Survey Expects MENA Insurance Improvements

Posted on Apr 03, 2012 by Sergio Ulloa (G+)

The Middle East and North Africa (MENA) offer considerable growth opportunities for insurance due to the region's rising income levels, pronounced infrastructure investments and low existing coverage rates relative to global standards. Despite these positive factors however, insurers in the region still face numerous challenges both big and small when competing in their respective market, and recent economic and political turmoil have not helped matters either. In order to better capture the MENA region's business potential going forward, a new study argues that local insurance companies must begin to gradually evolve their businesses from small fragmented companies to become national champions and then hopefully regional and even international players. This conclusion was determined by a survey of MENA Insurance CEO Club (MICC) members conducted last year by international consultancy firm Oliver Wyman. The survey, titled "A Successful Future," was carried out by the MICC to address and tabulate some of the key challenges and concerns facing MENA region insurers today and what responses may be required by both industry regulators and participants going forward to ensure a better future for insurance business in the region. Oliver Wyman conducted extensive interviews with 12 MICC members, each representing different markets, product segments and sizes of business in the region, to produce their findings. While the MICC survey included a range of insurance companies with highly different profiles, the responses showed many common areas of interest and concern amongst members. Overall the club noted that the consensus forecast for the MENA insurance industry has remained bright amongst local insurers, despite them facing increased market completion, heightened socio-political tensions and other unsolved operational challenges. The survey showed an interesting combination of apprehension and optimism amongst respondents when asked about the short term business prospects in the market. Although half (57 percent) of the respondents believed that the MENA insurance industry would face more challenges than opportunities during 2012, over 85 percent were confident that their own individual companies would probably enjoy more opportunities than challenges over the next 12 months. In interviews, MICC members noted that the underlying growth drivers supporting the regional insurance industry have remained strong in the face of heavy claims losses and moribund interest rate returns as of late. Lavish state-funded infrastructure projects and the regulatory introduction of new compulsory lines of insurance have increased demand for certain lines of business that hadn't had traction in the MENA market before. When asked to review their outlook regarding the MENA region's overall operating and competitive landscape, most of the MICC members surveyed (86 percent) believed that larger and more sophisticated insurance groups would cope with operational and investment challenges better over the next year. The majority (67 percent) or respondents also felt that more foreign insurance companies would enter regional markets in pursuit of sustainable premium growth opportunities soon. These large, sophisticated are predominantly foreign insurers are expected to succeed in the MENA and increase their market share due to the need for improved insurance skills and capabilities across the region, which they are of course better qualified to provide. The survey then examined what effects the current level of competition was having on price structure in the MENA insurance market. While the number of insurance companies competing has continued to grow, MICC respondents noted that there other factors outside of over-crowding that worked to put undue pressure on pricing, and therefore company margins, over the past few years. The survey cites both the introduction of international insurance brokers to MENA markets and increased price sensitivity and knowledge amongst local customers with keeping premium levels stubbornly low. There was also a view that new market entrants and large global reinsurance companies have been complicit in supporting weak pricing across the region. While irate on pricing practices, MICC respondents meanwhile differed on the issue of what will happen to insurance distribution in the Middle East and North Africa. Almost 60 percent claimed that brokers would become a much more prominent distribution channel soon while the remaining 40 percent believe that bancassurance will become more important than ever over the coming year. Most MICC respondents believe that the region's individual insurance sectors needs to become more disciplined and bottom line focused in order to address the challenges that face them. In order for this to happen, insurers need their respective industry regulators and legal authorities to become more active in dealing with weaknesses in the market as well as encouraging best business practices amongst competing insurers, both young and old. Most MICC members surveyed believed that their market regulators should take a stronger stance on several key issues in particular, such as insurance fraud, reporting and statutory violations, dealing with insolvent insurance companies, and improving risk management practices and reporting standards. When asked to pontificate on the future of the MENA region's insurance sector, MICC members believed that the markets would soon consist largely of national champions, regional champions and smaller specialized firms. These firms are expected to emerge from increased consolidation activity, initially locally and then later through cross-border m&a deals with other MENA champions. According to the MICC, the growth of dominant national insurance champions caused by consolidation within each MENA market will lead to a greater balance between market share and profitability, which will result in companies shifting their competitive priorities from lower pricing to improved quality of service. While this will likely lead to a smaller number of local insurers actively competing in the MENA market, the ones who stay and can evolve their operations, either through consolidation or specialization, will have the capability to compete with the multinational insurers. Companies Mentioned MICC The MENA Insurance CEO Club (MICC) is an independent think-tank consisting of regional industry professionals who work to serve and promote the interests of Middle East insurance internationally. Oliver Wyman Founded in 1984, Oliver Wyman has become a leading global management consulting firm. Oliver Wyman is now a wholly owned subsidiary of Marsh & McLennan Companies