The demographic and market changes throughout the Middle East and North Africa (MENA) region have significantly widened the scope for regional insurance company operations. The changing demographics have allowed insurance to take on a role of social care that the family circle used to possess on a social scale.
Currently, the regional insurance industry is merely 1% of the GDP (compared to 5-7% in the US), highlighting the fact that the insurance sector in the MENA region is relatively untapped. However, insurance is now emerging as the main protector of wealth, family, health, motors, development projects, etc. across the region. Michael Bradford, senior reporter for Business Insurance Europe, believes that “there is a demand for insurance coverage in the region and local insurers are being called on to write much of it.”
Although the rates of insurance in the region are lowest among most emerging markets, the current growth rates in the regional insurance industry in recent years exceeded those of globally registered companies. Top members of the regional insurance industry hold varying opinions regarding the potential growth of the insurance market throughout the MENA region.
Rates of growth
It is difficult to substantially declare a particular figure for the growth rates of the entire MENA insurance industry, as there is a large deficit of available research and statistical figures. There seems to be no reason to suspect that the overall value of the MENA insurance industry exceeds $10 billion in premiums at present. In 2007, the global insurance-to-GDP rates were dominated by the UK (15%) and Korea (14%), with the Middle East hardly scratching the surface at 1% of the GDP.
However, the UAE insurance industry alone is more or less valued at $3.5 billion, representing 42% of all markets in the GCC. The 2006 Swiss Re Sigma Report valued other regional markets, such as Saudi Arabia, Qatar, Lebanon, Morocco, and Egypt at $1.6 billion, $573 million, $656 million, $1.67 billion, and $840 million respectively.
A study conducted in October 2007 by EFG-Hermes noted “high GDP growth rates [in the UAE] and strong immigration driving insurance demand, but the rapid development of the mortgage market and strengthening of health insurance legislation is providing the uplift over the next couple of years.” EFG-Hermes also pointed out that in the Saudi insurance market, “the demand in the short term is driven by the creation of a competitive market relieving pressures and changes in motor and health insurance legislation also creating a steep change in demand.”
Growth rates for Takaful (Islamic insurance) are measured at approximately $2-3 billion globally in 2006 through 2007, with the GCC itself accounting for one-third of this growth. Whilst it is expected to increase at a 20% annual rate, it is important to note that Takaful, by comparison to traditional insurance, is still quite a small market.
EFG-Hermes defines three key factors that drive insurance sector growth in the region as: “the high GDP growth rate, the propensity for developing and newly developed countries to spend a disproportionate percentage of any increase in GDP on insurance, and the extremely low penetration rate of insurance products in many Middle Eastern countries.” Clearly there are “strong economic arguments which drive areas of insurance, such as motor, health, liability, and these are well understood by governments in the region.”
Management of growth
Growth management of the insurance industry is an operation of great complexity. Without a doubt, managing growth in such a large region comes with many challenges and stress. Most top members of the industry interviewed by Executive see that companies are managing their growth well, but with much room for improvement. Dr. Saleh Malaikah, CEO of Dubai-based SALAMA Insurance, believes that “companies in the region are coping well with the situation,” yet conceded that “one cannot say it is without challenges and issues.”
Further, Malaikah trusts that much of the growth of the insurance industry is credited to the establishment of so many new Takaful companies. Malaikah holds that “the Takaful industry has been the sole beneficiary of all the new insurance companies in the area,” as most of the recently established companies in the region are Takaful companies. Whilst growth management faces numerous challenges, other leading players also present positive opinions regarding the industry’s handling of growth.
Osama Abdeen, Vice President of AIG MEMSA, similarly stated that “there is a huge growth happening” in the insurance market, which is accredited to many factors such as infrastructure growth, increase of personal wealth, and mandatory insurance. He added that “the area is witnessing a huge growth in infrastructure and many other energy projects. Projects either already underway or currently started are estimated to be over $1 trillion in value,” and undoubtedly this “has given a boom to insurance requirements, since there is a lot of finance and lending requirements and FDI, [thus] increasing the demands for insurance.”
According to Abdeen, such compulsory requirements are “contributing to growth in this area.” AIG MEMSA has recognized such market increases and is working diligently on creating new market segments. Abdeen noted that there also seems to be a “new demand for travel insurance, personal accidents, and thus people are becoming more and more aware to purchase cover, so to protect their interests.”
Another aspect that Abdeen observed as a continuous contributor to the overall growth of the regional insurance industry is the increase of wealth; this “on its own has increased the demand for insurance requirements, whether on the commercial corporate side or on the personal side.” In order to properly stabilize the insurance market’s growth, Abdeen pointed to the need for a “multiple approach” to growth management. Even though, as he feels that “it is difficult to comment how each company is operating,” he thinks “there are some companies who are operating in focusing on one line, and not a multiple approach. In my opinion, a healthy growth should always be aligned, and achieve a mixed, but balanced portfolio.”
