MENA reinsurance trends 2022

February 16, 2022 I Dubai, UAE

High mobility characterises regional outlook

While the outlook for the global reinsurance sector is enjoying an improved rating, the regional outlook for the Middle East and North Africa (MENA) and Gulf Cooperation Council (GCC) regions has been characterised by relatively high mobility in a difficult landscape.  Around 15 regional reinsurance players have recently withdrawn from the market or vanished entirely from the regional scene.

Globally, the reinsurance sector is expected to enjoy a strong financial performance in 2022, owing to factors such as a hardening market environment and higher prices.  In addition, lower than previously expected losses linked to the pandemic, and the strong resurgence in economic activity, translate into a healthy outlook for 2022.

Regional economic conditions in the GCC and MENA, including a number of developing trends and a market in flux, make for a slightly more complex and nuanced overall picture.  Despite some players withdrawing, many others are entering the MENA market space; for example, the Dubai International Financial Centre (DIFC) has become a major hub in MENA for reinsurance, with approximately US$ 1.7 billion in reinsurance premiums underwritten.

Here, we examine some of those complexities to give a picture of the regional reinsurance sector for 2022.

1.  Rising prices:

Will the current trend in rising prices continue?  In short, yes.  But new capacity in the regional markets will come into play from new markets like Abu Dhabi.  These will increase supply and temper increases due to sustained competition in the region.  As a case in point, the two largest insurance markets in the GCC, Saudi Arabia and the United Arab Emirates (UAE), remain very competitive; Saudi Arabia has 29 licensed insurers, while the UAE has 60, and growing.

2.  Capacity considerations:

With reinsurers actively choosing lower loss-profile accounts, we’re likely to see a more targeted structural underwriting of programs.  Insurers are deploying their capital more selectively and imposing targeted increases for lines reeling from losses.

Despite the withdrawal of a significant number of players, as discussed above, market capacity remains abundant, provided predominantly by international reinsurers.  Nevertheless, these global reinsurers aren’t the only players; spare capacity also comes in the shape of a mixture of market players already domiciled in GCC, as well as African and Asian players.

3.  Clients look to the horizon for next big event:

Insurers will need to evolve their product offering to deal with clients’ high levels of anticipation for another massive business interruption event.  Both the pandemic, and insurers’ responses to it, have caused many clients to anticipate these unknown events through extended cover, particularly in instances where there is no physical damage.  Naturally, clients are keen to know how this kind of scenario might be handled in future.

For example, business interruption has generally covered physical damage such as fire and flooding.  Some policyholders in the UK, however, took out policy extensions covering an infectious disease at or near the insured premises and/or prevention of access/closure due to mandates by public authorities responding to an outbreak of a notifiable disease.

Until the UK Supreme Court intervened in January last year, insurers had refused to pay out on the grounds that policies didn’t cover the effects of the COVID-19 pandemic.

In addition, cyber risks, earthquakes, cyclones, and adverse conditions caused by the increasingly evident and real impacts of climate change such as floods mean that the regional market is in no way immune from future threats. The performance of MENA reinsurers may be impacted if clients’ desires to shield themselves from such threats are accommodated through innovation

4.  Increased regulator involvement & oversight:

The last two years have seen a spate of new and wide-ranging regulations for insurance producers, insurance agents, aggregators, digital distribution, bancassurance, insurance brokers and points of sale.  Many of these have come from the UAE Central Bank, which acts as insurance regulator.

As 2022 unfolds, we are likely to see a certain amount of harmonisation in the requirements for these channels, together with an increased scrutiny of the requirements and qualifications demanded by the regulator for the satisfactory and ethical conduct of business.  In addition, ongoing professional development for distributors’ personnel will become a feature of this year.

We are likely to see regulators taking steps to make sure consumers enjoy adequate protection, and that all parties’ interests are mutually beneficial.  This will undoubtedly be enforced by regulators shining a light on the commercial arrangements between insurers and their distributors.

5.  Regulatory sandboxes:

A regulatory sandbox is a kind of mini-jurisdiction that, under the watchful eye of the regulator, allows live testing of innovations such as new financial products and technologies.  These regulatory sandboxes, typified by free zones such as DIFC and ADGM, allow for innovation under supervision in response to the rapid developments in digital technologies that are disrupting the financial landscape.

We expect that further development of regulatory sandboxes in the UAE will allow higher technology adoption to ease increased distribution and offer efficiencies in the distribution chain.

6.  What will we see from Insurtech in 2022?

Globally, the Insurtech market is estimated to be worth some US$ 2.72 billion in 2020, with growth forecast at a compound annual growth rate (CAGR) of 48.8% between now and 2028.

But what’s driving this growth?

Insurance companies now understand that they can take advantage of the vast quantities of data that digitalization offers; and they’re using that very same data to streamline costs, gain better insights into their customers and consequently, offer enhanced products and services.  And above all, that data increases revenues.

Three key technologies are likely to gain a stronger foothold as the year progresses: i) Artificial Intelligence, ii) connectivity (Internet of Things or IoT) and iii) the cloud.  Artificial Intelligence, AI, is most likely to transform distribution, underwriting and claims, offering higher productivity and an enhanced customer experience.  The commoditisation of algorithm creation will allow carriers to become more predictive; IoT and connected devices and wearables means health, life and property insurers can collect ever more data to gain a greater understanding of customer needs and risk.

Cloud computing will allow more and more insurers to dispense of on-premises infrastructure and take advantage of the cloud’s benefits; core processes in the cloud will offer insurers the big picture, as opposed to siloed information on site.  This will make for enhanced customer service, better flexibility and operational savings.

7.  Market convergence &  harmonisation of participants:

Following recent mergers in both Saudi Arabia and the UAE, regulators will press for continued consolidation.  However, it is unlikely this trend will be limited to insurance companies; we have seen broking business mergers in GCC in the last 12 months, and we believe the larger regional players will continue to chase growth through mergers and acquisitions of portfolios.

8.  Driving for product innovation:

Under-insurance in the MENA region means there’s an opportunity for reinsurers to support clients as they develop innovative products.  So, we are likely to see a more proactive approach from reinsurers as insurers look for ways to add value and create new products.

For example, the large number of unbanked deals has partly contributed to low levels of penetration in the market; it’s difficult to sell products to people who don’t have bank accounts.   Recent innovations, however, have sought to address this and have seen banks attracting new customers through loyalty programs where the reward comes in the form of coverage.

Where reinsurers come into this is that they can support their insurance clients in developing new and creative products because they can help with structuring the policies and can offer market insight.  There is obviously some overlap here with Insurtech, as discussed above; data analytics gained both from digitalisation (IoT) and the clear access to that data that cloud computing offers gives reinsurers a granular appreciation of risk.  So much so that reinsurers can now price niche commercial sectors such as beauty salons or extreme sports.

A clearer picture is emerging

Against a background of likely consolidation and deeper penetration of technology, the MENA reinsurance market certainly looks set to continue to be a hotbed of innovation throughout 2022.

Data will play a major part in giving the market a big-picture view of consumers; it will also begin to transform the traditional understanding of risk and will help develop a better understanding of the insurable environment.

With readily available data insight, the ability to assess new risks will be simpler, allowing further penetration into developing markets as well as higher revenues.