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19 April 2024

Insurance sector in need of better regulatory norms

By Nitin Nambiar


The insurance industry in the Middle East is on the verge of major changes and global insurance giant AXA believes regulation and innovation will be the key to future growth. On his whirlwind trip to Dubai recently, AXA’s Group CEO and Chairman Henri de Castries told Emirates Business the region was still lacking regulatory frameworks to create a more open and dynamic market.

“It always excites me to come to this place… whether business or pleasure,” he said. Last month, AXA launched its new service unit at Dubai Outsource Zone, which consolidates in one place the firm’s claims-handling and back-end processing divisions.

“We have reached a stage now where market share is all about being innovative in your customer service. This, along with an extensive product offering, is going to be the key for growth in the region,” he said.

AXA’s operations are spread across western Europe, North America and the Asia-Pacific area. The firm has 1,315 billion euros (Dh7,076bn) in assets under management.

According to De Castries, a better regulatory framework is the need of the hour for the regional insurance industry. “The UAE has historically had two prominent markets – Dubai and Abu Dhabi. Dubai has opened its marketplace to insurers from around the world. But there are still some ‘closed shop’ environments in the GCC, dominated by a small group of national insurers.”

A new law to govern the UAE’s insurance industry came into force in August, paving the way for an insurance regulatory body. “The introduction of such an authority will solve a lot of problems in practice, with areas such as life insurance and bancassurance posing a few ‘grey’ areas,” De Castries said.

The talk of an insurance regulator comes at a time when the 100 per cent restriction against foreign ownership of local insurers has been relaxed to 75 per cent, and against the backdrop of new foreign insurers being permitted to set up operations in the UAE.

AXA has forged a partnership with the Kanoo Group in the UAE, Oman and Bahrain. AXA Insurance Gulf, as the entity is called, is among the few international insurance companies with operations across the GCC. It has gross written premiums of more than $250 million (Dh918m) in the Gulf.

“Effective regulation of the industry will not only hinge on local regulators. Self-regulation, industry codes of conduct and other initiatives will all need to play their part. In order to increase stakeholder participation, GCC regulators will need to ensure consultation and dialogue within the industry and service sectors is made a priority,” he said.


De Castries is confident of future prospects for the regional insurance industry. Besides offering conventional insurance products, he said the company is also keenly looking at Islamic insurance, or takaful, products for the region given the strong growth momentum the segment has seen in recent years. “The UAE’s insurance industry may double by 2010, with exponential growth in the country’s logistics industry. The GCC insurance market has a potential size of $20bn (Dh73.44bn),” he said. Currently, this figure is $4.6bn (Dh16.89bn).

“In the short-term, the sector, which comprises about 23 local and 24 foreign companies, should see its annual growth rate rise to 20 per cent or beyond, buoyed by the logistics, construction and energy sectors and an influx of expatriates. We are the market leader in motor insurance in the UAE, and we’re striving to improve the quality of our ties with our customers by making it simpler to do business with us,” De Castries said.

AXA has a market share in the five to 10 per cent range across the GCC, including all product segments. “As far as the UAE goes, I think the government is working hard to boost the sector with talks on for a new federal regulator to ensure higher standards of corporate governance, higher capitalisation requirements, new rules on risk allocation and the likely introduction of compulsory professional liability insurance for certain types of firms.”

After Abu Dhabi introduced a compulsory health insurance scheme earlier this year, Dubai may follow suit, he said. According to the website of Clyde and Company – a law firm whose consultants were advisers in the development of the Abu Dhabi law – the introduction of such a law in Dubai could cost employers in the emirate up to $1.5bn (Dh5.5bn), and up to $4bn (Dh14.6bn) when the law is eventually applied to the whole of the UAE. Needless to say, the opportunities are huge.

AXA Gulf was awarded a similar healthcare scheme by Qatar Petroleum. De Castries said health insurance offers an area of huge untapped potential. “So is life insurance, provided products can be offered to overcome cultural reservations,” he said.

A recent Moody’s report estimated that the global takaful market will be worth $7.5bn (Dh27.54bn) in contributions by 2015, while a HSBC report said the figure will be near $14bn (Dh51.4bn). De Castries said his firm is “seriously considering its options” on the Islamic insurance front. “If we don’t have in-house expertise, we might look at a joint venture.”


Henri de Castries studied business at HEC in Paris and subsequently obtained a degree in law. After graduating, he began his career with the French Finance Ministry Inspection Office.

He joined the French Treasury Department in 1984. In 1989 he joined AXA’s corporate finance division and was appointed corporate secretary in 1991.

In 1993, he was named senior executive vice-president for the group’s asset management, financial and real-estate businesses. In 1994, he assumed the additional role of overseeing North American and UK operations.

De Castries has been serving as the Chairman of AXA since May 2000. In addition, he is on the board of the Association pour l'Aide aux Jeunes Infirmes, and is Chairman of AXA Hearts in Action.

A Dh17.27bn market

Investments in the UAE insurance sector amounted to Dh17.27 billion last year, according to an annual report released by the UAE Ministry of Economy in August. The value of underwriting premiums was Dh10.31bn, the report said.

The total of underwriting premiums for life and savings insurance amounted to Dh1.65bn.

According to the ministry’s annual report, the share of the national companies in these premiums was 23.7 per cent; foreign companies accounted for the rest.

The percentage of national insurance companies’ retention of underwriting premiums in general insurance was 47 per cent, while the retention percentage for medical insurance was 61 per cent. The figure was 31 per cent for fire insurance and 60.3 per cent for accidents and liability insurance.

High on takaful
The global takaful market will be worth $7.5bn (Dh27.54bn) by 2015, a significant increase over last year’s $1.1bn (Dh4bn), Moody’s estimated. HSBC estimates that the figure will be around $14bn (Dh51.4bn).

Standard & Poor’s, which has been rating region’s takaful firms, said in a recent report if the world average insurance premium of $550 (Dh2,019) per capita is achieved and applied to the Gulf states, the market has a potential size of $20bn (Dh73.44bn).

Taking Malaysia as an example, where the takaful market is expected to contribute 20 per cent to the overall market in the medium-term, the GCC takaful market has the potential to reach $4bn (Dh14.68bn) at the current level of development, according to S&P.

De Castries said companies will have to be innovative in developing takaful products with the local market in mind.