" to the policy holders, but that it was dealing with a competitive market.
As this young industry matures, the day will come when some of the smaller companies face struggles, just as is predicted for the overcrowded banking sector. "I foresee a higher level of professionalism and consolidation," said Michael Bitzer, the chief executive at Daman. Moreover, regulatory changes requiring coverage for some products and services is driving the growth of non-life insurance, especially in the UAE and Saudi Arabia.
The biggest growth is in property, health and car insurance. And although Muslim countries are generally averse to life insurance, the development of Shariah-compliant takaful products are beginning to take off. Figures from Swiss Reinsurance show that total premiums in the UAE reached Dh13.1 billion (US$3.5bn) last year, a 26.6 per cent jump from 2006 and a 66 per cent increase from 2005. Life insurance grew 37.2 per cent from 2006 to reach $617 million last year. Non-life insurance grew by about 25 per cent last year and 62 per cent from 2005.
In Saudi Arabia, the second-largest insurance market in the GCC, the demand for insurance products grew by 22.5 per cent last year. In all the categories, the UAE's rate of growth was the highest in the GCC and the Arab world, and one of the highest among emerging markets. But the number of insured in the GCC is small compared to mature markets. In the UK, for instance, 15 per cent of pet owners have insured their animals and overall insurance penetration is close to 16 per cent of the GDP, while in the UAE it is 1.9 per cent of GDP. The average premium per capita in the UAE stands at $700, compared to about $1,800 in the UK and $2,000 in the US.
Elsewhere in the GCC, insurance penetration stands at 1.1 per cent in Oman and 0.6 per cent in Kuwait and Saudi Arabia, according to Swiss Reinsurance. It is the untapped market of the UAE that attracts the industry to the region, especially at a time when western markets are falling into what may be a deep recession. The booming housing market in the UAE, for instance, has created a demand for life and property insurance, said Raj Madha, an analyst with EFG-Hermes who believes the growth of the industry is both consumer and industry driven.
"I would say it is the increasingly sophisticated marketplace for financial services that has driven demand. Insurance companies have met this demand with product development," Mr Madha said. "The second big driver is banks, which have an interest to drive up their non-interest income, so they're looking to have tie-ups with insurance companies to sell these products, and that's what we call bank reinsurance."
Executives see the UAE as the most promising market because it has the fastest growing population and a booming housing market. The industry owes some of these newfound opportunities to the ongoing regulatory changes that make insurance mandatory. In 2006, Abu Dhabi introduced a law requiring employers to provide health coverage to all employees. Daman, the healthcare insurance company that the Abu Dhabi Government launched in 2005 to provide health insurance to government employees, now insures 1.5 million expatriates in the emirate. Before the mandatory universal coverage, only 100,000 expatriates had health insurance in Abu Dhabi, Mr Bitzer said.
Dubai adopted a law this year that mandates universal employee-sponsored health coverage by the end of next year. This would add at least another million policyholders onto the bank of insured workers in the country. The emirate also recently adopted new regulations mandating mortgage insurance in order to safeguard its booming property market. Saudi Arabia also has made insurance compulsory since 2006, which has been put into place gradually.
The industry hopes that the Government will also require insurance in other fields such as workers' compensation and malpractice. For now, however, the UAE industry is eyeing greater penetration into health care and the property market. The country's property markets in Dubai, Abu Dhabi and elsewhere continue to attract investors and homebuyers from around the world, and Dubai intends to become a healthcare centre, with plans for Dubai Health Care City.
Some health companies - such as Daman, with $1bn in assets - are targeting high-end coverage as the number of well-paid expatriates increases. Mr Bitzer said that his company had so far gained 150,000 policies in Dubai. With the increase in business has come tighter regulation. Companies that want to provide healthcare coverage in Abu Dhabi from this year need a separate licence from the emirate's Health Authority, instead of the previous requirement of an insurance licence from the Ministry of Economy.