More differentiated and portable plans, better awareness among consumers and regulators, and embracing technology will unleash the latent demand for life insurance, said experts at the first regional life roundtable organised by Middle East Insurance Review.
Life insurance is picking up in the region but will only boom if it can keep up with demographic and technological trends, even as the need remains for industry leaders to lobby for the changes they wish to see, said roundtable participants.
One thing insurers should do in the meantime is to identify their target clients in this particular market. Insurance companies need to adopt a focused strategy and differentiate between nationals and expatriates, and their specific insurance requirements. Among expatriates, one should also cater for the distinct needs of blue-collar workers, which are substantially different from those of the white-collar population, said Mr Salame of Gen Re.
He pointed out: “Most insurance companies don’t really differentiate between the two, and tend to target solely white collar expats who are inclined to buy from MNCs because of the portability feature they offer. The need is there, we just have to trigger it.”
Demand is driven mainly by expatriates, so portability is a key factor, said Mr Afifi of AXA Insurance (Gulf). “If they are able to buy their policies here and administer them elsewhere, they’d buy immediately.”
More demand for endowment and living benefits
Demand also varies with the type of product. “In terms of individual products, there are three main categories – investment-linked, endowment or long-term savings, and pure protection or living benefits. Endowment policies are in demand because of the clarity they provide. Pure protection products are getting a boost from credit facilities, and living benefits are increasingly popular because of the compulsory health insurance schemes in the UAE,” said Mr Selvan of Orient Insurance.
Concurring, Dr Sebastian of RGA added: “With expatriates insured under some kind of compulsory programme and an increasingly educated population, there’s greater demand for living benefits, and this will be a key growth driver. There is increasing demand for living benefits, such as critical illness as a standalone benefit, although currently growth is as a bundled product.”
Regulatory action essential in driving industry
Most roundtable participants agreed that more regulatory action was needed to promote the sector, although some believed that change should come from the players themselves.
“You need the regulatory push to create awareness,” said Mr Khalek of MetLife. “In the MENA region, partnering and working closely as an industry with the regulators will open the potential for major shifts in the insurance landscape and increase demand. And there’s room for insurers to dedicate more resources and time for better cooperation with the regulators.”
So far, regulations have largely been driven by the life players, although they could do more, said Mr Drummond of Legal & General Gulf. “It’s down to us to drive the life sector rather than wait for the regulator to act. How we do that is a different story.”
“The regulators can significantly influence the structure and competitiveness of the industry to benefit all stakeholders – the insurers, the reinsurers, the brokers and most importantly, the customers,” said Mr Morrison of PartnerRe. “However, for a healthy industry to thrive, one party should not be disadvantaged over another, and I think the perception might be that it is not quite balanced at this point.”
Incentives for action
Compared to health or motor insurance which have been made compulsory in various markets, “the advantages of life insurance are not immediately apparent”, said Mr Salame. “With increasing regulatory incentives for life insurance, saving products and corporate pension plans, the economic system will benefit in the longer run from the accumulating fund, increasing investment and higher employee retention rate.”
Dr Sebastian, however, pointed out that there is little incentive for the authorities to take action, particularly in the GCC as they have strong social insurance programmes in place for nationals. “The value of expatriate savings on their economies, whilst recognised, has not been explored seriously. Intervention in health has been initiated because they understand they can no longer provide free or subsidised services, but they have yet to find this kind of initiative in savings.”
The existence of social insurance schemes in the GCC, he added, is evidence that “governments have made some effort to improve the level of savings, but this may not have been so visible because it has been more at the employer rather than at the retail level. We as private players are also quite picky about what we want to do – we’d rather go for the profitable programmes. It’s good for us to collaborate with governments and share our experiences with them”.
Commission rates and transparency
One area where some participants called for government intervention was the high level of commission rates, which have proved attractive to brokers rather than consumers. “The regulator needs to protect both the insurers and the insureds,” said Mr Afifi.
Related to this is the level of transparency. “To gain the confidence of policyholders, we need products which are transparent in terms of commissions. Now, the transparency is not to the level that you expect, compared to other markets. There should be overall guidelines or limits to encourage better returns,” said Mr Selvan.
“Even if there are no limits, there should at least be transparency,” Mr Afifi responded. “Then investors can choose the best product for themselves.”
“But this will work only if the investor wants to be in the market,” said Mr Drummond. “It’s a push market. At the moment, you don’t have customers lining up to buy products.”
Policy illustrations could also be better, said Mr Al-Sharif of Takaful Emarat. “The format of illustrations is something that the authorities can control, standardise and see whether these are indicative or whether they tell the whole story.”
What more can reinsurers do?
Reinsurers have to realise that they are competing not with themselves but with the direct players, said Mr Afifi.
He explained: “Insurance companies are retaining more. And reinsurers have the global or regional perspective. Are you bringing new ideas and products to help me get out of price competition? It’s not just about capacity – I need technical expertise and creative ideas on products and underwriting, because things have changed. People are living more healthy lives, and are more aware. They travel more, they see products in other countries and want to see them here. And they’ll buy.”
