Whilst the insurance industry in the MENA region attempts to strengthen itself and widen its capacity, it undoubtedly faces many challenges.
Oussama Kaissi, General Manager of Abu Dhabi National Takaful, strongly feels that “the insurance industry in the MENA region is facing a magnitude of challenges that require the immediate attention of all concerned entities be it governmental or private enterprise.”
He listed these challenges as “the opening of regional markets to foreign players as per the GATT agreement, changes in regulatory framework, introduction of new corporate governance rules, keeping abreast with technological advancement on the IT side, scarcity of qualified human capital, product development and creation of alternative distribution channels.”
But Kaissi points out that the “greatest challenge we are facing is the scarcity of qualified human capital. We are in dire need to engage and support our regional insurance institutions and expand their reach across our markets in order to educate and develop our current employees as well as introduce insurance to the masses in order to spread knowledge about our industry and stir interest in the young generation to become the future leaders of our industry.”
Osama Abdeen, Vice President of AIG MEMSA, also stressed the need for education; “we are in real need in current times to educate our area, which I feel is crucial. Education is the name of game. Information is power. This region needs this. The industry needs to face up to the real need of developing people from the region, to give the expertise and the technical-how to grow on solid ground. We have seen some institutions here and there, but in my belief there is a great need for investment in the area of human resources within the region, to create the generation who can carry forward the growth of insurance and services in the region.”
Collective effort needed
Abdeen accentuated the need for the industry to come together and create a “collective effort” to create such educational programs. More challenges faced by the industry arise in terms of risk management.
Saleh Malaikah, CEO of Dubai-based SALAMA Insurance, highlighted that “there is stress in managing the risk, getting the right resources, whether human resources or systems. To cope with the growth, one must be on the look out for developments in risk management practices in the world today.” Similarly, Michael Bradford, Senior Reporter for Business Insurance Europe, feels that “the lack of sophisticated risk management among commercial insurance buyers” is a “big concern” in the region.
“Risk management is a fledgling discipline among companies in the Middle East and risk management services in many cases are provided by insurers and brokers. I think insurers would like to see risk management as a better-developed discipline in the region. If risks there are properly managed, losses will be controlled and claims kept to a reasonable level,” he said.
Although Malaikah finds that companies in the region are coping well with the situation in the industry, he undoubtedly believes it is filled with issues that need to be dealt with. According to him, “one of the big challenges is finding the human resources to lead the continuous expansion that is being created. Continuous expansion in terms of size of premiums, geographic expansion into smaller cities (into the GCC) and more so into the Takaful industry lines of business makes finding qualified human resources a very difficult task.”
Dr. Michael Bitzer, CEO of Daman Health Insurance (Abu Dhabi), agrees that lack of human resources is a significant problem throughout the industry, saying “we have to recruit not only in the region but globally, and we heave to invest in intern training, specifically because in the UAE, Saudi, Qatar you don’t find so many insurance experts in the market. You sometimes have to recruit people from other industries and cross-train them. There is no one available with the skills you need, so you must invest in training them.”
According to Malaikah, “all the new companies that were established in the last two years in Saudi Arabia, UAE, Kuwait, Bahrain and Qatar, are Takaful companies.” Managing growth of so many new companies creates unavoidable challenges, such as human resource management, leadership, and professionalism. With the birth of numerous new companies in the last two years, there is a dire need for efficient human resources. Bitzer similarly states that there is “definitely [a] need [for] more professionals in the industry.”
Corresponding to Malaikah’s and Bitzer’s perspectives, Gamil Osman, Assistant General Manager of Kuwait-based National Takaful Insurance, said that “one of the greatest challenges/concerns that the insurance industry faces – particularly in GCC area – is the increasing number of insurance companies, especially Takaful insurance companies which are growing very fast in recent years. Accordingly, concentration should be more and more on quality of services provided to the clients.”
While there has been a kind of ‘baby boom’ of insurance companies in the GCC over the last two years, Ghassan Wazen, Managing Director of ACE Insurance Egypt, finds that “there are not enough” insurance companies in Egypt, and the companies that “can change the market are the local and state owned companies,” as opposed to foreign companies that attempt to alter the market.
Investment issue causes stress
Malaikah also believes that “another area that is causing a lot of stress in the last 2-3 years, is the investment issue. First of all, we had the equities market crisis in the GCC countries, which started at the end of 2005 and carried on in 2006.” Thinking he had seen the bottom in 2007, “we have been struck down by the international markets situation with all the recession expectations in the US and the reflection on the world economies. That is another area of concern for insurance companies [who] rely on two income streams: operational revenue and investment gains.” Evidently, Malaikah believes “ensuring successful investment is a very important issue for insurance companies.”
Another major issue echoing throughout the insurance industry, as briefly mentioned above, is awareness among the general public or lack thereof. Many top players in the regional insurance industry are facing great challenges when trying to penetrate their local markets, as awareness levels are almost non-existent.
