Hosted at The Address Hotel Dubai Marina, the eighth annual Insurex conference lived up to its reputation for breadth of content and practical focus – bringing together more than 30 distinguished speakers from across the world to capture the pulse of the Middle East insurance industry and push for change.

Policy brings you a taste of the wide array of topics discussed.

Eng Saleh Bin Rashid Al Dhahiry,  Chairman of the Board for Emirates Insurance Association, delivering the keynote address to open the two-day conference, said insurance companies in the region still have a long way to go and have a responsibility to properly identify risks and find the most appropriate and transparent ways to manage those risks.

They should also learn how insurance capacity to be used and developed for the benefit of the regional industry.

Setting the tone of the conference, Dhahiry said: “Insurance industry requires both growth, innovation, regulation for developing the industry and insurance market in a healthy and sustainable manner, both for the industry itself and the society.”

He also reminded the regulators of their responsibility to play their role judiciously for developing the market in a healthy and sustainable manner.

 Speakers after speakers, drawn from CEOs and Managing Directors of leading companies and industry experts from across the region, harped on the challenges facing the regional insurance industry. 

The common thread was: There is competition on pricing and companies should go back to sound underwriting, should adopt global best practices, players should not be driven by volume but focus on bottom lines, give much more importance to training and governance and more importantly there is need to increase local involvement.

 Deputy Director General of UAE Insurance Authority Fatima Mohammad Al Awadi, was a special guest at the conference.

 High profile panel

 The conference commenced with a high profile panel discussion to identify challenges facing the regional insurance industry. The panel included Abdul Muttalib Al Jaidi, former CEO of Oman Insurance Company, Patrick Choffel, CEO of Oman Insurance Company, Justin Balcombe, Mena Insurance Leader Ernst & Young, Dr Omer Clark Fisher, CEO of Al Hilal Takaful, and David T Youssef, Managing Director Middle East & Africa, Now Health International and moderated by Irshied Tayeb, Regional Head of Insurance Services Department, BSA.

Abdul Muttalib advised insurance companies to go back to technicalities to cope with international trends and to bring back best practices.

 Abdul Muttalib said: “We should challenge ourselves by sticking to the technical rules and principles of doing business. Every body is talking about competition and cutting rates. Who is cutting rates? We ourselves are doing it. We are driving competition, damaging every body. So, the challenge is to go back to technicalities.”

 David T Youssef, Managing Director, Middle East & Africa, Now Health International: “We need to get more young people, especially local population, into the industry, give them proper training to move this industry forward to the next level in terms of innovation and corporate governance. If there is profitability in this business, there will be innovation. Then people will want to invest more money into the business. Reformation and segmentation will take the industry forward.”

 Technical products

 Justin Balcombe: “People need more technical products.  In terms of regulation across the region there is absolute need for harmonisation of regulations. We have different localities with different perspectives of regulation and we have different needs within those localities. So there is a need for common regulatory framework and perhaps Solvency II is one of the mechanisms to a common regulatory framework.

“Growth is definitely happening in strong organisations and the strong will certainly become stronger and there would definitely be segmentation and consolidation in certain parts of this industry.”

 Dr Omer, who is an authority on takaful, said takaful companies should encourage young people to take up insurance as a career, develop more products and focus on good corporate governance.

Speakers also called for emphasis on proper training and the need to attract more young people to the industry.

 Lax Regulation

 Safder Jaffer, Managing Director and Consulting Actuary with Milliman, summarized the deliberations thus:

“Discussions were around value proposition of business in a highly competitive market, the competitive nature of business, pricing sensitivities, challenges on the reinsurance front, low penetration and the technical dimensions of corporate governance regulation.

 Go back to the basics of sound underwriting  which is the strength of insurance at the first place as the core value rather than relying on investment returns. There was discussion around adopting international trends and global benchmark best practices in our businesses. There was also discussion that we should not be driven by volume but should have our eyes focused on the bottom line. Life insurance needs to move forward into the second layer now and is progressing towards pensions, which is very much lacking in this part of the world. There is the need for some sort of uniformity and harmonization when it comes to regulatory framework.”

 The session on regulation and corporate governance analysed the present state of affairs of the industry and the regulatory framework.

Providing an overview, Fareed Lutfi, Secretary General of Emirates Insurance Association, said: “The insurance industry should adhere to sound corporate governance, particularly in the Mena region, where the insurance industry is underdeveloped but growing fast. In the Mena region Shari’a  compliant insurance and reinsurance is growing fast and provides an additional incentive for strong standards to be built up quickly.

He also emphasised the need for proper enforcement of regulations.

