Need to review old strategies in a brave new world

From social media to AI and big data, technological advancement is radically changing how people interact with each other, both socially and commercially, said Mrs Lamia Ben Mahmoud, chairperson & CEO of Tunis Re.

Technological advancement is also affecting all aspects of business worldwide and has cast a shadow over the insurance sector. The world is and will continue adapting to this development and so should the insurance industry, she said.

Mrs Ben Mahmoud said the majority of insurers in advanced countries have started to take measures to deal with challenges in this new environment. She raised the question on whether the region’s insurers would be capable of overcoming these challenges.

The insurance industry globally is at a crossroad with start-up entities emerging to disrupt the industry resulting in investments from international companies reaching $2.7bn in the past year, she said.

Also, the insurance industry is wooing a new pool of clients who demand fresh channels of distribution. As such, insurers need to rethink their old ways of doing business. Clients are also becoming more informed and looking for tailored products to meet their needs at low cost.

In addition, big data is changing the way products are being sold, clients are being serviced and claims are being handled, she said. These developments are changing how insurers relate to clients, and the industry needs to adapt accordingly. It is a brave new world with broad horizons full of opportunities but first, strategies need to be reviewed, she said.

(L-R): Mr Henner Alms, Partner, Dr. Schanz, Alms & Company AG; Mrs Lamia Ben Mahmoud, chairperson & CEO of Tunis Re; Dr Ali Al-Wazani, CEO of Arab Orient gig, Jordan

Figures talk

Dr Ali Al-Wazani, CEO of Arab Orient gig, Jordan, shared the results of a study on the development of digital transformation in the region which surveyed 400 companies from 18 MENA markets.

The study showed that internet penetration exceeded 50% in 12 countries and was more than 100% in some countries, especially those in the GCC.

Mobile penetration rate exceeded 50% in 12 countries, was more than 100% in several others, and was the highest at 150% in Kuwait, said the study.

In addition, there are 1.2bn IoT devices in the Arab world compared with 11.6bn globally.

The results also showed that 73% of people use internet mobile for an average of 10 hours a day.

The demographics of the region should nudge companies in general to review their business strategies, said Dr Al-Wazani. As about 65% of the region’s population is between the age of 16 and 24, there is a need to change the way companies engage clients, he said.

The top three areas that will be mostly affected by digital transformation are: product distribution and delivery, customer analysis and tracking systems, and digitally enabled products and services, he said.

Insurance sector can profit from IoT market growth

Speakers at the third conference session: (L-R): Messrs Brian Botkin, Global Head of Multinational, Financial Lines, AIG, USA; Andreas Pollmann, Head of Department Munich Re, Germany; Abdul Khaliq Raouf Khalil, Secretary General, GAIF; Pepe Castelo, Managing Director, GT Motive, France; Nizar Ayed, Digital Coach, Upgrade-code, France

The global IoT market was worth $655.8bn in 2014, and it is expected to grow to $1.7tn by 2025, said Mr Nizar Ayed, digital coach at Upgrade-code, in his speech on ‘Insurance business model with IoT’ at the third conference session. “Many opportunities are opening up and these include all by-products of the IoT, ranging from infrastructure and platforms to consulting,” he said.

Many sectors such as telecommunications, automotive, aerospace and retail have an average of 50% IoT adoption rate. In comparison, the adoption rate in the insurance industry is only 36%, but Mr Ayed said insurance has the most potential to profit from IoT.

The typical business model for insurance in the past, and the present for some organisations, relied on one-size-fits-all policies with high deductibles, said Mr Ayed. Pricing and underwriting were ‘curative’ in nature due to limited data, and distribution was less connected. Claims management was a time-consuming manual process, but with IoT, products can be customised with low deductibles, focusing more on being ‘preventive’ rather than being ‘curative’. Distribution can be done online across all platforms, and claims can be instantaneous, he said.

Mr Ayed encouraged insurers to stay abreast of new technologies, look beyond conducting ‘business as usual’, pay attention to new players and find opportunities to partner with them in order to survive and thrive in the digital era.

Taking the pulse of MENA reinsurance markets

Ongoing challenges relating to business, regulatory, socio-political and technological conditions continue to pile pressure on the MENA reinsurance markets. Regional reinsurance players share their views on the market impact of these challenges and their expectations going into the second half of 2018.

Mr Vasilis Katsipis

This has been a turbulent year so far for several MENA markets. The introduction of taxes in various markets, the uncertainty of oil prices and some of the regional conflicts and tensions are likely to continue impacting confidence and spending in many markets.

Nevertheless, government spending is likely to remain at reasonable levels as local governments try to rebalance their economies and, in some cases, prepare for major upcoming events.

This is a year where we are likely to see greater differentiation between the top performers and the rest of the market.

Mr Vasilis Katsipis,
General Manager, Market Development,
A.M. Best - MENA, South & Central Asia

Mr Gökhan Aktaş

We do not anticipate that the region will be seeing the growth rates prior to the Arab Spring in the short term due to the economic and political challenges. Nevertheless, a more hands-on approach by regulators may help improve underwriting results and create a healthier business environment even though there is still excess capacity in the region.

The efforts of regulators have already started to pay off in some markets, particularly in Saudi Arabia and, to some extent, in the UAE. Additionally, owing to the fact that some companies are looking for expansion and are concerned about solvency issues, we do witness more M&A activities. We know that some companies are still in talks and we hope these deals will be finalised in 2018.

Mr Gökhan Aktaş,
Head of Department, Foreign Inward Business,
Milli Re

Mr Mahomed Akoob

The MENA market has traditionally offered good growth opportunities for reinsurance players. However, with the growing socio-political instability in the region, the economic environment has become more challenging.