Wazen believes this is a key problem, as “people are not very interested in insurance.” Bitzer agrees that “they have to create the awareness amongst the population that insurance is necessary.” Overall, it seems the MENA population is simply, and unfortunately, not in tune with the implications and benefits of insurance as awareness is not well structured in the region.
Many top players in the region also find that the regulatory frameworks could use a lot of improvement. Bradford emphasized the industry’s need for proper regulatory processes, but thinks they “appear to be developing in the region as the insurance market matures.” He also added “As insurance penetration widens in the GCC, proper regulation becomes even more important.”
Still, Bradford feels that “it is a challenge for a region that is seeing unprecedented growth and wealth that brings about the need for insurance. As insurers increasingly establish operations in the Middle East, regulators are responding by modernizing regulations. Commercial insurers are not voicing any major complaints with the regulatory process and generally seem to think it is on the right track. Most insurers welcome modernized regulation because it helps ensure a stable marketplace.”
Bitzer even thinks that “The greatest challenges is supervising authorities; I think in the GCC there is a significant improvement, but when you talk about MENA there is the need for even more professional supervising authorities. The insurance penetration of these markets is very low, and some classes such as life insurance are almost neglected.”
Wazen reiterated the significant need for structural innovations throughout the industry. “There is a lot of work to do in terms of regulations, legislations, and finding people who are skilled to sell insurance,” he said, adding that, “unfortunately, in my opinion, this is another problem,” as it is “very difficult to find exceptionally skilled individuals in this region to sell insurance.”
In terms of the health insurance market, Tal Nazer, CEO of BUPA Arabia for Cooperative Insurance Company in Saudi Arabia, finds that “one of the main challenges is having enough hospital capacity in Saudi Arabia” in order to “absorb the volume.” There seems to be a shortage of hospitals and medical resources throughout the region, and thus the health insurance sector is suffering from this.
Clearly, there are many challenges that the insurance industry faces at present. It seems there is much progress to be made, and just how to solve these concerns is an issue all on its own.
Possible solutions to concerns
Since its inception in 1964, the General Arab Insurance Federation (GAIF) attempts to better regulate the insurance industry throughout the Middle East. Its main goal is to meliorate and encourage inter-Arab communication amongst the insurance sectors, as well as to develop the industry overall. The federation is composed of 20 Arab member states, as well as 268 insurance companies within them. At the beginning of 2008, GAIF held its annual conference and concluded that the regional insurance industry needed to “further modernize, depoliticize, and integrate more both regionally and globally.”
Another institution that guides the insurance industry towards improvement is the Dubai International Financial Centre (DIFC), designed by the emirate’s government “for the benefit of the UAE and the wider region as a whole. Its remit is to create a regional capital market, offering investors and issuers of capital world-class regulations and standards. Its hallmarks are: integrity, transparency, and efficiency.” Alongside GAIF, the DIFC may provide advice and frameworks for the regional insurance industry to function to its best potential.
EFG-Hermes believes the solution to low penetration levels of the MENA region is, in some cases, “as simple as greater codification of the law, and bringing business practices in line with international standards.” In addition to changing the institutional framework, “addressing customer needs through provision of religiously acceptable Takaful and Family Takaful will also increase penetration.”
Kaissi is sure that the industry issues “can be resolved by joining forces between the local governments and the insurance industry in order to create a level playing field for local and international players by the way of encouraging M&A and placing tough entry requirements on multinationals so their entry to the market will not stir an all out open competition but introduction of added value in services and products.”
In terms of solving awareness issues, Osman believes that “each insurance company spares no efforts in increasing the awareness of insurance. From my point of view, the insurance unions and associations in different markets can play an important role in increasing the awareness of insurance, which will be useful for each local market as a whole.”
Abdeen’s opinion draws a parallel on this, by explaining how the industry should make a “collective effort” in raising awareness across the region, as “it’s worth the investment.” The most substantial way to raise awareness is through education programs. Abdeen feels “it is of extreme importance at the family level, school level, university level, and government policy level,” so it can “enhance the education of the generation in a focused approach,” in order to be able “to build areas of growth for years to come.”
For example, AIG provides training programs people they believe possess “leadership potential” so they can become “the leaders of tomorrow,” according to Abdeen. He went even further, proposing that education “should be a country policy supported by the industry. This is the investment you really need, because investment is not only in money, investment is in people; they are making it happen. We need more of that.”
Distributing awareness comes at a price though, as Kaissi noted that “to spread awareness in any given market is a very expensive proposition.” Like Abdeen, he also believes “governments, civil societies and insurance industry should play their socially intended role in spreading insurance awareness. But, it should be mentioned that due to the disparity in the standards of living in our region, some governments should play a more active role in providing the basic insurance covers to their citizens.”
Undoubtedly the demographics of the MENA region provide continuous challenges to solving major concerns in the insurance industry.