“Insurers and regulators should realise that they  do not have an adversarial relationship and should engage in active dialogue which is beneficial for the sector’s sound development.”

On Solvency compliance, Lutfi said Mena insurers have a long way to go on regulatory framework,  let alone Solvency II,  as companies will be required to hold a level of available economic capital, some will struggle to raise additional capital to support volatile lines of underwriting and a traditionally aggressive approach to asset management, and economic and risk-based capital requirements are expected to strengthen an insurer’s resilience in the face of severe market disruptions or catastrophic events. 

The compelling benefits to be derived from Solvency II will encourage regulators in the region to act proactively.

Gulf insurers will have to have a new approach of looking at enterprise risk.  This will require a massive change in their product strategy, asset management and capital management, he said.

 Success formula

 Dr Michael Bitzer, CEO of Daman Insurance, in his presentation, said corporate governance is not just a legal or regulatory issue, but it is critical to the success of a company or business unit.

Citing examples, Dr Bitzer said: “Despite its important role, corporate governance can fail and measures need to be implemented to ensure its success.”

He advised managements to promote a corporate culture wherein constructively challenging the management’s business conduct is seen as healthy and positive. It should represent the interests of different stakeholders to ensure their alignment with the company’s shareholders, employees and the society at large. It should also define management’s remuneration and incentive system in line with corporate values and strategy as well as promote a sound and ethical behavior.

 Lisa Kelaart-Courtney, Head of Compliance Advisory Services with Clyde & Co, dwelt on regulatory challenges and the need for risk-based prudential regulation.

She said: “It is the board’s responsibility to ensure that the insurer has appropriate systems and functions for risk management and overall internal controls and to provide oversight to ensure that these systems and the functions that oversee them are operating effectively and as intended.

These systems and functions should cover not only prudential risks but also conduct of business risks.”

She said there is not much coming from the insurance authorities in the region on corporate governance

 Richard Burger, Partner at RPC, UK, said: The developed world is going through a rigorous regime of regulation and this region is still moving towards maturiy.  The question was whether what is implemented in the west will it work in the east?  Regulation has to be applied in a proportionate way, he said.

 Fareed Lutfi added:  “The way I see it, if Solvency II is implemented fully, it is bound to have consolidation. On the other hand,  nobody wants to inject fund into the insurance companies any more.  The region needs the right regulation and be implemented religiously.”

  Gloomy picture

 The session on Reinsurance Challenges and Prospects was thought-provoking.

Michael Gertsch, CEO, Gulf Re, on his part, raised some vital issues challenging the reinsurance market in the region.

He said while GCC economies are picking up following worldwide financial crisis, broader Mena economies are further challenged by political unrest and there is continued desire for growth across all geographies and all product lines.

 Listing the present ills, Gertsch said: “The underlying portfolio performance is unsustainable; there is limited product offering; very little product development;  there is hardly any cross-selling and very low public awareness and penetration; heavy dependence on reinsurance and increased competition through international insurance companies.”

Painting a gloomy picture, he said 2011 will be one of the costliest years for the global insurance and reinsurance industry because of the Australian floods, Christchurch Earthquake, Fukushima earthquake and tsunami, US tornadoes and individual risk losses.

Describing it the ‘black hole effect’, he said decreasing rates coupled with reducing deductibles and broadening coverage are a recipe for disaster.

“If the market grows by 9 per cent and insurers want to grow by 15 per cent, the only option is to steal the competition‘s already underperforming business.

 “Increasing loss ratios are then being tackled by trying to grow even further. This continuing demand for growth fuels competition, which leads to further deterioration in terms and conditions, which needs to be compensated by more top line growth.”

“The longer this behavior continues the stronger the compounded effect will be and the more effort is required to escape that downward spiral. There is a point of no return…” he cautioned.

 Risk management

 Mazen AbuChakra, MD & Regional Director Life & Health Mena & Cyprus, Gen Re, said: “We need to be improve our risk management capabilities and evaluate the threats and opportunities to our businesses within acceptable risk tolerances.”

“Selecting your reinsurer is not a trivial task, it is not only about price, services and size, you have to evaluate as well other aspects as business strategy, corporate governance, underwriting policy, enterprise risk management and consider key financial indicators, and it is vital to obtain adequate information and interpret it correctly.”

 Participating in a panel discussion on n the prospects of reinsurance, Irshied Tayeb, BSA’s Regional Head of Insurance Services Department Mena, said technical results look gloomy.  Investment income is getting diluted as there are fewer avenues for investments. Insurers and reinsurers do not have the luxury of depending on investment income any more. More reinsurers will open offices in the region.

 The technology edge

 The technology session reminded insurers on the importance of technology as enabler of business agility.