There are product developments taking place in the background, he added. “There are insurance companies who are working on it in the kitchen. It takes time but once it hits, it will be big time. So if you (the reinsurer) don’t tag along with me, it will be too late.”
Reinsurers could do more but the main problem is the cedant’s lack of resources in this part of the world, said Mr Salame. “When the market at large is competing on price rather than services and enhanced products, innovation becomes challenging especially in commodity covers, such as group life insurance. We strongly believe in innovation and in the need to invest in retail products which are still lagging in many markets within the GCC.”
He continued: “This is why Gen Re is focusing on product development in collaboration with our R&D department to capitalise on new markets and explore untapped potential. We are encouraging our clients to explore new areas with less competition and higher margins. With the help of Gen Re Business School, we are developing our cedant’s human capital through our scheduled seminars and courses in Cologne, and via the training held regionally by the MENA team. We are also devoting a team to work closely with our clients to design on-site, tailor-made training when needed.”
Reinsurers can bring a wider view, said Mr Morrison. “Our international market experience allows us to offer new or different products and approaches to doing business. We have the advantage of seeing many markets and can bring this experience to discussions about development and innovation. For example, we have just introduced a new product called Total Cover, which brings something new to the market based on our experience in others.”
Some reinsurers called for more commitment from cedants in the treaty business. “Unlike other lines of business, there is hardly any loyalty to the life treaty,” said Dr Sebastian. “If we build a treaty, we are doing for the long term. When there is more loyalty to the treaty, there will be a lot more commitment from the partners.”
Race towards distribution
A recurrent theme during the roundtable was technological trends and the need for life players to harness these to their advantage.
Life companies have been generally slow in embracing technology due to the financial outlay, noted Mr Selvan. “They are not ready to inject new capital, even though this ‘loss’ will eventually be recouped. However, this is where the requirements for standalone life companies in the UAE will help, because each company will need to have their own capital. So we should see them adopt technology for developing at a faster pace, and this will have greater impact on over-the-counter and online products.”
“It’s a race towards distribution,” said Mr Al-Sharif. “And you need to hire talent from the next generation. You can’t have baby boomers devising your distribution mechanisms. You need to know who you are selling to, where and how.”
Takaful Emarat, he added, recently signed a distribution agreement with Wahat Al Zaweya Company for Investment and Real Estate Development to provide death and disability insurance to its home mortgage client base. “Some projects are not even financed by banks but by developers, so this is a new market for us,” he said.
And so there remains a need to think outside the box, not only in distribution, but in looking for new ways to lead and take the industry forward. Will insurers and reinsurers rise to the occasion?
|
Where is life headed?
Mr Afifi: We are interacting with more educated and informed customers who understand the value of what they’re buying. What we need to do is provide them with policies that are clear and precise, using language that they understand. Policies need to be written by the business guy and not the compliance guy. If we can do that, they will comfortably buy. Now, they are not buying because they don’t see the benefits, and don’t trust that we will pay. So we as an industry need to become more customer centric.
Mr Al-Sharif: It’s a race towards distribution. And you need to hire talent from the next generation. You can’t have baby boomers devising your distribution mechanisms. You need to know who you are selling to, where and how.
Mr Drummond: Life expectancy has peaked. We’ve become complacent to the changes, but the industry needs to change.
Mr Khalek: We need to look inward as an industry and improve the way insurers look at the interests of consumers. Winning the trust and confidence of consumers is a major milestone which the insurance community must continue to build. We also need to make collective efforts in coordination with the regulator to improve awareness, and understand which areas we want to play in and win. That’s where simplicity, transparency and suitability of our products and services will have to play a major role in boosting the growth potential.
Mr Selvan: The requirement in the UAE for composite players to separate their life and non-life divisions is a welcome step. Life insurance requires focused attention and this will encourage growth. Orient Insurance has applied to the Insurance Authority to set up a standalone life company and hope to commence operations soon after approval from the Authority. This is a sign of the confidence we have in the life insurance industry. In general, I see good growth prospects for the region, especially in the UAE, in the next five years.
Mr Morrison: The life industry is getting stronger, and life products are becoming more accepted as essential covers for individuals. If growth, regulation and innovation are combined, along with training and development of staff, the industry will be equal to any worldwide in the next few years. We can already see examples of this through the introduction of independent actuarial assessments of companies’ financial positions, demand for long-term savings and retirement-style products increasing, as well as increasing numbers of staff completing industry qualifications.
Mr Salame: Four key areas will drive growth – the legal environment, which includes requirements to separate life and non-life companies; tax incentives; a targeted market approach; and enhanced distribution channels (including the use of technology). One should be aware of the changing demographics in the Middle East and find new ways to approach a new type of customers in a dynamic and challenging socio-economic landscape.
Dr Sebastian: With expatriates insured under some kind of compulsory programme and an increasingly educated population, there’s greater demand for living benefits, and this will be a key growth driver. It may not be a standalone product yet, but could be bundled together with life and health insurance products. How this translates into actual business will depend on what we do to increase awareness, improve distribution, ease mode of transactions and tap into our existing database of clients, many of whom already know what health insurance is.
|