Why the UAE’s insurance industry losing money affects you

Those who keep an eye on the markets will be aware that the insurance industry in the United Arab Emirates hasn’t exactly been booming in recent years. In particular, 2014 saw the UAE’s listed insurers post their worst-ever underwriting performance. Meanwhile, 2015 figures don’t do much to lighten the mood either.

So what has caused this apparent downturn? And most importantly, what does an unstable insurance market mean to those outside it – businesses just like yours?

The insurance industry by the numbers

For those who aren’t familiar with the market, a combined ratio is used to measure claims and expenses to premium income. A ratio of above 100 per cent is a loss, while one under 100 per cent is a profit. We already mentioned 2014 was bleak, with the UAE’s 29 listed insurers showing a net underwriting deficit, delivering an aggregate combined ratio of 102 per cent (a loss), in comparison to 97 per cent in 2013.

As for 2015, according to data disclosed by insurers listed on the Abu Dhabi Securities Exchange and Dubai Financial Market, the result was a market loss of approximately Dhs 106m ($29m). What’s more, of those listed insurers, 20 reported worse figures than in 2014, with 13 posting a net loss for 2015.

So what’s behind all this? When we look at the bigger picture concerning the insurance industry, it would appear that the current headwinds can most likely be put down to a couple of major factors. The first of these is the issue of competition. As a result of the introduction of mandatory health insurance, the insurance market as whole has seen an influx of new players who have now made the UAE insurance industry one of the most competitive in the world.

At last count, there were approximately 120 insurance broker licences issued in the UAE, along with over 60 licensed insurers. With so many players vying for market share, it is often the case that companies chase top-line growth over out-and-out profitability – and with that comes low pricing that leads to the underwriting losses we are currently witnessing.

Essentially, this means too many insurance companies are writing smaller amounts of business. This may increase the number of total premiums, but often brings the overall value down.

Why the state of the insurance market affects us all

Now that we have a feel for the market, let’s take a look at the all-important question – how does this affect both policyholders and businesses like yours?

The place to start: Higher premiums. While a crowded market with increased competition may seem like a good thing for the consumer, this is not the case. Greater competition usually leads to a greater variation in price, which has the potential to lull businesses and policyholders into a false sense of security, believing they can leverage buying power to get the same standard of cover at a lower price.

This is almost always not true. In most cases where prices are reduced, so too is the level of cover provided. In rare cases where this doesn’t happen, it results in an insurer potentially making a loss on a premium just to keep the business. While this is a good result for the buyer in the short-term, over time it only serves to make the insurance industry as a whole unsustainable.

Because if it’s only large companies who can afford to take on loss-leading business, smaller organisations will eventually be left with only one option – to stop providing cover in the region. The end result is a monopoly of insurers who could potentially hold the market to ransom.

The unfeasibly high numbers of brokers in the market also has the potential to cause problems for corporations across the UAE. At Willis, we have seen many instances of companies appointing numerous brokers to cover the same risk. This often leads to good quality insurers refusing to quote as it becomes too time consuming. Meanwhile, larger brokers no longer have the increased buying power to obtain the most competitive quotes for their clients.

Ultimately, what all of this creates is a market where insurance is purchased based only on price. And with countless insurers single-mindedly chasing business in an uncertain market, there will always be someone willing to undercut. Needless to say, with a product such as insurance, this is no way to shop around.

So let’s be really clear: High-quality medical care costs money. The lower the costs of your cover, the fewer conditions and services it is likely to cover. This leaves companies and policyholders often having to cover the shortfall. As the old saying goes: If you buy cheap, you buy twice.

Critical decisions: Choosing the right medical insurance for your company

The bottom line is that all of these market forces lead to a situation where insurers are chasing short-term dollar signs and prioritising customer retention over investing in comprehensive and robust insurance policies. Any insurer can sell you a bargain basement policy, but only those with experience and long-term aims can underwrite products that help reduce instances of fraud, make the claiming process more seamless, and focus on prevention of illness as well as cure.

So what can businesses do to ensure that they have the most suitable and best quality cover possible? The first step is undoubtedly to pick an insurance partner based on reputation, rather than price. Employee healthcare can be a complex issue, and finding a company that is going to make your life easier will pay dividends in the end.

Secondly, approach your employee cover strategically, rather than as a fixed monthly cost. Finding an insurer that offers innovative policies with the aim of reducing your medical costs over time is preferable to jumping from one cheap insurer to another year after year.

Finally, remember that medical insurance is about more than finding someone to foot the bill when things go wrong. It’s about working with a company to improve the overall health and wellbeing of your workforce in the long-term, while having the peace of mind that everything will be taken care of should a problem arise.

Stephen MacLaren is head of regional sales employee benefits at Al Futtaim Willis