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23 February 2024

UAE insurers face shortage of talented staff

UAE Insurance Authority said in 2006, there were 24 national and 27 foreign insurance companies operating in the UAE (FILE)

By Staff

The UAE government needs to make environment more amenable for insurance companies by amending some of the existing regulations and as they are finding it tough to recruit talented and experienced staff, according to a study by Dubai Chamber of Commerce and Industry.

“Improvement in the legal framework could help make the environment more amenable for insurance companies. For takaful, one major challenge is that there is a lack of assets compliant with Islamic provisions against usury and excessive risk, which companies can invest in. Finding suitable staff is another challenge.
Takaful operators are generally smaller, which means they are still not able to take advantage of economies of scale and achieve a high level of profitability.

“Standardization of laws relating to takaful could also help aid the growth of this market. The insurance sub-sector in the UAE can therefore look forward to a period of robust growth. Increase in demand for insurance products due to greater awareness of this area coupled with increasing incomes could increase the customer base and the amount of premium. From the insurance industry perspective, further growth depends on the ability of companies to realize economies of scale so that they are more profitable and able to survive any economic downturn and be more stable long-term partners for their customers,” the study said.

Globally, strong growth can also be expected in takaful, which is emerging from a small base. The study further says that Dubai and UAE can make themselves the hub of this important growing centre by issuing specific takaful laws and standardizing takaful regulations.

The government can further help the conventional insurance companies too by making the legal framework more amenable to the operation of insurance companies. Different areas of the financial sector are inter-linked, as insurance companies need to manage their liquid assets and attain a suitable rate of return.

Therefore, policy measures aimed at making Dubai a hub for the securitization and the asset management industry can also be conducive to making it a centre for the insurance industry. This will help make Dubai and UAE the financial centre of the entire Middle-East and North Africa (MENA) region.

According to a recent Business Monitor International (BMI) report, the UAE insurance market is expected to experience strong growth as the demand for insurance products increases. Future forecasts for the UAE insurance sub-sector, in which the non-life premium market is forecast to increase by a compound annual growth rate (CAGR) of 11 per cent, while the life premium market is forecast to grow by a CAGR of 8 per cent per year.

Growth drivers
The study points out at important drivers of growth for the insurance sub-sector including penetration of life and non-life insurance market , level of gross domestic product (GDP) and GDP per capita levels. It stated that the growing penetration levels coupled by rising GDP and per-capita income levels could indicate an insurance sub-sector set for high growth. Rising income levels could lead to increase in demand for insurance, as people have more disposable income to spend on protecting themselves, while low penetration means that there could be substantial potential for UAE companies to grow from a low base.

It further says that in the case of UAE, as per-capita income, nominal GDP and penetration levels for the non-life insurance market, which makes up a majority of the premiums in UAE, are expected to grow. These conditions can therefore be expected to drive the future growth of the insurance industry in the UAE.

Also in the non-life insurance segment, the UAE’s penetration as percentage of GDP ratio is generally higher than several other countries in the Middle-East and North Africa region, implying a more competitive operating environment. However, UAE insurance companies also need to achieve economies of scale to become more stable partners for their customers.

Population is another growth driver and is expected to increase in the UAE. The number of companies in the insurance sub-sector is an indication of the level of competition. The Insurance Authority of the UAE reported that in 2006, there were 24 national and 27 foreign insurance companies operating in the UAE. Given a total of 51 companies, this makes for a competitive insurance environment, with customers having an adequate number of choices.

Future consolidation and mergers in this sub-sector could create these economies of scale. This could hold long-term benefits for customers, if part of the cost-savings is passed on to customers.

About 85 per cent of the premium amount comes from non-life insurance while the remainder share of 15 per cent comes from the life insurance category.

Islamic insurance know as takaful is also expected to be an important growth area. Takaful involves the voluntary provision of mutual assistance where all clients enter into a cooperative agreement to insure one another. Economic growth and rising incomes among the GCC and other developing Muslim countries, such as Indonesia and Malaysia, could result in an increase in demand for takaful. The demand for such Islamic insurance products seems to have high potential for growth but is currently at a low base, creating the possibility of rapid growth in volumes.