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Motor insurance stalls despite UAE premium growth

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Motor insurance recovery slows with less income and more costs
  • Property and medical insurers recovering
  • Discounting and cost of car parts hits motor sector

UAE listed insurance companies reported that the value of premiums rose 7.64 percent year-on-year to AED15.676 billion ($4.27 billion) in the first half of 2022, but industry experts said the motor segment continues to struggle.

A total of 13 insurers listed on the Dubai Financial Market accounted for 56.1 percent of the total premiums of insurance companies, valued at AED8.8 billion, while 15 companies listed on Abu Dhabi Securities Exchange accounted for 43.9 percent, or AED6.9 billion, according to data from UAE state news agency WAM. 

Research in February by investment firm Alpen Capital found that total premiums across the Gulf amounted to $26.5 billion in 2020, up from $24.2 billion in 2015.

The UAE is the largest market in the region, accounting for a 43.7 percent, followed by Saudi Arabia with 39.1 percent.

Overall, ratings agency S&P Global forecast that the UAE insurance market as a whole would grow by five percent this year “supported by ongoing infrastructure spending and an expected increase in visitors and residents thanks to new visa programmes that aim to attract highly qualified expatriates”.

Motor segment hits a bump

Ayman El Hout, CEO of Marsh UAE told AGBI that growth rates varied across different segments.

“On the general insurance lines, like property insurers, it’s recovering. In a year’s time medical insurance will be back on its way. The problem remains with the motor segment.”

The Marsh UAE CEO said there were two major issues negatively impacting the this area: providers discounting prices in a highly competitive market, and supply chain issues and inflation resulting in a surge in the cost of car parts and repairs.

“Less income and more costs result in a negative direction,” he said.

S&P Global forecast that motor premium rates in the UAE had declined by around half in recent years.

“The motor insurance sector in the UAE has been witnessing turmoil with a sharp decline in premium levels versus a spike in claims,” said Dubai-based Georges Chidiac, CEO of Damana Holding, an insurance provider operating across the Gulf and Lebanon.

“If market players do not take radical steps to adjust the rates and underwriting in line with the regulators guidelines the long-term effect could be devastating.”

While motor insurance claims remained low between 2020 and 2021 due to the pandemic, the number of claims has since returned to pre-Covid levels, following the resumption of travel and economic activities. 

Despite claim levels rebounding, premium rates have not but Faisal Abbas, head of general and medical insurance at Dubai-based insurance broker The Continental Group, is optimistic that this will rectify itself soon.

“With insurers now re-evaluating their motor portfolios, we could witness market corrections in premiums by the end of 2022,” Abbas said.

The UAE Central bank last month followed the US Federal Reserve and increased interest rates by 75 basis points 1.65 percent, which El Hout said was also good news for insurance providers.

“If the interest rate goes up, you’ll be able to generate more income on the interest from the cash in your bank,” El Hout said.

“Insurance companies have to keep their funds liquid so the interest rate is very important.”

Despite the issues in the motor segment, the Alpen Capital report showed that there is still a lot of room for growth across the industry.

Insurance penetration – defined as total premiums per gross domestic product – in the Gulf remains substantially low despite the continued growth.

The average penetration rate in the Gulf was just 1.9 percent in 2020, compared to an average of 3.4 percent among emerging markets and a global average of 7.4 percent. The penetration rate in the UAE is 3.2 percent.