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15 April 2024

UAE insurance sector poised to expand despite global turmoil


By Karen Remo-Listana

The UAE insurance sector is continuing to expand despite the turmoil in the global financial markets. After years of lagging behind other types of finance, demand for insurance is taking off.

"Last year was fantastic as we expanded the life insurance business by 50 per cent," Matthew Waterfield, General Manager-Middle East at Friends Provident International, an FTSE top 100 company with $147 billion (Dh540bn) of funds under management.

However, the penetration of life insurance remains low at only one per cent in the entire GCC. "Life insurance is so new here," he said. "Our main challenge is to educate people on the product. The penetration rate for life insurance is just one per cent in the whole GCC compared to developed countries such as the US with nine per cent and the UK at 11 per cent."

Although the sector is facing a "challenging year", the life insurance industry is not severely affected by the credit crisis. "Insurance companies are in a much better position to weather the credit crunch," Waterfield said. "We are fundamentally different from banks, especially with credit cards, where they borrow to be able to lend in quite a short term. When we talk about insuring people's lives we are looking medium to long term – anything between 10 and 40 years."

How is your business faring during these trying times?

We have been in the UAE since April 2007, but we have been in the region for 12 years. We are one of the very few foreign insurance companies here that have got a full insurance licence. We have started at a very good time. We will be announcing our 2008 figures at the end of the first quarter. But we should recognise that last year was a fantastic year where we grew the business by 50 per cent.

What about 2009?

This year is going to be a challenging one. The group – FPI – is financially strong. We don't have to borrow money. We are self-financed. We specialise in life insurance, including savings and retirement plans, as opposed to general insurance or private medical insurance. And we are fundamentally different from banks, especially with credit cards where banks would borrow to be able to lend in quite a short term. Life insurance deals with a much long-term horizon. When we talk about insuring people's lives we're looking medium to long term – anything between 10 and 40 years. Insurance companies are in a much better position to weather the credit crunch.

Given the fact that you are looking at 10 to 40 years' source of liquidity, why is this year still challenging for the life insurance sector?

If you look at the UAE, every sector is being impacted by the credit crunch. And life insurance is so new here. Our challenge is to educate people on life insurance. The penetration rate for life insurance is one per cent in the whole GCC compared to developed countries such as the US with nine per cent and the UK with 11 per cent. Although we are in challenging times, there is an opportunity because so far there is just a small percentage of the market that knows about life insurance.

Is the low penetration due to the culture here?

It is partly because of that. The main driver is the understanding. Because it is new, people don't fully understand the need for a life insurance. We don't sell directly to customers, we work through distributors such as insurance brokers, financial advisors and banks' wealth managers. So part of our role is educating them in order for them to educate and support their customers. You see we have a certain standard of living as per the salary that we generate and we expect that when we retire, we have the same standard of living. And that's not going to happen unless we do something about it. There are normally five things that you can do. First, you can rely on the state – as expatriates we are not going to be supported by the government here. Question is, will the government in our home country support us? Second, we, ourselves can do something. Or if we are very lucky, we have a very benevolent employer who can set up a scheme for us. Fourth is we do a combination of the second and the third. And option five is we do nothing.

FPI recently launched the Optus group savings scheme, which protects gratuity payments during an economic crisis. How's the demand for that?

The demand at the moment is very strong. Employers are now looking more at gratuity replacement because whether the economy is buoyant or it's falling, they still have a legal requirement to provide gratuity. The employer contributes monthly, quarterly or annually. The contribution would be segmented for individual employee so when the employee leaves, he has the right to either claim that money or we can allow them to take it with them and they can continue investing with it.

FPI has found that few employers realise the extent of the potential exposure gratuity provisions place on their balance sheets and often fail to plan, leaving their company open to financial risk if a number of employees choose to leave within a similar timeframe or a long-term employee leaves. Optus allows employers to manage gratuity exposure and puts them in control of their own scheme, therefore reducing the liability they face through salary inflation

Have you seen employers not paying gratuity to their employees?

There are stories in the market place. A lot of people know or who have friends who haven't been paid their full gratuity because their employer didn't have it.

PROFILE: Matthew Waterfield General Manager (Middle East), Friends Provident International Ltd

Waterfield has more than 19 years of experience within the financial services industry, 16 of which have been spent specialising in international business.

He began his career in financial services in the employee benefits arena with Capital Plans in the United Kingdom before moving into the individual retail market, first with Legal & General and then Manulife. In 1991, Waterfield broadened his horizons to focus on the international insurance market and now has the experience of many global markets including Europe, Africa and the Gulf.

Waterfield has 10 years' experience in the Middle East and established Friends Provident International's Middle East regional office in the Dubai Airport Free Zone in 2004 before securing FPI's UAE federal insurance licence in 2007.