Kalpesh Deasi, CEO of Agile Financial Technologies, in his presentation,  said technology has evolved sufficiently to impact the entire insurance value chain.

“Infrastructure should be conducive to enable innovation, insurers should implement new pricing models and they should be able to evolve new user experiences for customers, agents and brokers for new business and client servicing. Technology will enhance channels for interaction with the value chain – brokers, agents, reinsurers, marketplaces, other medium of sales and service.”

Talking of various technology tools, Kalpesh said mobile features for agents and brokers have become a mandatory tool to differentiate and to capture or retain distribution channel resources. The mobile device feature set will enable new applications to lower loss-costs and improve underwriting data.

 Ziad Arnout, CEO of Hybrid Health Solutions, said health insurers are using IT not only to process claims more efficiently but also to promote evidence-based care, add value to healthcare services and empower consumers through access to information and decision tools.

Better technology and infrastructure will significantly improve the availability and quality of healthcare provision.

“Effectively deploying a combination of established and emerging technologies offers insurers the opportunity to generate increased revenue and streamline their operations,” he said.

Ziad recommended that insurers should prepare for complexity of agile, interoperable IT framework for real-time, customer-driven market.

  Growth ahead

 Perhaps the most important part of the conference was the session on ‘Growth Strategy, The Road Ahead’.

Maroun Mourad, CEO, Zurich Middle East General Insurance, in his presentation said it is the time for regional players to seize the opportunity to drive growth further and achieve double-digit growth.

 “We are in the part of the world where growth is in the upper single digit and low double digit. Not many regions are experiencing this and I think we can really seize this opportunity to drive growth even further,” he said.

However, to sustain this growth rate he has listed a few key enablers such as proactive regulatory framework.

“First of all, we need to attract investor capital, and for that we should move away from tacit protectionism.  Treat everyone at par, both new entrants and multi-nationals, raise the capital requirements levels, bring in  compulsory insurance laws and tighter control measures. A growing industry needs to be controlled in the areas of consumer protection, compliance, investment regulation and capital preservation.”

 “Insurers should be more customer centric and focus on claims servicing and payments and should retain more net premium. Shareholder expectations in the region need to change.  We also need to define the growth strategy through the customers we target, through the proposition we offer and through the pricing approach we follow and customer segment really should be driving our behaviour.”

 Disappearing companies

 James Portelli, FCII Firm CIP/Coordinator, ME IRM Regional Group’s Network, said a number of smaller companies would disappear (acquired by large groups or dissolved) in anticipation of Solvency II. Aggregation and merger activity will increase to exploit use of capacity.  Retail insurers will continue to be over-supplied by reinsurance and will slide back to pre-crisis, revenue driven strategies.

Insurance companies may suffer more indirectly as a result of a regulatory whiplash than through their own doing, he said.

 Years 2011 and 2012 are earmarked as the years of economic resurgence. In most markets one expects insurance strategies will again be revenue-driven from 2012, he said. The market is coming back to the pre-crisis level, he said.

 Talking on mergers and acquisitions, Myrna A Barakat, Managing Director of  MBCAPartners, Lebanon,  said the time for M&A continues to be ripe, but the process is as complex as ever and requires increasingly more sophistication.

  Pension provisions

 Moderated by Irshied Tayeb, the session on private pension provision discussed the reformation of the market to create a multi-pillar pension provision. Robert Grey, General Manager, Bahrain National Life Assurance Company, in his detailed presentation,  advised companies to start early with pension provision while demographics and finances are favourable.  There is scope for integrating healthcare and pension and the GCC should learn lessons from the rest of the world. Employers and employees should combine contributions, and employees should be encouraged to make additional contributions, he suggested.

 Wiam Salah, Actuarial Director with Legal & General Gulf, said long service expat employees will need retirement benefits and life insurance companies can offer immediate annuities to retirees from private defined benefit plans. Life insurance companies may offer group savings plan for retirement that take the shape of a defined contribution plan with a pre-retirement death benefit and annuity option.

 ERM 

The last session of Insurex 2011 was on Enterprise Resource Management (ERM). The implementation of Solvency II and IFR4 will impact risk modeling, capital adequacy and the treatment of serves.

Kevin Willis, Director, Financial Institution Rating Services of Standard & Poor’s, said insurers that fully implement the Solvency II principles are likely to get a strong ERM assessment. Solvency II is expected to raise risk management governance standards, internal control levels, quality of internal models and strategic risk management. The Solvency II requirements are expected to lead to improvements to the overall quality of ERM. GCC insurance supervisors have not developed any ERM targets or requirements for the sector. The lack of severe regional insurance losses also tends to reduce the apparent need for more sophisticated ERM.