According to Gamil Osman, the Assistant General Manager of Kuwait-based National Takaful Insurance, “regional insurance companies are managing their growth properly,” in both the local and outside markets especially considering the “view of high competition in some insurance markets such as Kuwait, and the UAE which push some companies to expand outside their local markets.”
As the General Manager of Abu Dhabi National Takaful, Oussama Kaissi finds competition to be a key factor that is affecting the management of growth in the region, as “in a fast changing environment, leading and managing profitable growth is critical for the development of sustainable competitive advantage. Managements in the MENA region in general are increasingly facing pressure for short term results, slimmer profit margins, more international competition, a polarization of traditional markets, not enough leadership in strategy and change execution and more demanding boards to deliver ambitious business results. These issues vary in severity from one market to another and from one company to another while operating in the same market.”
Without proper leading managament and professionalism, growth management will constantly face challenges in the regional insurance industry, and thus long term results will also be affected. Kaissi’s view echoes the industry’s dire need for proper management in order to obtain desired growth management results throughout the insurance market.
More moderately speaking, Bradford thinks that “local commercial insurers appear to be taking a measured approach to growth. Most of these companies do not have sufficient capital to provide all the coverage the region needs, so they hand off a lot of the risk and much of it is going to foreign insurers in the international insurance market.” Yet, Bradford does acknowledge the growing demand for insurance coverage throughout the region and thus the increasing role that local insurance companies are stepping up to play.
Other top players are less optimistic. CEO of Daman Health Insurance (Abu Dhabi) Dr. Michael Bitzer strongly believes “too many insurance companies here act more like brokerage companies,” hence creating “a significant space for improvements in all areas, being it in how you sell, how you administer products, how you develop products.” In order to create room for growth stability, “in general, and most importantly, you need management teams with excellent leaders on top; that’s number one. The leadership team has to have expertise and have the willingness to learn.”
Further, Bitzer feels that “external entities from other industries and from the insurance industry must help to improve overall performance” of the regional companies in order to create “a little bit more enthusiasm and openness for change.” Ending on a rather optimistic note, believing that “there is improvement” at present, Bitzer, like his fellow industry leaders, forecasts that by working on key issues such as leadership, professionalism, human resources, information technology, etc. growth in the insurance industry can only be better managed in the future.
Insurance penetration in selected MENA / SE Asian countries as % of GDP (2006)
General insurance by country
Life insurance by country
Effect of mandatory insurance on industry growth
Mandatory insurance is definitely creating a stepping-stone for regional sector growth. Since the implementation of mandatory health and motor insurance (for expatriates) in GCC countries such as Saudi Arabia and Abu Dhabi, the growth of the regional insurance market is without a doubt being positively affected. Osman finds mandatory insurance as “one of the keys to helping the growth of the insurance industry.”
Abdeen also feels that increased implementation of mandatory insurance plays a significant role as its contribution has added to the increase of insurance business activity with companies. “Like you have seen in Saudi Arabia, medical coverage is becoming a requirement; and now it has started in Abu Dhabi. All this on its own, increases the demand for insurance” throughout the region, he said.
Kaissi similarly stated that, “without a doubt, if insurance was to be made mandatory, we will have a completely different outlook of the future of the industry in our region.”
Drawing a parallel to Kaissi’s view, Bitzer is “convinced that if consumers make good experience with mandatory insurance products, they will then buy other insurance products in the future.” Like some of his competitors, Bitzer mentioned that the “increase of awareness for health care and the increase of the whole region leads to higher market products insured, because these people understand that health insurance makes sense.”
According to Tal Nazer, CEO of BUPA Arabia for Cooperative Insurance Company in Saudi Arabia, health “insurance companies have done a very good job. [Especially] when you talk about a market in Saudi where in July 2006, the market size was around 1 million customers,” and is now at approximately 3.5 million customers.
Nazer credits this surge in customer base to “the enforcement of health insurance.” The health market is clearly being positively affected by compulsory enforcements.
Considering the sudden boom over a period of eighteen months, Nazer added, “insurance companies in general did quite well in absorbing the volume, without any hiccups in the growth of the market.” Nazer trusts that in terms of “absorbing the volume and working to improve the service levels for the customers,” the Saudi market is performing efficiently.
According to Nazer, “Saudi has done quite well for three major reasons. One is that they required all insurance companies to be publicly listed, [which] creates awareness among insurance companies at the interest to understand what these companies do. The second thing that also helps is the enforcement, which helped the growth of the industry. The third reason is the need for insurance,” which may be the same reason in other countries, and “people are looking to go into private hospitals, they want immediate access to treatment, and they do not want to be on waiting lists in public facilities.”
Further underlining mandatory insurance as a central contributor to insurance growth throughout the region, Nazer said that mandatory insurance “will definitely bring in more education on the insurance industry as a whole.”
Among the insurance executives, Kaissi stood out in cautiously warning that mandatory insurance is only secondary to increasing growth, when he noted that “we have to also be aware that awareness is the key for growth and not mandatory insurance. We have many insured [customers] that purchase insurance because they are forced to do it and not out of conviction. This does not help in cross selling our products and services.”