Even though there has been a push to the hardening of rates on the back of global Nat CATs experienced in 2017 and the increase in the frequency of claims locally, there is still considerable pressure on premium rates, which are proving to be unsustainable at current loss ratios.

In contrast, the move by regulators to implement compulsory insurance, particularly in motor and medical lines, will contribute positively to insurance penetration in the region.

Mr Mahomed Akoob,
Managing Director,
Hannover ReTakaful

Mr Fahad Al-Hesni

Regulatory reforms, capacity inflows and fierce competition will continue to lead to uncertainty in the underwriting and overall performance.

Mr Fahad Al-Hesni,
MD/CEO,
Saudi Re

Mr Kamal Tabaja

With a landscape characterised by slowing economic growth, rising political risks and a tighter regulatory environment, we foresee challenging times ahead, with sizeable rate increases likely to remain elusive.

MENA market participants must be vigilant about the imminent effects of automation and technology, such as blockchain, on their business models. Continued risk awareness at all levels of an organisation will be critical to the success and profitability of companies in this region for the rest of the year.

Mr Kamal Tabaja,
Group COO,
Trust Re

Insurance growth to outstrip GDP increase

MENA insurance markets will see continued growth and better profitability, says Mr Henner Alms of Dr. Schanz, Alms & Company.

Mr Henner Alms

The insurance markets of MENA are expected to continue outgrowing the region’s GDP over the next 12 months. This is the outcome of the most recent MENA Insurance Pulse, published at the 32nd GAIF General Conference in Hammamet, Tunisia.

The study found that the region’s strong insurance premium growth is still considered the market’s most relevant strength, followed by significantly modernised regulatory regimes and a relatively moderate Nat CAT exposure.

Going forward, markets are expected to benefit from the region’s low insurance penetration, which is still a mere quarter of the global average.

Personal and commercial lines

According to the senior executives interviewed for this year’s 6th edition of the survey, personal lines are the key driver for the region’s premium growth. They benefit from compulsory insurance requirements, in particular in medical and motor in markets like Saudi Arabia or the UAE. In addition, the Saudi regulator, SAMA, took some rating actions which positively impacted volume growth.

In commercial lines, price adequacy has improved, especially in property business, mainly in response to severe fire claims experienced in the past 12 months.

Rates and profitability are felt to have passed the bottom of the cycle. The executives polled view current prices in the MENA region’s commercial and personal lines business as being at or above the average of the past three years.

In addition, a vast majority expects rates in commercial and personal lines to remain stable or increase further over the next 12 months.

Due to commercial and regulatory pressure, the trend in stable prices will continue.

Overall, personal lines are expected to outperform commercial lines as regulatory pricing actions and the enforcement of compulsory insurance schemes, like motor and medical, exert a strong effect on both premium growth and rates.

In commercial lines, respondents still consider overall profitability to be low. Although rates have improved, a higher frequency of large claims and deteriorating reinsurance contract terms and conditions took their toll.

In personal lines, a vast majority of interviewees consider current profitability as higher or in line with the average of the past three years.

Going forward, the executives polled expect profitability in both commercial and personal lines to remain largely unchanged as a result of corrective measures on pricing, reserving and claims settlement, as well as a continuation of regulatory support.

Challenges

Further, digitisation will contribute to reduce operating and acquisition expenses and enhance the appeal of insurance products to the region’s young consumers.

Excess capital and fierce competition are perceived as the most relevant weaknesses of the MENA insurance marketplace, affecting both pricing and profitability levels.

As workforce localisation requirements are enforced and the influx of expatriate workers slows, executives warn of a talent shortage, in particular where experience is needed or advanced digital skills required.

Finally, with more than 200 insurers – a third of them in the UAE – the MENA region’s insurance market remains highly fragmented. As regulators tighten solvency requirements and major investments in corporate systems and infrastructure are required to remain competitive, many of these players are considered non-viable and are expected to either exit the market or be acquired.

Geopolitical risks, including the uncertainty over the future of the nuclear deal with Iran, dampen the industry’s outlook. In addition, the region remains highly dependent on hydrocarbon revenues. Although oil prices have recovered, there is an increased awareness of this vulnerability and volatility, as well as their implications for government spending, in particular when it comes to the region’s many high-profile construction projects – many of which have been stalled for the time being.

The MENA Insurance Pulse, produced by Dr. Schanz, Alms & Company, is an annual survey among insurers, reinsurers and brokers operating in the region’s $58bn primary insurance markets. This year, 45 senior executives participated in the in-depth interviews. The study was sponsored by AIG, PartnerRe and Tunis Re.

Mr Henner Alms is partner at Dr. Schanz, Alms & Company.

An evening to remember

The gala dinner hosted by Tunis Re at Le Royal Hotel & Resorts was an opportunity for delegates to unwind and socialise with one another.

See you in Algeria in 2020!

The 33rd GAIF General Conference in 2020 will be held in Algeria, returning to the country after more than 40 years since it hosted the Conference in 1978.

Mr Hadj Mohamed Seba

Mr Hadj Mohamed Seba, Chairman & General Manager of Compagnie Centrale De Réassurance (CCR), said it is a source of pride for Algeria to host this important event and welcome insurers and reinsurers from the Arab region and the rest of the world. He said it would be a great opportunity to strengthen bonds and exchange experiences with partners and friends from the Arab world for the benefit of the regional insurance industry.

“We will ensure a fruitful gathering to make it a memorable experiences for our guests. I look forward to welcoming you to Algeria in 2020,” he said.