Comment: Unearthing the Middle East's health insurance challenges and opportunities
The Middle East's insurance market has seen rapid development over the past few decades, with home-grown and foreign insures' battling to capture a share. But as the market begins to mature, what challenges and opportunities now exist for insurers and brokers looking to expand their presence? Marco Giacomelli, CEO of Generali Global Health, gives his view.
The insurance market in the Middle East across all lines looks stable from a premium perspective. In fact, for the last three years there has been no significant growth trend and the market size is steady at around 22bn dirham.
What's interesting, however, is the gradually increasing profitability trend - in particular the net underwriting profit growth from 2016-2018. This is an indicator of a maturing market which influences how reinsurers deal with the situation and the premium rates they offer insurers. The market is still very competitive and relatively soft, but stable premiums and gradually rising net underwriting profits across all insurance lines are good signs.
An increasing number of SMEs are interested in buying health insurance for their local managers and not only for expatriate workers. Large corporate accounts still exist but the SME trend is an important and promising sign for insurers."
This is a positive picture, and one that is occurring despite regulatory changes that may affect market stability.
The region's insurance market is relatively concentrated. Roughly speaking, the top five insurers across all lines control 50-55% of the total market. These are all local companies such as the Abu Dhabi National Insurance Company and the Islamic Arab Insurance Company. The presence of locally licensed foreign players by contrast is relatively minor, not considering those which have a fronting arrangement with a local company.
Regulatory changes - whole of market
We are seeing significant insurance regulatory developments in 2018/19 across all insurance lines in the Middle East, with many of the changes happening behind the scenes.
Stricter capital requirements for foreign branches are very much a focus. New regulatory pricing and reserving requirements for life products were issued in May 2018 and have expanded in 2019.
Although the Emirates isn't embracing Solvency II, their reporting standards are on a parallel path. Capital requirements, for example, are in line with Solvency II. This is a similar trend in other markets such as Bermuda, where markets don't apply Solvency II, but have similar fundamental requirements.
The alignment to IFRS17 is another important regulatory change, one that again is happening behind the scenes. This is a ground breaking set of guidelines affecting issues such as reporting and the production of financial statements.
The Emirates has strictly embraced these guidelines, even more so than some European countries. As a result, Generali Global Health's effort to comply with IFRS17 requirements in the Middle East are proportionally more robust than Generali group sister companies in many other parts of the world.
Regulatory changes - medical insurance market
There have also been a number of regulatory events specific to the medical insurance market.
One of the biggest changes took place in 2017 with the imposition of mandatory health insurance in the UAE. Anyone - locals or foreigners - who wants to live and work in the Emirates must have a basic health plan.
Many workers rely purely on the basic plan, but the majority of managers have topped-up their cover - often with international private medical insurance. Moreover, around 80% of the 10m population are expatriates. It's for these reasons that the market is particularly attractive for foreign and global providers like Generali Global Health.
There has also been a continuous trend towards Diagnosis Related Group (DRG) implementation. DRG groups together costs associated with inpatient hospital benefits - such as surgery, the theatre, the physician, pre/post examinations - and means that each separate treatment cost no longer needs to be considered in isolation. However, insurers do need to consider the fundamental correlation of all costs related to the same event.
DRG means that all costs will be reimbursed under a single code, which is particularly important for Generali Global Health and other insurers' relationships with the third party firms who administer claims on their behalf in Dubai.
Seeing claims as a consolidated view allows insurers a consistent representation of their claims experience and pricing. This helps to enforce transparent financial statements by promoting a stable and long-term market, as well it represents an important regulatory change driving insurers' strategy.
Shifting demographics
Western expatriates from Europe, the US and Australia have dominated the foreign population profile over the last few decades. With this group having a largely standardised professional and demographic profiling, the health insurance market has benefitted from similar pricing requirements across the board.
However, a shift has occurred over the last two or three years, with a higher percentage of regional expats coming from Asia - in particular India and China. Along with the changing demographics, the health insurance requirements are also slightly different. There is a higher proportion of mid, rather than senior, managers who are looking for regional PMI plans rather than fully international solutions that can offer truly global cover.
UAE's health insurance landscape
An increasing number of SMEs are interested in buying health insurance for their local managers and not only for expatriate workers. Large corporate accounts still exist but the SME trend is an important and promising sign for insurers.
We are seeing strong growth in the retail or individual plan sector, something that is proactively supported by local IFAs and brokers. The trend is influenced by:
- A change in buying behaviours - employers in the Emirates are increasingly switching from providing group plans (where the employer selects their employees' cover) to giving staff individual spending allowances and the freedom to choose the health plan that best suits them;
- Indirect changes in other lines of business - several recent regulatory changes have made life plans more challenging for IFAs and other distributors to sell. To address this situation, distributors are increasingly looking to add health plans to their portfolios for individual clients.
Adapting to trends and demands
To prosper, insurers must understand market's trends and shape their value propositions accordingly.
We have seen some examples above of how the market in Middle East is developing. These changes have led to the emergence of international plans with a strong regional element and more attractive premiums. On the individual side the industry is developing flexible plans that respond to client and distributor demands.
Healthcare trends are also shaping the market: diabetes in adults and children is highly prevalent - for example - with insurance plans and healthcare facilities needing to provide adequately for this new reality.
Where do we see the future?
A fragmented health insurance market will consolidate further over time. Larger local and leading foreign players will become more influential and continue to shape the market. Many are able now to transfer skills acquired from operating in more developed markets around the world. However, minor players who lack global expertise may be less able to react to market and regulatory changes, adding pressure to their operations and the potential to be ultimately squeezed out of the market altogether.
Marco Giacomelli is CEO of Generali Global Health.