  Active role

 Eight years on, Insurex 2011 is not only firmly established in the Middle East’s insurance calendar but leading the charge for promoting innovation and seizing growth opportunities in this dynamic market.

 Thus, Insurex 2011 highlighted the increased focus on regulatory development in the region. The global economic crisis has also heightened the importance of corporate governance and the insurance sector as a whole is paying more attention to this although a lot still needs to be achieved in this respect.

Respondents ranked telecommunications/cell phones first among 25 industries in providing the simplest and most effective user experience. News-related media including print, online, broadcast and mobile outlets also hold a prominent place in the Global Brand Simplicity Index, finishing in the second spot on the industry list.
Internet search brands also rank among the industry leaders, with Google securing the top position overall for simplicity. Rising access to broadband and increased disposable income appears to have driven respondents to praise the power of simplicity in communications offerings from technology firms, saving them time and money, making their lives more efficient and opening up access to a wider world.
Leading the list of the top ten simplest brands in the Middle East are Google, McDonald’s Apple and Sony. Rounding out the top ten are Asharq Al-Awsat, Samsung and Mobily.
“Brands in the Middle East have much to gain if they can effectively streamline their communications and experiences for consumers,” said Philip Davies, President, EMEA. “Simplicity is a powerful tool that helps brands get into consumers’ heads faster, and stay there for longer, whilst building loyalty and trust.”
Siegel+Gale used the survey results to develop the 2011 Global Brand Simplicity Index, which generates a Simplicity Score — a rating of each brand and its category on the elements of the simplicity methodology. Siegel+Gale defines simplicity as ease of understanding, transparency, caring, innovation and usefulness of communications as well as how complex typical interactions are in relation to industry peers.

Chief Commercial Officer of Daman Dr. Sven Rohte further explained: “A survey of this scale offers an in-depth view of the current health scene across the country; in a nation as diverse and multicultural as the UAE, such information is invaluable. The data will allow us to enhance the existing high quality of services we offer our 2.1 million subscribers, and has the potential to contribute to improving awareness on health issues.”
“This survey aims to develop insights to enrich our knowledge and support Daman’s public communication efforts with factual information. We had four key research objectives in conducting this survey – to identify key issues regarding health and lifestyle habits, to promote healthy lifestyle choices across the UAE population, to create awareness surrounding key health concerns, and to remain abreast of changes and developments on the level of healthiness of the country’s lifestyle habits. We are confident this data will allow us to meet each of these goals” added Dr. Rohte.

The survey represents responses from residents across all seven Emirates, and is the first of its scale to be conducted by Daman.

“Considering the current market conditions, we had to reach out to a different kind of investor base than offerings in the past,” Maaiteh said. “With more than 65 per cent of the investors subscribed being institutional, IPOs are no longer a retail game,” he said.
The offer price for each share was fixed at AED1 with an additional AED0.05 as subscription fee per offered share.
The offering was over two tranches with one tranche for UAE national individuals having a guaranteed allotment, and the other tranche open to all investors having a pro rata allotment. 20 million shares, or 13.33 per cent of the total capital, were open to UAE national individuals, who could subscribe to 5,000 shares and 41.67 per cent of the total capital open to all individuals and institutional investors in the UAE, GCC and other investors who could apply for a minimum of 10,000 shares, with additional subscriptions in multiples of 1,000 shares.

Another insurance company Insurance House raised AED66 m in a public issue last month.

The measures, while still in their infancy, have already shown great promise reducing accident and casualty rates by upwards of 30 to 50 per cent. The result has been significant insurance savings over the past several years (approximately $160 million for the UAE alone). Ultimately, insurers can expect to see additional savings over the next few years as these programs reach maturity and industry loss ratios stabilize 5% to 10% below their 2007 and prior levels.

Some history

Figure 1: below plots the number of deaths per 100,000 population (i.e., fatality rate) for Dubai, Kuwait, Oman, Qatar and Saudi Arabia. To put these numbers in context, the worst fatality rates are those of the North-eastern Africa nations of Egypt, Libya and Eritrea with approximately 40 deaths per 100,000. And the best fatality rates are those of more developed and substantially socially-conscious nations such as Sweden, Switzerland and the United Kingdom with about 5 deaths per 100,000. In 2006/07, Qatar, Dubai, Oman and Saudi Arabia had fatality rates among the worst 10 in the world and Kuwait was in the bottom 50^th percentile.

