A Wider Net


The insurance sector, robust in corporate lines, has yet to mature in personal coverage, although the regulator is adamant about educating citizens on the merits of precaution and saving.

The Insurance Authority (IA) was set up by Federal Law No (6) of 2007 on as the sector supervisor tasked with setting the playing field for this branch of the capital markets in line with Abu Dhabi’s Vision 2030, itself underpinned by diversification of the economic matrix beyond hydrocarbons into such areas such as tourism and health, and importantly, the financial arena of banking and insurance.

While the UAE’s insurance sector has seen annual growth of around 10% for some years, most of its 60 players would describe it as concentrated, a situation compounded by minuscule consumer penetration of 1%, which naturally curbs the pooling of resources for investment. Meanwhile, vicious price competition renders premiums generated moot for many smaller entities. Yet the government has made sure that insurance is can by no means to be perceived as an ersatz investment instrument.


According to The National, people living in the UAE are at least three to four times less insured than their counterparts in countries of similar economies. One lateral attempt at capturing consumer interest saw Zurich Middle East partner Air Miles in a campaign that offered customers one mile for each AED spent on car (mandatory), home, or travel insurance. A survey in 2013, commissioned by Zurich, revealed that more than half of UAE residents did not purchase travel insurance when traveling abroad, although the company estimated a maximum penetration rate of 6%, despite this being the higher earning end of the social spectrum. This starkly contrasts with the UK’s 90% even though the average number of annual journeys was one or two. Meanwhile, only around 5% of people in the UAE have home insurance coverage.


According to IA data, of the UAE’s 60 insurance companies, 34 are national and 26 foreign insurance companies. There are 11 national and two foreign comprehensive insurers, while 20 national and 17 foreign companies offer property and liability insurance. Life assurance and fund formation services are provided by two national and eight foreign entities. Just one local company provides credit export insurance. And through the Islamic window, 10 firms offer takaful insurance.


With an estimated 2 million citizens not covered, the UAE is introducing mandatory health insurance to encompass blue-collar employees. Accordingly, by 2016 employers will be obliged to cover their staff, who will themselves be responsible for insuring families and domestic employees. Meanwhile, foreign participation in this segment is limited to those enterprises previously licensed to operate. Demographic trends such as population growth and longevity do factor. But health insurance in the UAE predominantly caters to the life needs of foreign nationals, who outnumber locals by more than 10 to one. Health insurance became mandatory for foreign nationals in 2006. And then there are regional and global factors at play in the insurance business. Regional conflict—though largely sparing the UAE so far—have partially raised awareness of the benefits of coverage, which could lead citizens to sign on the dotted line.


Official data for 2013 indicates total underwritten premiums in life assurance and fund formation operations of $1.9 billion, where the share of national companies stood at 21.8% and that of foreign companies at 78.2%. Insurance industry growth in the Gulf has an estimated CAGR of 18.1% between 2012 and 2017 to $37.5 billion. This largely derives from the substantial insurance needs of industry. Total underwritten premiums in the property and liability segment stood at $6.1 billion, where national and foreign insurers claimed respective shares of 74.4% and 25.6%. For 2013, the percentage of national insurance firms retention of underwritten premiums for property and liability insurance was 55%, while rates for other branches were at 65.2% for accidents and liability insurance, 25.9% for fire insurance, 27.4% for land, sea and air transport insurance, 63% for medical insurance, and 19.2% for “other risk” insurance. Meanwhile, the earned premiums of property and liability insurance amounted to $5.9 billion. For 2013 the total investment of insurance companies in the UAE was $10.3 billion, of which $4 billion derived from foreign, and $6.3 billion from national companies.


The latest insurance regulations, made law in 2015, are geared at reducing risk, while fostering a regime that enables greater profitability; three years are allotted for full compliance. The regulations, some years in the making, are set to have a marked impact on the overcrowded insurance sector, which has been buffeted by fierce price competition, pushing companies into the red. Trade Arabia reports that Abu Dhabi-based insurer Green Crescent in 2014 merged with Kanoo Group and France’s Axa Insurance in what was the most recent price-competition prompted consolidation.

The latest regime stipulates the degree of exposure insurers may have in specific asset classes. Also required is the establishment of an independent investment committee, plus stricter corporate governance, compliance and risk management. As such, the latest stage marks a maturing of the capital markets. New rules state, among other stipulations, that insurers must invest no more than 30% in the equity instruments of UAE companies and a maximum of 10% per individual stock, fund, or instrument. Insurers can invest a maximum of 20% of their funds in foreign equities investments, with a maximum of 10% exposure to a single counter party. Yet to pursue investment, they may allocate up to 100% of their funds in government securities or UAE-issued instruments, with a maximum of 25% per security or instrument.


It is undeniable that an under-skilled local insurance workforce has negatively impacted underwriting performance. In employment terms official figures for 2013 put UAE national insurance workers at 769 (8.9%) out of a total of 8,590. The IA forecasts the pace of insurance sector Emiratization through training to have reached 15% by end-2015. In 2014, the IA signed an MoU with Hamdan Bin Mohammed Smart University to promote insurance degrees.

Abu Dhabi National Insurance Company (ADNIC)

Abu Dhabi accounts for the bulk of the infrastructure and industrial diversification projects undertaken by state-owned companies that underpin the UAE’s Vision 2030. Associated insurance needs are met through ‘National Insurance’ companies that enjoy privileged access to high-risk profile projects. ADNIC’s 2013 net underwriting income rose 4% YoY to $79.1 million compared to $79.1 million in 2012, on continued focus on profitability. Gross written premium, up 5% YoY printed at $0.7 billion, while reinsurance premium ceded $0.27 billion, fractionally up YoY. Net written premium came in at $0.38 billion, and the premium retention ratio of 58% was up 1pp YoY. Net investment income appreciated 23% to $2.7 million, while net profit climbed a healthy 25% to $4.9 million.

Abu Dhabi National Takaful Co. PSC

Part of the sharia-compliant universe is the insurance component, Takaful. According to Ernst & Young’s 2014 Global Takaful Insights update, given; “…the estimated $2 trillion global Islamic finance markets, the global takaful market is estimated to continue its double-digit growth momentum of about 14% in 2014. By 2017, the global takaful industry may reach over $20 billion.” The IA’s establishment of a standardizing sharia board remains a work in progress. Highly awarded, in February 2015 the company was named ‘Takaful Insurer of the Year’ for the second consecutive year at the MENAIR Insurance Awards 2015. “Our main proposition…” Chief Executive Oussama A. Kaissi told TBY, “…has always been to cater in the medium to long term to individuals and SMEs, while initial focus remains on corporate clientele.” For 9M2014 the firm registered a profit of $6.8 million, and an underwriting profit of $4.2 million. According to the company, the August 2014 AM BEST financial strength rating of B++ (Good), “…reflects its excellent risk-adjusted capitalization, strong underwriting performance and sound risk management.”

Well-regulated and fueled by industry, the local insurance business has now to appeal to a wider demographic, with promotional activities seeking to erode stubborn public indifference.