Fierce competition, rising medical cost drain profits of Saudi, UAE insurers

Inflation outpacing health insurance premiums increases, says Fitch Ratings

Image used for illustrative purpose. Cropped Image Of Insurance Agent Discussing With Client At Desk.

Image used for illustrative purpose. Cropped Image Of Insurance Agent Discussing With Client At Desk.

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Insurance companies in the UAE and Saudi Arabia will continue to face challenges amid high healthcare costs and a crowded market, according to Fitch Ratings.

The credit rating agency stated in its latest report issued on Monday that medical inflation, coupled with stiff competition, will further squeeze insurers’ profits in the two markets this year. 

Rising medical claims are outpacing premiums increases in Saudi Arabia, while health insurance gross written premiums in the UAE are on a decline, it said.

The UAE and Saudi Arabia are the two largest insurance markets in the Middle East, with health insurance business dominating in both.

Since the compulsory cover was mandated in the UAE in 2005 and in Saudi Arabia in 2006, the health segment has been the fastest-growing insurance product in the region.

However, with costs still rising, the health insurance market in both states has seen slowing growth and even contraction in Saudi Arabia in 2018.

Saudi Arabia

In 2019, insurers in the kingdom saw the loss ratio jumping to 91 percent, from 88 percent in 2018 and 77 percent in 2017, as healthcare claims inflation outpaced premiums adjustments.

However, Fitch expects “significant growth” in the sector in Saudi Arabia in 2020, following the introduction of health insurance, linked to visas, for religious visitors from abroad.

“We expect this growth to account for more than $800 million of premiums and cover around 17 million people annually.

UAE insurers

Health insurance gross written premiums (GWP) in the UAE dropped by 2 percent in 2018, as the market matured following a decade of double-digit growth due to the various compulsory health insurance initiatives set in place.

Medical inflation in the UAE was projected to be in double digits for the fourth consecutive year in 2019 and substantially higher than consumer price index (CPI) inflation, according to a survey of insurers by Mercer Marsh.

Besides inflationary pressures, UAE insurers are facing fierce competition. The country is home to 62 licensed insurance companies, 163 insurance brokers, and 26 health insurance third-party administrators.

“Regulatory changes making health insurance compulsory have attracted new players, increasing competition and eroding profit margins. The market is crowded,” Fitch said.

In 2018, two of the biggest insurers in Saudi Arabia, Tawuniya and Al Rajihi Takaful, posted declines in turnover of 9.1 percent and 6.89 percent, respectively, according to Atlas Magazine.

In the UAE, Daman Health Insurance and Oman Insurance posted declines of 8.59 percent and 0.51 percent, respectively.

(Reporting by Cleofe Maceda; editing by Seban Scaria)


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