The slowdown in the construction industry and other consequences of the economic downturn have had a knock-on effect on the UAE's insurance sector.
"There has been a slight reduction in the premium volume because of the slowdown in the construction sector – most of the business growth in 2007 came from the construction sector," S Rajagopal, Managing Director of Al Nabooda Insurance Brokers, told Emirates Business. The motor insurance segment has also been affected, he said. "In some sectors, such as motor insurance, companies need volumes to grow to remain profitable, but this is a period of business closures, downsizing and manpower retrenchment."
Can you give us an overview of the UAE insurance sector and the role of brokers.
The insurance market in the UAE is flooded with 250 major and minor players. The minimum capital requirements for insurance brokerage firms have been enhanced and as a result all new entrants are genuine players. About 20 per cent of the companies control 80 per cent of the market and many brokerage firms are inactive. Insurance brokers play a crucial role. Insurance companies sell policies written in languages that are not easily understood by the common man. Insurance companies need to know their customers' requirements. Instead of setting up their own marketing establishments and networks, insurance companies depend on established brokers to sell their products. A good broker will arrange the best market rates and suitable products and help consumers understand the technicalities of insurance policies. Insurance is a key tool to protect valuable assets and the skill of an insurance broker is to find the best risk-management products for clients.
What is the size of the UAE insurance sector and how is the economic crisis affecting the industry?
The UAE is one of the largest insurance markets in the GCC. In 2008, total premiums in the UAE market were around Dh15 billion. There has been a slight reduction in the premium volume because of the slowdown in the construction sector – most of the business growth in 2007 came from the construction sector. The performance of the insurance sector runs in line with that of the economy. When the economy grows, the insurance sector grows as well. Recently we have seen a massive fall in economic performance leading to the failures of businesses. The steel industry, for instance, has seen a steep fall in demand and traders are sitting on accumulated stocks. The volume of marine insurance will come down due to reduced demand. In some sectors, such as motor insurance, companies need volumes to grow to remain profitable, but this is a period of business closures, downsizing and manpower retrenchment.
How is your company performing?
Al Nabooda Insurance Brokers is a young company on an aggressive growth path. Last year we saw an 80 per cent growth in business. During an economic crisis we can either go with the crowd or take a number of initiatives. We are going to start a major media campaign and have recruited a qualified team, especially experienced underwriters, and despite the economic slowdown, we expect to overshoot our targets. We have set up a dedicated call centre to deal with customers.
How is the motor sector performing?
The Japanese car segment has been hit due to a reduction in demand. We have not seen a drastic fall in the premium car segment. The impact of the slowdown depends on the particular segment. Expatriates are leaving the country and the situation is not as good as it was.
Are premium rates falling as a result of the current economic conditions?
The insurance market is embarking on an aggressive premium rate war and our mantra is to put various options before the customer. Aggressive marketing by insurance companies has already affected premium rates, but even in this economic situation some companies have increased premiums. It is a question of recycling existing business and snatching business from other players in the insurance market. However in certain segments, such as warehouse insurance, insurers are not willing to give quotes. The motor insurance segment too is not profitable but it helps to smooth out the cash flow for companies. Insurance companies set motor insurance premiums depending on the past claims experience with customers. Safe drivers now get the best rates but there are transparency issues. A corporate client with 1,000 vehicles paying Dh2 million in premiums per year will get a reduced premium rate, say Dh1.4 million, if the company can prove that its risk level has come down. A good insurance broker can help such clients to obtain improved rates through proper analysis.
Have there been delays in processing claims involving pharmacies and hospitals?
There are some delays in medical insurance, which works in a different way. In all businesses there are bad parties and cases. Due to reconciliation issues some medical insurance companies have stopped dealing with some laboratories who they believe conduct too many medical diagnostic tests and exaggerate costs.
Is there any truth in allegations that the insurance sector is not employing Emiratis?
Most locals prefer banking jobs. It is difficult to attract Emirati employees to the insurance sector. Now the UAE seems to be going in the right direction as Dubai Men's College now has opened an insurance faculty. We welcome Emirati workers at Al Nabooda Insurance Brokers.
PROFILE: S Rajagopal Managing Director, Al Nabooda Insurance Brokers
S Rajagopal's experience spans two decades across the GCC and India, predominantly as an underwriter.
He held senior positions in major national and multinational insurance companies before moving into insurance broking.
He is a fellow of the Insurance Institute of India and an Associate of the Chartered Insurance Institute of London.
He is the only person from outside the UK to have won the Young General Insurance Professional of the Year from the Chartered Insurance Institute of London.
His areas of expertise include risk management, research and development and drafting the wording for a wide range of insurance classes.
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