- Insights into dynamics, regulations and future trajectories
Insurance companies in the UAE have increased premiums by up to 30% after the unprecedented heavy rains recorded in mid-April. Insurance industry executives say that demand and premiums for comprehensive insurance have also grown with some of them reporting a 100% jump in the post-rain period as third-party liability (TPL) doesn’t cover natural disaster damages to vehicles and homes, pressing owners to opt for costlier packages.
The UAE recorded the heaviest rain on April 16, 2024 in 75 years, resulting in flooding in many parts of the country, especially Dubai, Sharjah and Ajman. Insurance companies have been flooded with vehicle and house claims against damages incurred during the rain with some of the firms reporting up to a 400% jump in claims. Moreover, there is an increase ranging from 5% to 20% in insurance rates after the heavy rains. The most affected segments by rate increases tend to be motor and property insurance, particularly for homes and businesses located in flood-prone areas. Premiums for these segments have seen noticeable hikes, with some reports suggesting increases ranging from 10% to 30%. The demand for comprehensive insurance policies has seen an upward trend as user seek to secure broader coverage in the wake of the heavy rains.
It has been observed that an increased demand for comprehensive insurance cover especially for cars older than 8 years, which would typically buy third-party liability cover. It also been observed that 95% of customers who are currently insured on the third party, now buying comprehensive plans at the time of renewal.
During the year 2024, it is expected the GCC insurers’ top-line growth will range between 5% and 15% in 2024, due to ongoing economic expansion in the region and rate increases. However, Saudi Arabian insurers likely to expand at much faster pace among the GCC (Gulf Cooperation Council). Insurance demand will benefit from ongoing investments in infrastructure projects, population growth, and regulatory initiatives, such as the extension of compulsory insurance covers. At the same time, a moderation in claims inflation for motor and other property/casualty lines will help insurers preserve margins.
Prospective
Credit conditions for rated insurers in GCC countries will likely remain broadly stable in 2024, supported by robust capital buffers and adequate growth and earnings prospects. However, a key risk to GCC insurers’ credit conditions consists of worsening geopolitical tensions in the region.
As insurance markets continue to grow, the gap between larger and smaller insurers will likely widen. The largest companies will expand at a faster pace than smaller companies, while generating a significant share of overall profits. In contrast, some smaller companies could struggle to remain profitable and solvent due to high competition and operating costs.
The Kingdom of Saudi Arabia is largest insurance market among GCC countries. It is interesting to note that out of 25 listed insurers in GCC, the largest 5 are in Saudi Arabia. They have generated the revenue of about 73% of total insurance revenues of GCC in the year 2023, which was 69% in 2022.
On the other hand, in UAE the five largest of the 26 listed insurers generated about 63% of total insurance revenues in 2023, as compared to 61% in 2022.
As the economic conditions in the GCC region are favourable, S&P Global Ratings forecasts an average Brent oil price of $85 per barrel for 2024 that will support robust economic growth in GCC oil and non-oil sectors. It has been projected that the real GDP growth in the GCC region will range between 2% and 4% this year. Therefore, the insurance demand will benefit from ongoing investments in infrastructure projects, population growth, and regulatory initiatives, such as the extension of compulsory insurance covers. On the other hand, the average inflation in the region will likely decline further to 1.5% to 2.5% in 2024, from over 4% in 2022.
Insurance growth
The GCC insurance market is projected to grow at a CAGR of 4.3% from $29.2 billion in 2019 to $36.1 billion in 2024. Sustained economic growth, increase in population and substantial infrastructure development are among the leading factors that will facilitate growth of the sector. Life insurance is projected to grow at a CAGR of 4.9% to reach $4.7 billion in 2024. Growth rates across each country vary based on their projected population increases.
On the other hand, the non-life insurance market is expected to grow at a CAGR of 4.3%, primarily aided by mandatory insurance business lines, new regulations improving the pricing of policies, anticipated recovery in economic activity, and subsequent rise in infrastructure investments. The non-life segment will continue to comprise 86.9% of the total insurance market at $31.4 billion in 2024.
Between 2019 and 2024, insurance market in UAE and Saudi is anticipated to grow at a CAGR of 4.2% and 5.0%, respectively. In UAE, infrastructure spending and phased introduction of mandatory health insurance will drive overall growth in the sector. Saudi Arabia is expected to benefit from significant infrastructural developments, coupled with new business, reformed tourism program.
The GCC insurance industry landscape is maturing as regional governments are consistently seeking to enhance the regulatory environment to improve compliance and create sustainable business models.
As part of economic recovery efforts, regional governments have made higher budget allocations and undertaken a series of measures to improve the business environment and boost demand in key sectors.
GCC nations have adopted long-term national strategies to diversify their economies away from the hydrocarbon sector, leading to increased construction activities. Currently, the value of total active projects in the GCC is estimated at $2.6 trillion, which will increase the amount of insurable assets over the long-term. Additionally, GCC nations have introduced liberalization reforms such as opening up sectors for 100% foreign direct investment and easing visa regulations for tourists and expatriates, which would aid growth of the insurance industry.
Health insurance remains one of the most important business lines in the GCC and will continue to drive the insurance market across the region. Currently, GCC countries are each at different stages of rolling out mandatory health insurance, which is likely to come into effect in 2020. Similar regulatory changes across the GCC region will be a fundamental factor for growth of the insurance sector.
Steady rise in population base, comprising of the youth and working population, will boost the demand for life, motor, health and property insurance products across the GCC. Moreover, the increase in senior population (age > 50 years) is expected to boost premiums of the health segment.
Strengthening regulatory environment and supervisory standards will improve compliance standards in accordance with the best international practices and lead to sustainable business models.
The GCC insurance industry landscape is maturing as regional governments are consistently seeking to enhance the regulatory environment to improve compliance and create sustainable business models.
The consulting firm Alpen Capital is expecting a five-year average annual increase of 5.3% in the global turnover of insurance companies operating in the Gulf Cooperation Council (GCC) countries. The premium volume would jump from 34.3 billion USD in 2023 to 44.4 billion USD in 2028.
Non-life premiums would show a 5.4% progression to 39.6 billion USD in 2028. For their part, life premiums would reach 4.8 billion USD, representing a 4% increase over five years.
The sector’s development would be underpinned by resilient economic growth, a growing population, higher demand for life and health products, and ongoing infrastructure projects.
By way of reminder, based on the volume of premiums written, Saudi Arabia has outperformed the United Arab Emirates to become the market leader in 2022 (14 208 766 000 USD for the former against 12 849 728 000 USD for the latter). Alpen Capital believes that the Kingdom will maintain its leading position among insurance companies in the GCC region over the next few years.
The author, Nazir Ahmed Shaikh, is a freelance, writer, columnist, blogger and motivational speaker. He writes articles of diversified topics. He can be reached at nazir_shaikh86@hotmail.com