Upon close examination, what is most striking is the rapid increase in fatalities over the period up until about 2006/07 followed subsequently by a substantial decrease in the fatality rate over the next few years. So perilous was driving in the Middle East pre-2006 that most tourist information sites warned visitors of the high accident and fatality rate and cautioned them to take particular care when travelling in the region. In fact, at one point, road fatalities were the second highest cause of death after heart disease, whereas in the United States they don’t even appear in the top 10.

Although high traffic density doesn’t help, research conducted into the cause of accidents showed that the problem wasn’t a forgone conclusion. While about a third of accidents, casualties and fatalities were due to driver carelessness and perhaps unavoidable, statistics showed that another third were primarily the result of traffic violations such as excessive speeding, tail-gating and running red lights; all of which could be avoided or at least the impact minimized with stricter traffic controls.

As a result of this, many Middle East nations took steps around 2007/08 to update their traffic enforcement and regulation. Fines for most traffic violations were increased. Police forces increased the number of patrols and introduced quotas and incentives to combat lax enforcement. Traffic cameras were installed at many junctions and speed cameras on the roads. Speed limits were revisited and reduced in many areas, while drivers in many regions can no longer talk on their hand-held mobiles and must wear a seat belt.

In addition to these more traditional traffic safety systems, there have been several other non-traditional programs as well. The Mama, I’m Home campaign in the UAE focuses on encouraging traffic safety and awareness for young children. The Madinantiinitiative in Dubai, literally translated as “My City,” is aimed at encouraging individuals to take responsibility for keeping their city safe by reporting poor road conditions. IBM teamed up with the UAE University to develop a telematics solution where traffic violations could be identified at the vehicle-level.

Although it is still early days, the impact of these programs is already quite obvious. While the number of traffic fines, violations and arrests are well up, the number of accidents, casualties and deaths are well down.

Some economics

Although this may seem like a situation unique to the Middle East, it has actually been documented in a number of areas. The upside-down U-shaped curve seen in Figure 1 is the basis of an accepted theory from developmental economics.

Initially, in the development period, booming growth overwhelms existing infrastructure and outpaces regulation. Typically, this is followed by a stabilization period where growth slows down while infrastructure and regulation modernize. And finally, there is an improvement period whereby systems stabilize and begin to more closely reflect the equilibrium of developed economies. The classic example of this is emissions pollution in economies which rapidly industrialize before environmental legislation and restrictions can effectively reduce the effect of these negative by-products, or externalities, of production. Currently, this is a hot topic with China and other countries suggesting that they should not be forced to stunt their growth in their industrialization phase to comply with Western environmental regulation when these Western nations had no such regulation during their own industrialization.

This theory is formalized using the environmental variant of the Kuznets Curve Hypothesis. Essentially, the theory says that for a subsection of developing economies, there is an upside-down U-shaped relationship between growth and negative environmental externalities. With regard to traffic accidents, the theory contends that as economies develop, there will naturally be an increase in the number of traffic accidents as the existing road system is not equipped to handle the increased traffic density and traffic enforcement is typically lax and more reflective of rural rather than urban society. However, there comes a point when the number of accidents will stabilize and then fall toward a long-term equilibrium as the road system and traffic regulation/enforcement systems are updated to reflect current realities. Figure 2 summarizes this theory. As the gross domestic product (GDP) grows, the amount of externalities increase to a point where results stabilize and then ultimately improve.

Some parting thoughts

Traffic safety over the past few decades was a real problem in most Middle East nations. While the effect on life was devastating and completely unacceptable from a social welfare perspective; there was also a macroeconomic ripple including loss of productivity and increase in insurance premiums.

However, the reforms initiated from 2007/08 appear to be working. Accidents, deaths and injuries are well down and although Dubai’s goal of zero fatalities by 2020 may not be a realistic goal, it is certainly one worth working toward.

Based on the number rather than the value of Voyager Dreamsaver wedding insurance claims, the list is as follows:

• Bankruptcy/liquidation of dress supplier
• Bankruptcy/liquidation of caterers
• Bankruptcy/liquidation of venue
• Bankruptcy/liquidation of other wedding suppliers
• Loss of wedding photography
• Damage to bridal attire
• Adverse weather preventing majority of guests and couple reaching the venue
• Death/injury of family member
• Death/Injury of bride or groom
• Marquee damage

Voyager director Jonathan Buttery said: “The list of most common reasons why wedding claims are made very much reflects the economic times we are in. This explains why wedding insurance has a higher profile and more couples are opting to purchase it in order to financially protect their big day.”

He added: “While bankruptcy of suppliers is highly unlikely to disrupt a royal wedding, everyone else planning theirs should carefully check policy wordings, as cheaper policies will not cover claims for financial failure of suppliers, rings or wedding attire among other things.”