Mandatory health coverage boosts Middle East insurance sector

Unsplash/National Cancer Institute

• Profitability declined in most Gulf countries, said S&P Global Ratings
• Introduction of new medical covers were growth drivers
• Saudi Arabia became the Gulf’s largest insurance market last year

Mandatory health insurance requirements swelled Gulf insurers’ income last year, although growth will slow in 2023 and profitability remains a challenge despite the coverage boom.

Those are some of the findings in a report by S&P Global Ratings which predicts easing inflationary and supply chain pressures should lower costs arising from property, motor and casualty claims this year. 

Robust oil prices – S&P forecasts Brent crude will average $85 a barrel in 2023 – will support economic growth and infrastructure spending in the GCC and enable insurers to sell more policies in 2023, the ratings agency predicts. 

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Yet the growth in gross written premiums (GWPs) – the value of insurance contracts that insurers sell minus costs – will ebb this year following a bumper 2022.

For example, GWPs in Saudi Arabia surged by around 25 percent last year, whereas this year’s expansion will be about 11 percent, S&P forecasts. 

“With a high level of digital penetration, a growing young population, and an increase in awareness of insurance, Saudi Arabia is a country of opportunity for insurers,” said Martin Rueegg, Group CEO of Oman-headquartered insurer NLGIC Group.

“Another factor that will contribute to GWP growth is anticipated motor regulation.”

Kuwait will be the Gulf’s fastest growing market, achieving a 15 percent increase in GWPs in 2023, due to a further expansion in mandatory health insurance for foreign workers and local retirees. 

“The introduction of new medical covers, and some inflation-related tariff adjustments were among the growth drivers in 2022,” the S&P report states. 

“We expect authorities in the region will continue to encourage the development of the insurance sector by introducing new mandatory covers and that GCC markets will continue to expand at a moderate pace in 2023.”

According to Omar Gemei, head of Marsh’s regional reinsurance office at Dubai International Finance Centre, the UAE’s insurance market will achieve “outsized growth” in 2023 thanks to its rising population, hefty foreign direct investments and its status as a hub where insurers write regional and international policies. 

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Gulf insurers must differentiate themselves by investing in technology and data, said Rueegg. 

“By leveraging advanced technologies like AI and chatbots, insurers can better understand customer behaviours and industry trends,” he said. 

Sector profitability declined in most Gulf countries last year despite increasing income from premiums, according to S&P. 

“We expect the high competition in most markets to ease somewhat in 2023. We believe that total net earnings could show a modest uptick if insurers continue to reprice underperforming motor and medical accounts,” S&P wrote. “In addition, higher interest rates will boost investment returns.”

Many insurers are loss-making, S&P wrote, noting the top three companies in Saudi Arabia and Kuwait generated almost all the industry profits in these countries. 

Small and mid-sized insurers could struggle financially due to increased claims and rising regulatory costs. These difficulties may require them to raise capital and spur further consolidation in the sector, S&P predicts. 

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“The insurance industry in the GCC region has witnessed a wave of mergers and acquisitions (M&A) in recent years, driven by the need for scale and increased competitiveness,” said NLGIC’s Rueegg. 

“We expect to see continued M&A activity this year. By consolidating operations, insurers can achieve economies of scale, increase their market share, and enhance their product offerings, which is increasingly crucial in the face of rising operating costs.”

A separate report by Mercer Marsh Benefits, a Marsh subsidiary, estimates per-person private medical insurance costs in the Middle East and Africa rose 15 percent in 2022 and will increase a further 13.8 percent in 2023, outstripping the global average. 

Nearly half of the 14 Middle East and Africa insurers surveyed said patients were filing higher costs per claim and noted more later-stage diagnoses due to delayed treatment as a result of the pandemic. 

Wages within the Gulf’s insurance sector are also rising, said Marsh’s Gemei.

“The cost of highly qualified talent is increasing due to the demand for experienced colleagues,” he said. 

Regional insurers report that 44 percent of corporate clients, which provide healthcare benefits to their employees as part of their renumeration, plan to reduce coverage to manage costs, according to the MMB survey. 

Saudi Arabia became the Gulf’s largest insurance market last year, S&P estimates, following the expansion of mandatory health insurance and a booming domestic economy. Yet two-thirds of insurers reported underwriting losses due to higher medical and motor claims, stiff competition and claims inflation. 

Over the past five years, the number of insurers in the kingdom fell from 34 to 28 . Further consolidation is likely in 2023, S&P forecasts. 

In the UAE, the introduction of corporate tax will weigh on insurers’ profits. The country’s lslamic insurance sub-sector is especially ripe for further M&A, according to S&P.  

In Qatar, a long-awaited compulsory health insurance law is being introduced in phases. The main part of the programme could generate up to 1.5 billion riyals ($412 million) in new gross written premiums “in the coming years”, S&P wrote.