Dubai: A significantly large number of insurance companies from the UAE and Saudi Arabia are seeking to enhance their risk management framework in the context of regulatory requirements, according to a recent survey of the industry.
According to The Mena Insurance Enterprise Risk Management (ERM) survey conducted by EY and Munich Re, 41 per cent of insurance companies in Saudi Arabia and the UAE believe there is a need to improve their overall risk management framework.
The Mena insurance market is continuing to grow on the back of government-backed infrastructural spending, large-scale developmental projects and compulsory motor and medical insurance. The regulatory landscape has recently undergone a major transformation, led by the regulators in Saudi Arabia, Qatar and the UAE enhancing enhanced compliance from the industry.
“As a result of the changing market and regulatory landscape, risk management is high on the agenda of Mena CEOs. It is becoming increasingly important for the daily activities and long-term sustainability of insurance companies. However, a considerable amount of work still remains to be done as 40 per cent of the respondents in the UAE and the Saudi Arabia do not have a dedicated risk management department,” said Sanjay Jain, director of Mena Insurance Advisory Services at EY.
The survey identifies risk management challenges that insurance companies face and takes a view on the evolving risk governance practices.
“ERM is not just something that is nice to have. There is increased pressure from regulators and rating agencies, as well as competitors. Insurance companies that move first to an improved model of managing their business and their capital resources economically, will see the maximum benefit,” said Andreas Pollmann, client executive, Mena, Munich Re,
The global insurance industry is making the move and Mena is bound to follow suit. ERM is a large opportunity; boards, investors and governments have the option to improve underwriting, reserving and economic profit for their insurance businesses. The survey revealed that the basic building blocks of a risk management framework, namely risk governance, strategy and risk appetite, continue to pose a major challenge for many insurers.
Even if some of the insurers have established an enterprise-wide risk appetite, many have not been able to effectively cascade it down to the operational level and embed it into their decision-making or insurance value chain.
“While risk management is still perceived as a “tick-box” exercise by some insurers, a few insurers are already working toward converting it into a business enabler. This can be achieved by integrating risk management into the key business areas of capital management, reinsurance strategy and risk-based underwriting,” said Dr Sandeep Srivastava, partner, EY Financial Service Risk Management.
While most of the insurers agree with the need for integration, analysts say the common challenge remains with the actual implementation and operationalising of the risk practices into the day-to-day business.
Differing challenges
Saudi insurers rated “business taking ownership of risk” as the top challenge to strengthening the risk culture, whereas UAE insurers rated “lack of a strong regulatory regime and competitive pressures” as the top challenges for them. There were a number of common issues highlighted with the UAE insurers, including significant exposure to riskier assets, poor ERM practices, lack of standardised accounting policies and lack of robust reporting of technical reserves.
However, a number of these challenges are expected to be addressed following the recently issued regulatory guidelines from the UAE Insurance Authority.
