Dubai's mandatory health cover could adversely effect insurance companies, says a report from Moody's.
Dubai employers may shift to cheaper health policies under new law
Dubai’s move to ensure mandatory health cover could result in some employers trading down their premium insurance policies, a report said yesterday.
“As premiums for the mandatory cover are much cheaper compared to the present voluntary medical covers, employers may choose to substitute the latter with [the mandatory cover],” Moody’s Investors Service said. Under the new law, all UAE nationals from Dubai, expatriates and visitors must have basic health cover. The UAE Government said that it would implement the rule in stages, which started last month, through to June 2016.
A basic annual voluntary cover with an insurer, similar to that required by the law, could start at about Dh1,800, but those with premium coverage offering more benefits start at about Dh5,000.
However, keeping in mind resistance from employees, the trading down could be a medium to long-term effect.
Yet “this may result in loss of market share and higher competition both in terms of pricing and product features for those insurers offering only voluntary cover”, according to the report.
Some analysts disagree about the trend towards cheaper policies.
The Abu Dhabi insurance market did not experience a similar trend when mandatory health coverage was introduced in 2006, said Charles Weston, the director of equity research at Numis Securities.
“The latest [Health Authority Abu Dhabi] statistics show that 86 per cent of all claims in Abu Dhabi [by value] are from ‘Thiqa’ or ‘Enhanced’ packages, implying that there has not been a wide-scale move down insurance packages,” he said.
There are 41 insurance companies registered with the Health Authority Abu Dhabi (HAAD). Currently, 50 insurers are registered with the Dubai Healthcare Authority.
The Government or private insurers provide health insurance policies for nearly half of Dubai residents.
The Moody’s report also said that while Dubai’s move will ensure more people receive coverage, it may not translate into better profit margins for insurance companies.
“If the medical ailment is covered by the mandatory health cover provided, this would actually reduce the out-of-pocket expenses for consumers,” said Mohammed Ali Londe Riyazuddin, a Moody’s analyst.
The report added: “The premiums are capped by a fixed index rate which, together with high levels of anticipated claims, would narrow the margins of participating health insurers.”
Smaller insurers could be more adversely affected.
“We expect this to be particularly unfavourable for smaller insurers, while larger players would benefit from their scale advantages resulting from superior claims management, strong provider networks and capacity to cross-sell other products,” the report said.
Said Mr Riyazuddin: “We expect initial underwriting performance of participating insurers to be poor. This reflects the start-up costs and challenges of operating in a highly regulated system, especially for smaller players with limited resources, underwriting expertise and networks.”