- Strategic challenges highlighted for the UAE insurance sector
‘Strategic dilemmas in insurance’ released by Grant Thornton further identifies what insurance companies need to do now to embrace market changes this year.
The Insurance sector in the UAE has recently shown signs of being impacted by changes in economic conditions and lowering oil prices which have stalled investor confidence. “With new regulations introduced in January 2015 by the UAE Insurance Authority, insurance companies are still going through the challenge of adapting to the new regulations whilst aiming to remain resilient to economic conditions” said Samer Hijazi, Partner and Head of Financial Services for Grant Thornton UAE.
Grant Thornton have identified five key areas that Insurance companies must fortify and guard against in the UAE to embrace changes in the market condition which include infrastructure and cost, customer interface and distribution, capital and scale, people and regulation.
“The UAE insurance industry is going through a fundamental change in regulation. The question arises whether individual insurance companies have the appropriate risk management infrastructure in place to manage this transition.”
Samer continues that “changes in the regulatory environment may lead to a number of challenges for Insurance companies in the UAE, however by increasing regulation within the sector it will result in short term challenges, which have pro-longed gains for the sector. Ultimately, high quality regulation can only result in greater confidence in the insurance companies amongst consumers and counterparties.”
Insurance penetration per head in the UAE is relatively low compared to some of the more mature markets in the West. As a result, room for growth is large but with fierce competition spread across a large number of firms and brokers, some consolidation in the industry is inevitable. With this in mind, Samer states that “the demand for Islamic insurance products such as Takaful, seems to have high potential for growth but is currently at a low base, creating the possibility of rapid growth in volumes.”
Although the sector is going through a period of change and competing in adverse economic conditions, the insurance sector must act now to address the strategic dilemmas that it is exposed to – to further shield and protect the sector from any unforeseen changes whether economic, political or social.
To read strategic dilemmas in insurance click here.