While most see the new trend of mandatory insurance as positive enforcement over a highly uninsured population, Kaissi justifiably feels that awareness of insurance is a more influential force on consumers to purchase insurance; without being told what insurance is all about, people are not going to go searching to ‘be in the know’.
Nazer agreed in that “because of the awareness that is happening,” due to enforcement by regulators in Saudi, “people are looking to get their insurance. So [awareness] definitely helps.” Malaikah also feels that “because of more activity in the media coverage about insurance, and because of medical and TPL (Third Party Liability) becoming compulsory in some of these markets increases the awareness, there is a possibility for horizontal expansion for these clients in other services of insurance.”
Malaikah mentioned the benefits of compulsory insurance. For example, he said, “if it becomes compulsory for me to take TPL or medical, I am now a beneficiary of any insurance service, so definitely I would think of covering other areas as I become educated about them.”
But Malaikah doubts that TPL and other insurance products will ever become compulsory in the industry. “The trend is going to continue in the GCC, but I am not sure if this is something that is going to be copied by countries outside the GCC that do not share the same demographics,” adds Malaikah.
The jury is still out on whether compulsory insurance will catch on in other countries throughout the MENA region or not.
Some industry leaders feel mandatory insurance has the potential to arise in other countries, while others are more wary. Many believe enforcing mandatory insurance throughout the region will not happen until the industry solves the main challenges it faces at present (such as growth management, human resource issues, etc.) and increases awareness, whilst those holding opposing opinions say mandatory insurance helps raise awareness and thus proliferates growth of the industry. Clearly, there is a circular argument of differing opinions present amongst industry leaders. Only time will tell whether mandatory insurance is the driver of awareness or if its potential depends on awareness.
By Asset Size: the largest insurance companies in the Middle East and North Africa and their net performance in last published year
Major regional insurance companies listed on stock exchanges
Growth potential
EFG-Hermes reported in 2007 that “other drivers of structural under-penetration are however very long term — such as the demographic structure and low tax environment — and consequently [concludes] that insurance penetration will not reach the levels achieved by countries with similar levels of GDP per capita.” Fortunately, EFG-Hermes predicts, “there are several years of strong growth ahead for both the insurance/Takaful industries in the region.”
Malaikah believes that “there’s a very big potential for growth of the insurance industry merely due to the [current] economic growth. Insurance as a service industry is benefiting from the general economic climate. With all the growth, however, comes stress.”
Abdeen is “very optimistic,” as his company anticipates and is working towards “great growth across all lines and more capabilities using technology to provide services.” AIG currently has plans in the works for expansion into “new territories and new countries so [to] provide [their] services and reach the customers more efficiently.” More specifically, the company is currently looking at North Africa as well as other Arab countries to expand in as it is on their “radar screen” and they are “very keen” as they see “a lot of advantage in doing so.”
Kaissi also presented a positive outlook for the industry’s growth potential, stating that “the MENA region insurance market is living its golden years,” and “as practitioners, [we] should leverage upon these positive conditions to bring about the required transformation and build a solid foundation for our industry.”
In line with the opinions of some of the insurance industry’s top players, journalist Bradford forecasts “continued growth” in the regional insurance industry as he believes “there [have] been so many factors converging in the region to stimulate the growth of the insurance market.” He trusts that, “with local economies booming and governments in places such as Bahrain working hard to encourage the population to protect their health and assets, insurers seem poised to grow substantially. Add to that the number of construction and infrastructure projects underway and planned in the region and you have a similar outlook for the commercial side.”
Osman feels “regional insurance companies are doing well,” and expects “more growth from Takaful and reTakaful companies” in the near future.
Wazen believes the Egyptian insurance market alone possesses “a big potential,” as the local population stands at 75 million, although he noted the lack of awareness in the country. If 20% of the Egyptian population purchased insurance, according to Wazen, “it would mean you gain 15 million customers.” Currently, the Egyptian market is “far below even 10%.”
The potential for health insurance also possesses great prospects in the region, and like the insurance industry overall, growth of the sub-sector is facing many obstacles to overcome. Saudi Arabia and Abu Dhabi are two markets that have recently implemented compulsory health and motor insurance.
As far as the Saudi health insurance market is concerned, Nazer expects “to have the insurance market to double in the next year and a half to reach around 7 million customers,” seeing that the market is growing since regulators have enforced health insurance throughout the kingdom.
Bitzer, however, feels the current “growth of the health care sector in the UAE lags behind the growth of insurance,” as even although “people who were not able to afford the treatment before can now afford it with the health insurance card,” it is still leaving some private providers “flooded with patients.” Bitzer believes that time is of the essence and is greatly needed for private providers to be able to widen their capacity, but still holds “they are all on the right track.”
Overall it seems the prospects for growth in the MENA region is quite great, but its true potential is largely dependent on growth management, dealing with the major concerns of industry, and product availability throughout the region.
Over or under penetration relative to countries of similar GDP (FY 2006)
