UAE insurers should catch up with new industry trends

The UAE insurance sector has come a long way in establishing itself as an industry with more than 50 players – both foreign and local – and scores of brokers. The regulatory body is already in place and new regulations are being formulated for the insurance players.

The sector has matured in the past couple of years, said Justin Balcombe, Middle East Insurance Leader, Ernst & Young. "The companies need to become more professional now as the risk profile of the UAE and Dubai has changed from two or three years ago," he said. "We have to catch up with the new trends in the industry as risks are changing and becoming more complicated."

Do you think the UAE insurance industry has a sound regulatory framework?

The regulatory body is already in place and I think many new regulations are being introduced and many are being reworked to suit the current market realities.

But still the minimum capital requirement is very low. Please comment.

I think we have to step back and think how much this industry has grown in this market in the past few years. Unlike in the case of banks, the only time the insurance industry has been criticised is when a dispute arises on claims. Again unlike banks, the insurance industry has been able to weather the financial crisis to a very good extent in the UAE. The insurance sector in the region has emerged very fast. We have different levels of maturity, and it is even different between two emirates.

What do you view as the present challenge before the insurance companies here?

To me, the insurance companies have done well so far and the challenge is how we will make this industry world class.

The UAE has about 60 insurance companies. Isn't that overcrowding?

This is a relative issue. About 25 years ago, the UK had about 150 insurance companies. Today, it has come down to 40 or 50 companies being run by about 20 insurers. I agree that it is better for the UAE's insurance industry to pursue consolidation. The local companies should think how they can become a regional insurance player and this should be taken as a challenge by them.

Are the regulations mature enough to take these companies to the next stage?

More than whether we have mature regulations, my concern is about how efficiently they are enforced in this market. The regulators should be able to weed out bad companies from the system. We need to demonstrate far more transparency. Moreover, our companies need to establish an excellent operating model.

Foreign insurance companies can own only up to 25 per cent in a firm in UAE. Is this a good regulation?

The country needs to remove the entry barriers. We have three types of insurance companies – those that are local, family-owned and restricted to locality; another set of regional players that are a part of large conglomerates and that have a joint venture with international players; and the third type is the branch operations of international companies.

Most firms have a large motor business that consistently produces losses. Why can't the volume be cut?

There is nothing unusual about this. This is the standard line of business for an insurer the world over. Unfortunately, this line of business is fraught with fraud and loss. This is where we, Ernst & Young, can play a significant role. We have exposure to international business. We have the largest insurance practice and hence we are able to support the insurance companies in fixing their problems like that in the motor segment.

What are the issues that need immediate attention?

The main issue is the inefficient operating model, which needs to be addressed on a war footing. We need to focus more on compliance issues. We need to differentiate between small companies that cannot afford to bring in the new changes that will facilitate compliance of regulations and good business practices, and those that can do this very well.

The larger companies can stimulate consolidation and acquisitions in the market. These are tough times for insurance companies as the volumes have come down and their investments are in loss. Motor insurance volume has more than halved.

Retention ratio is very small here. How do we address this?

I think, while the regulations are maturing here, this area of the business also can be brought under these regulations. Now that the minimum capital required has been raised from Dh50 million to Dh100m, I hope the regulators will now address the solvency issues in the industry. We have reached a new level of maturity. There should not be any reason why we cannot retain more risk within the country. The issue is the same across the Middle East. A few months ago, the regulators revoked the licences of more than 70 brokerage companies on capital requirement issues. There is no reason now why more risk cannot be retained here.

What is your advice to the UAE insurance players?

The companies need to become more professional. The risk profile of the UAE and Dubai has changed from that a few years ago. We have to catch up with the new trends in the industry. The way we look at insurance itself has to change.

PROFILE: Justin Balcombe Middle East Insurance Leader, Ernst & Young

Balcombe has spent about four years in the region with three in the UAE and one in Qatar. More than 22 years, he has played senior leadership roles in the global insurance industry. He started his career as a claims handler in Manchester, UK, later leaving for the United States and Australia. He has worked with insurance companies all over the world and today he provides advice and support across E&Y service lines for insurance-related matters as well as building a regional

practice.

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