The complexities in the MENA insurance market have increased sharply with unprecedented exposures that go beyond regional geopolitics and include climate change and the advancement of technology. Reinsurance brokers are recalibrating their strategy to find capacities to structure complex risks to provide optimal solutions to clients.
Market dynamics
Over the past year, the MENA insurance market has experienced notable changes. In the fourth quarter of 2024, property insurance rates in the IMEA region increased. This rise was influenced by higher reinsurance and capital costs in catastrophe-exposed portfolios, increased demand for capacity and ongoing loss activities, including floods in the UAE and significant losses in Saudi Arabia, India and Africa. Specifically, the UAE saw rate increases of 10% to 15% due to recent flooding losses, while Saudi Arabia experienced rate decreases of approximately 10% and South Africa saw minor increases of up to 5%.
Underwriting risks in a hardening market
Reinsurers can enhance their assessment and management of underwriting risks in this challenging market by improving their pricing and risk modelling capabilities. Incorporating the increasing frequency of weather-related events, such as floods, into their models ensures that these exposures are accurately reflected in underwriting decisions and risk appetites. Additionally, staying informed about regional developments, like the removal of restrictive clauses by reinsurers in the Middle East, can aid in better risk assessment and management.
Adequate insurance capacity after losses
In the aftermath of substantial losses, securing adequate insurance capacity is a matter of employing multiple strategies:
- Diversifying reinsurance partnerships: Engaging with multiple reinsurers can spread risk and reduce dependency on a single entity.
- Exploring alternative risk transfer solutions: Utilising instruments like CAT bonds can provide additional capacity and transfer specific risks to the capital markets.
- Proactive risk mitigation measures: Implementing robust risk management practices can make portfolios more attractive to reinsurers by demonstrating a commitment to minimizing potential losses.
These approaches can help insurers maintain sufficient capacity even in challenging markets.
Balancing act: coverage vs cost
Balancing comprehensive coverage with rising premiums and stricter terms requires a collaboration. Adopting risk-based strategies and keeping flexibility at the core can be the differentiator to providing client-specific solutions.
- Tailored coverage options: Insurers and reinsurers can work together to design policies that address specific client needs, focusing on essential coverages while potentially excluding less critical ones.
- Risk mitigation strategies: Encouraging and assisting clients in implementing loss prevention measures can reduce the likelihood of claims, potentially leading to more favourable terms.
- Flexible deductibles and limits: Adjusting deductibles and coverage limits can help manage premium costs while still providing necessary protection.
A partnership-led approach can help in managing costs and maintaining essential coverage levels.
Advanced risk management techniques
Ensuring better outcomes for all stakeholders requires sound practices. Climate risk management using technology is becoming a critical competitive differentiator.
- Advanced data analytics and predictive modelling: Utilising big data and machine learning to identify and anticipate risk patterns allows for more informed underwriting and pricing decisions.
- Parametric insurance solutions: These provide predefined payouts based on specific event parameters (e.g., a hurricane of a certain intensity), enabling quicker claims processing and payouts.
- Telematics and IoT devices: Incorporating technology to monitor real-time data can help in assessing risks more accurately and implementing timely preventive measures.
Cost management
Keeping costs down can help insurers respond, recover and thrive. Using AI and other technology is necessary but so is raising awareness among clients about the need for monitoring and re-assessing risk on a regular basis.
- Investing in next generation technology: Implementing systems that streamline operations can reduce administrative expenses, leading to overall cost savings.
- Emphasising preventive measures: Conducting regular risk assessments and implementing loss control programmes can decrease the frequency and severity of claims, potentially resulting in more favourable insurance terms.
- Client education: Informing clients about risk management practices and encouraging their adoption can lead to a reduction in claims and consequently, insurance costs.
These strategies can help insurers navigate the challenges of a hardening market effectively. M
Mr Nazih Mahfouz is general manager with ISA Solutions.