Sustained profitability can only be achieved by MENA insurers through well-executed operational transformation strategy, backed by robust technology and a customer-centric approach, said EY in its report, “Insurance Opportunities in the Middle East”.
Profitability remains a key concern for insurers in the region, as investment income is impacted by low interest rates, weak equity performance and a stagnant real estate market, EY noted.
Technical margins remain poorly governed by obsolete processes, outdated legacy systems, low productivity and high incidences of fraud, especially in the motor and health lines.
With poor pricing and increased reserves (reflecting new regulatory guidelines), technical profits have been under stress for most insurers.
In addition, over the short term, the oil-price decline is the key element affecting the region with significant effects on the insurance industry:
- Reduced government spending is impacting engineering and energy sectors, as in-flight projects are delayed or cancelled and new projects postponed. Concurrently, government tenders for insurance have become more price-driven.
- As liquidity dries up, payments are taking an increasingly long time to materialise. This has had a knock-on effect on several sectors, with insurers experiencing issues with timely collection of premiums.
- Consumers have become price-sensitive, and costs has become an even more important buying consideration. Sales of optional/discretionary insurance products, such as home/ travel insurance, have been affected as consumers prioritise spending. Motor customers opt for basic third-party liability (TPL) over comprehensive coverage.
Impetus to accelerated growth
Once the short-term impact of reduced oil prices has been navigated, EY expects economic activity in MENA to revive, even though growth rates may be slower than they were over the last decade.
The insurance industry has many opportunities to capitalise on the economic revival, with large-scale government spending on infrastructure and mega projects, as governments focus on diversification, eg, KSA vision 2030 and Abu Dhabi Vision 2030.
If the GCC continues to grow at an average of just more than 3% for the next 15 years and overcomes its fragmentation, it could become the sixth largest economy in the world by 2030.
The insurance industry will be positively impacted by: economic diversification and government spending continuing to support new governments’ growth agendas and move away from traditional oil revenue; stringent regulations that redefine the sector, as regulators address challenges such as poor pricing, leading to declining technical profits and solvency ratios; compulsory business lines, supported by health and motor regulations; and a younger population, increasing life expectancy and high proportion of expatriates buying insurance. M