New market trends
Trends throughout the regional insurance industry are reflective of some of the major challenges faced by the industry. For example, one major problem is the lack of proper regulatory frameworks, but now creating efficient regulating guides is emerging as a new trend across the industry.
Regulation as a trend is gaining popularity and importance throughout the regional insurance industry. Bitzer finds that “regulators are becoming more and more professional, and they are learning from international benchmarks.”
Abeen echoed Bitzer’s view, adding that the “new trend of framework regulation is a very important one because it creates a framework for healthy growth and creation of innovate products and so on.”
Further, Abdeen believes the industry has “witnessed a lot of changes in the last 3-4 years in terms of regulation. However, this trend has not yet achieved the desired objective, because if the intention of this region is to become a global player, there should be more consistency and more organization of the regulation across all countries so it makes it easier for regional players to cross borders and to create a strong, solid, insurance market to cater for the needs of the region.”
Also regarding regulation, Abdeen trusts that “brokers play a major role not only in creating the business, but to increase the awareness, and to provide their clients with the best cover at the best price. That area also needs to be more regulated, to enhance regulations in order to ensure more professionalism and delivery, and that on its own also will elevate the market to the next level that we all hope to reach.”
Clearly, the better regulated the market, the more appeal it gains to outside investors and other industries as well.
With good regulation, international players may find more interest in the regional insurance market. Bitzer put forth that “more international players come or they take a share in local companies,” especially if regulatory frameworks are well established.
Abdeen reiterated this fact, adding that proper regulatory frameworks “attract foreign interest in the insurance industry.” For example, “Bahrain has done an outstanding job in creating specific regulation, monitoring solvency margins based on risk assessments, and so on.”
The opening of the DIFC creates regional hubs operating out of Dubai. Then there is the QFC (Qatar Financial Centre), which is moving towards allowing operations, and has already started. AIG used the mechanisms of the QFC to attract foreign interest, expertise, and capacity from the international market. Also, the Kuwaiti and Jordanian markets have opened up for newcomers. On the latter, Abdeen remarked that “Jordan for some time has had very specific and good requirements of regulation, allowing people to enter the market and also an attempt to organize the market in terms of direct reinsurance, approved securities, and so on.”
One trend highlighted by reporter Bradford is the role of captive insurers. “There is increasing talk of the use of captive insurers in the region, although the concept is yet to take off. As commercial insurance buyers become more and more sophisticated, they will begin to understand the benefits of this form of self-insurance. It may take a while, but it is probably inevitable that captives will become a more common alternative to the traditional market in the Middle East,” he said.
Another trend is that health insurance gaining importance, “especially here in the GCC,” Bitzer stated. In regard to Saudi Arabia Nazer underlined that “the insurance industry is still a small industry in Saudi, but it is growing quite rapidly. There are plenty of insurance companies in the market, so there might be an overcapacity of companies in the insurance market in Saudi Arabia.”
Better services
According to Nazer, “the trend is going to be on competing providing better services to the customer, because the market is extremely competitive. In the health insurance market, the product is standardized by the regulator; so the only way insurance companies are going to be able to compete is to provide customers through service. You have one of two options: either winning business through better service, or winning business through pricing which could be a dangerous strategy to have.”
Some industry leaders define the presence of Takaful to be a trend in the market. According to Malaikah, “Family Takaful is the biggest area, for historically Muslims in this part of the world – and at large around the globe – have been shying away from insurance because of the widely held belief that it is not shariah compliant.” Malaikah believes that with Takaful being fully sharia-compliant, the trend of Takaful and Family Takaful is and will continue to be, very popular in the market. In contrast, Bitzer said that “Takaful is nothing new,” as “it is similar to cooperative and mutual insurance companies which we have in Europe and other markets since decades [ago].”
According to Kaissi, “we cannot speak of the trends in the regional insurance industry in isolation from the trends in the global and regional reinsurance industry. The reinsurance industry is more heavily capitalized than ever and we are witnessing the creation of new companies, which will be providing more capacity to the local and regional markets.”
On the other hand, he pointed out that there are many new direct companies that are being established in several markets in the region, i.e. UAE, Kuwait, Syria, KSA, Bahrain, Egypt and Jordan. In his view, “This influx of new players is due to the increase in oil prices and associated boom in construction which has attracted an inflow of foreign investments. Building on that, we now have many players in any single market leading to the following trends; low level of capitalization, fierce competition, no consideration for minimum levels of technicalities, more fragmented markets and weak product mix.”
Abdeen similarly credits new trends to the booming economy and the new wealth component emerging in the Middle East. “Personal wealth on its own has “increased the demand for high limit of life insurance, covering the first home, second home, third home, etc. of those high networks. And also, we do a lot of imports in the Middle East.”
According to Abdeen, because of the increase of economy, and the surge of oil prices there is an increased demand for insurance throughout the region. “So, you see that imports have increased dramatically for the region to cater to its needs, to cater for the new projects, to cater for the personal wealth; that on its own has also increased the demand for marine cargo, transit risks, and so on.”
