The UAE and Saudi Arabian health insurance markets, the two largest in the Middle East, have an unsustainable number of providers, Fitch Ratings says.
Both markets are characterised by numerous companies with minimal market share, intense competition and weak profitability, says Fitch in its new report "Middle East Health Insurance Market” released last week.
The international rating agency expects several insurers will cease operations or merge with competitors in the next few years. This could be positive for the overall credit quality of the markets by removing smaller, weaker insurers and reducing competitive pressure on those that remain.
Health insurers have proliferated in the UAE, attracted by the phase-in of compulsory health insurance, which began in 2005. The largest provider, Daman, had a 32% market share in 2017. Below the top tier of insurers, the market is highly fragmented, including a large number of companies with minimal scale and weak franchises. More than 50 companies offer health insurance in the UAE, a large number for the size of the market.
The influx of new entrants to the UAE's health insurance market has led to fierce pricing competition, eroding profitability. The sector's net combined ratio (claims, commissions and expenses to premiums) was 99% in 2017, indicating only marginal profitability. Fitch expects additional pressure on insurers from increased medical costs due to the UAE's introduction of VAT last year. The international rating agency believes that it will be difficult for the insurers to offset the impact by pushing up premium rates, given how competitive the market is.
The UAE insurance regulator has stepped up its scrutiny of the sector. It now requires insurers to review their pricing twice each fiscal year for fairness and adequacy. This could help to alleviate the competitive pressure on premium rates.
Health insurance has also grown significantly in Saudi Arabia, where it started to become compulsory in 2006. There are parallels with the UAE, as the market is fragmented and profitability is under pressure. Three companies—Bupa Arabia, Tawuniya and MedGulf—dominate, accounting for 80% of premiums in 2017 and gaining a significant competitive advantage from their economies of scale. The other 24 companies, with a combined market share of only 20%, lack scale and face a highly competitive environment, which may lead to consolidation.