Crunch year for UAE insurers as regulations and competition bite into profits

UAE insurers are facing a make-or-break year as the effect of new regulations and fierce competition in a crowded market force premiums higher.

Last year was the worst on record for UAE insurers in terms of underwriting performance, due to “the fiercely competitive market for high-volume medical and motor lines”, according to Standard & Poor’s.

“We believe that insurers will stop reducing prices in these lines of business, which should help earnings start to recover by end-2015.”

Insurers have already begun to gradually increase premiums in certain segments, in a realisation that loss-leading competition to grow market share is no longer a feasible strategy, said Julian Audrerie, senior vice president of customer integration at Oman Insurance Company, the country’s largest publicly traded insurer.

“I don’t think there is much more room to go down,” he said. “Every three or four months you have one or two companies that will slash prices to try to gain market share, but it’s only a matter of time before they will raise prices again because it’s a strategy that loses them so much money.”

Motor insurance premiums on saloon cars worth less than Dh100,000 are likely to see gradual rises across the board, said Mr Audrerie, noting that this segment had been unprofitable for insurers for some time.

Conversely, however, more profitable lines such as 4×4 vehicles and cars valued at more than Dh100,000 would continue to be the subjects of stiff competition, keeping a lid on premiums, he said.

In the health market, insurers are set to be affected by the requirement to increasingly cover pre-existing medical conditions, and the extension of the Dubai government’s requirement for compulsory health insurance for all of the emirate’s residents, according to Ambareen Musa, founder of comparison website

“For insurers to be able to cover these pre-existing conditions, they are going to have to raise premiums, they simply have no choice,” she said.

“Last year there was a huge battle for market share, which meant that insurers incurred a lot of losses. For this year it’s not just the effect of the new regulations, they have to start regaining profitability, so that’s going to force them to rise premiums.”

The country’s second-largest insurer ADNIC said last month that it was taking “firm action to realign the motor and medical portfolios”.

S& P said: “It remains to be seen whether other companies may take similar actions.”

But competition for market share is unlikely to come to an end any time soon, meaning that bottom lines will continue to struggle, according to Nathan Kennedy, managing director of Green Crescent Insurance.

“One would hope that rationality would return to the market, but prudence dictates you can’t count on it,” he said.

“The overall insurance sector is still maturing. It’s only in a mature market where you don’t buy market share and I don’t think we are there yet. I’d love to see rationality return to the market, but I’m not holding my breath.”

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John Everington

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