Insurance for property buyers in the UAE
The UAE has the highest insurance penetration and density in the GCC. Image Credit: Shutterstock

Dubai: The UAE has the highest insurance penetration and density in the GCC as the industry is set for stronger growth led by the UAE and Saudi Arabia, according to a study by Alpen Capital (ME), a Dubai-headquartered investment banking advisory firm.

The UAE recorded the highest insurance penetration and density at 2.9 per cent and $1,194.7, respectively, in 2018. Insurance penetration in the region is expected to remain between 1.8 per cent and 1.9 per cent from 2019 to 2024, below the global average of 6.1 per cent, offering scope for growth in the sector. Insurance density in the region is expected to increase from $502.9 in 2019 to $555.8 in 2024.

The gradual slowdown of the insurance industry witnessed over the past two years is likely to continue until 2024. However, gross written premium (GWP) is expected to improve relative to the subdued levels of growth recorded in the recent past.

“The GCC insurance industry, which maintained a positive momentum over the years, witnessed a slowdown in GWPs due to sluggish economic conditions during 2016 and 2018. However, going forward, we anticipate the GCC insurance sector to grow at a moderate pace owing to economic revival, growing population, strengthening regulatory reforms and continued implementation of mandatory insurance coverage,” said Sameena Ahmad, Managing Director, Alpen Capital (ME) Limited.

In UAE, between 2019 and 2024, the insurance market is projected to grow at 4.2 per cent CAGR [compounded annual growth rate] driven by infrastructure spending and phased introduction of mandatory health insurance across its remaining Emirates will drive overall growth in the sector.

Saudi Arabia is expected to grow in excess of 5 per cent benefiting from the significant infrastructural developments, coupled with new business and a reformed tourism program. Furthermore, a rapid increase in the number of women drivers, which is likely to grow by 3 million in 2020, is expected to facilitate growth of Saudi’s insurance segment.

Across the GCC, Kuwait is anticipated to grow at the fastest annualised average pace of 8.2 per cent. The market share of each GCC country is expected to remain constant through 2024.

The GCC insurance market is projected to grow at a CAGR of 4.3 per cent from $29.2 billion in 2019 to $36.1 billion in 2024. Sustained economic growth, increase in population and substantial infrastructure development are among the leading factors that will facilitate growth of the sector. Additionally, governments’ efforts to strengthen regulations, introduce mandatory lines and diversify the economy are also likely to drive GWP for the insurance industry.

“Governments’ proactive economic and liberalisation reforms, and efforts to strengthen the regulatory environment, will support growth in the sector going forward. Steady rise in population coupled with the increase in senior population within the region is expected to boost premiums of the health segment,” said Ahmad.

Consolidation in the GCC insurance sector has remained active over the past two years with several intra-regional and cross border mergers & acquisition (M&A) transactions as companies seek to build stronger balance sheets in order to sustain the stringent reserve and solvency requirements. “We expect to see continuing M&A activity as companies develop technological capabilities to broaden their product offering and improve profitability.”, says Krishna Dhanak, Executive Director at Alpen Capital.

Sector faces weak profitability

Insurance sector across the GCC is expected to face weak premium growth and subdued profitability resulting from relatively weak consumer spending and volatile real estate and stock markets, according to Alpen Capital (ME), Dubai-headquartered investment banking advisory firm.

GDP per capita in the GCC economies has been volatile over the past five years as headwinds from global economic slowdown and volatile oil prices continue to weigh heavily on private sector activity in the region. Weak consumers’ spending has led to a drop in sales of vehicles and real estate, affecting the overall demand for related insurance.

Insurance firms in UAE, Qatar and Saudi Arabia have relatively higher exposure to capital markets making them prone to volatility in equity markets and susceptible to market and economic surprises. GCC insurance sector is highly fragmented with 200 insurers operating within the region. Companies are likely to face profitability pressure due to mounting competition, high regulatory costs and strict accounting standards.