The motor and health insurance lines continue to be a problem with low premiums and high claims. Image Credit: Supplied

Insurance by its very nature is a risky business, where the sudden and unforeseen are predicted, and precedent is relied upon to assess that risk. Small wonder then that in the past couple of years, many insurance providers found themselves facing unique challenges predominantly due to the unprecedented pandemic crisis.

Reacting, many made decisions that not only shook up their internal structures and strategies but also fundamentally changed the UAE insurance market. For the uninitiated, some of these decisions may have appeared 'risky', but for the cognoscenti, they were of little surprise. After all, we have now all been taught to expect the unexpected.

We’ve seen a seismic change in the insurance landscape, with many big-hitters leaving the game to focus on playing back in their home markets, while others have been subject to merger and acquisition activity. For those who remain, 2022 has been an interesting time. Listed insurance companies saw a Q1-2022 topline revenue increase of 7 per cent compared to the corresponding period last year, and with total premiums for those same periods aggregated at Dh9.4 billion – against Dh8.8 billion a year back - rates are on the rise. But does this mean that the market is bouncing back?

UAE regulator cracks the whip

While Covid fears are now contained, new issues have given cause for concern, and these relate to regulatory requirements and solvency/security. Hot off the press is the Central Bank of the UAE’s recent activity in its capacity as insurance and financial services industry regulator. Twice in the same week, it imposed administrative and financial sanctions on local companies for failing to meet regulatory responsibilities. In the case of one of the organisations, an unnamed insurance company, no new policies are to be issued for a one-year period with effect from May 18. This is potentially big news.

The spotlight has never shone brighter on both regulatory requirements and ‘treating customers fairly’. To quote the regulator, their role is to ensure insurance companies operating in the UAE abide by federal laws and standards that aim to safeguard the integrity, transparency, and operational efficiency of the sector. While it is not entirely public knowledge as to what areas the company was considered to be in breach, it was also reportedly told by the regulator to remedy its Solvency Capital Requirements, and given nine months to do so.

Motor and health cover warnings

Solvency is a key consideration for insurance companies where competition is tight, claims are frequent and often costly, and premium costs are constantly challenged by consumers. With motor insurance margins tight, this is an area where insurers consistently seek to harden the market by increasing rates, but invariably pushed back by both regulators and consumers alike. Faced with calls for rebates and/or discounts due to vehicle under-utilisation in the pandemic period, consumer loyalty has waned and transactional behaviour is evident.

Offset this against a resurgence of claims now that the vehicles are back on the roads, and inflationary influences on both spare parts and labour markets as the economy seeks stabilisation post-Covid. Insurers have sought to raise rates, but with limited success thus far. Squeezed from both regulatory and customer sides, the insurers’ balance-sheet can be perilously priced. Health insurance is a similar story. With an existential mismatch between premium income flow and claims reporting, handling and settlement, the battle to balance the P&L is real and increasingly challenging for even the most experienced of insurers.

Regulation is a welcome activity and will ensure the continued dynamism and resilience of the UAE insurance market, providing best practice frameworks for providers and comfort for consumers. The onset of IFRS17 (International Financial Reporting Standard #17) in January next is also a welcome development as it will bring greater clarity in reporting the true financial solvency position of an insurer at any given moment by better defining the values of liability, risk and revenue.