More consolidation and M&A activity is expected in the regional insurance industry as regulators continue to tighten their supervision regimes particularly around capitalisation and solvency requirements, according to PwC Middle East.
In a report titled, ‘Next in insurance: Key trends shaping the future of the Middle East’s insurance industry’, PwC Middle East said that a consolidation trend is already perceptible in the region’s insurance industry as evident from the major strain on the profitability and balance sheets of several insurers operating in the Middle East.
“Not only are we witnessing a number of global insurers leaving the market, being taken over by their regional counterparts, but there has also been heightened deal (M&A) activity in the region, which is quite unprecedented, by a number of measures,” said the report.
PwC Middle East also said, “We expect more product differentiation, with new products and features to be introduced in the market. We expect the insurers to focus on their core insurance competencies and get rid of anything that is non-core – this is not optional anymore, given the insurers’ pursuit for better profitability.
“We expect standards like IFRS17 and new direct/indirect tax regimes to fundamentally transform how the insurers operate, including their corporate structures and accounting policies. But most important of all, we expect the insurers to continue transforming how they serve and manage their customers.”
The report noted that the last few years were an exhilarating and challenging time for an industry that is traditionally risk-averse and slow to change. It added that COVID-19 has turned out to be a blessing in disguise as far as the regional insurance industry is concerned, as the insurers were forced to undergo a rapid transformation.
From demographic changes to rapidly evolving customer needs and expectations, coupled with a dynamic shift in the buying behaviour towards online channels, insurers took the opportunity to rethink their long-term strategies, as notions of trust and societal purpose played a greater role in the industry than ever before, in addition to the urgent need to embark on digital transformation.
The events of 2020 led to unprecedented disruption in the industry. Insurers in the region were not only met with escalating obligations to policyholders, including increased life and health claims, but also went above and beyond by offering free insurance to first responders, premium holidays and policy term extensions.
Another silver lining for the Middle East region has been the recent spurt in oil prices due to the ongoing geo-political crisis, which has resulted in renewed government spending on the infrastructural development agenda. Insurers are now altering their pricing to offset losses and manage volatility, hardening global reinsurance prices and increasing interest rates, trends which are being witnessed globally. M