Risks, controlled: New products and increased mandates promise growth in insurance

A number of factors are converging to create a positive outlook for the insurance sector in Ras Al Khaimah. They include the emirate’s strong growth trajectory, a low penetration rate for insurance and the increasing sophistication of RAK’s economic approach. With opportunities come challenges, however: the prospective nature of the market means that companies operating here are doing so largely in anticipation of large profits in the future, rather than immediate returns.

Challenges

Insurers face a number of challenges, some of which impact the Gulf region as a whole and some of which affect RAK in particular. What RAK has in common with other emirates in the UAE and other states in the GCC is a highly competitive insurance market: at present, there are some 65 licensed insurers in the country, and seven players are based in RAK or have branches there. Insurance penetration rates are relatively low on the Arabian Peninsula, particularly given the overall size of the economies and their per capita GDP levels: at an estimated $49,000 in 2012, the UAE’s is among the highest in the world. The challenge for insurers, therefore, is not affordability, but making the case to consumers that insurance is worth purchasing.

Insurance is governed at the federal level through the 2007 Insurance Law, which established the UAE Insurance Authority as the sector’s regulator. Within that framework, what makes RAK’s market unique Insurance policies by type, 2011 is the position occupied by the RAK National Insurance Co. (RAK Insurance). The firm is the dominant player in the local market. Measuring its precise market share is not possible because insurance business from customers in RAK can be underwritten by companies operating both in the emirate and outside of it; the local insurance sector is a part of the national market. However, according to several sources (including RAK Insurance itself), the company accounts for roughly 75% of insurance business in RAK. On a federal level, it estimates that its market share is 1%. According to data from the UAE Insurance Authority, the value of premiums written in 2011 in the emirate was Dh191.93m ($52.24m), up 7.2% from Dh179.08m ($48.74m) in 2010.

Sector Leader

RAK Insurance’s gross premiums written in 2012 amounted to Dh210.3m ($57.2m), up 12.9% from Dh186.3m ($50.7m) in 2011, according to its annual financial statements. Annual profit jumped 41.4% to Dh28.1m ($7.65m), up from Dh19.9m ($5.41m) in 2011. Shares in the company are traded on the Abu Dhabi Securities Exchange, and on a per-share basis the profit was 28 fils ($0.08) in 2012 and 20 fils ($0.05) in 2011. A dividend of 15 fils ($0.04) per share was paid in both years.

Of the 65 licensed insurers in the UAE, just one other is based in RAK: United Insurance Co., which is partially owned (20%) by RAK Insurance and headquartered in Dubai. Five other UAE-licensed insurers have established local branches. The emirate does not have a formal system whereby insurance brokers serve as the main distribution channel for insurance. While some UAE-licensed brokers have opened up offices in the emirate, policies can be written through them, through brokers elsewhere in the country, through bancassurance or through direct contact with clients. This opens up the potential to write business without paying commissions.

New Agenda

RAK Insurance is not currently active in the bancassurance area, although most other market participants have established such partnerships. The firm’s CEO, Andrew Smith, took over the position in January 2013, and the insurer’s new agenda includes moving into bancassurance. A rebranding effort includes a new logo, colour scheme and overall presentation, and a more aggressive strategy geared towards winning new business.

Avenues For Growth

One potential way to do that would be to present RAK Insurance as part of the suite of options available to foreign investors as they set up shop in RAK’s free zones. Zones such as RAK Free Trade Zone and the Al Ghail and Al Hamra free zones operated by the RAK Investment Authority, as well as the newer RAK Maritime City, are full of potential clients. Mandating some forms of insurance, such as professional indemnity coverage, is a model that has worked elsewhere in the UAE.

At the moment, insurance can be made mandatory by federal laws or by those passed at the emirate level. Federally mandated coverage includes motor liability and liability policies for licensed professionals in insurance brokerage as well as medical Local insurance premiums & claims, 2007-11 services. Foreigners offering consulting or auditing services must also have liability coverage.

Several emirates have made types of insurance mandatory, including Abu Dhabi, which has required employers to provide health insurance to workers, and Dubai, which requires types of insurance for workers and relevant machinery in some free zones.

For RAK, the federal motor coverage mandate means that this line dominates consumer business, although the emirate’s strong industrial sector is a source of revenue as well. RAK Insurance sees 70% of its premium income come from corporate clients and 30% from retail ones. Smith told OBG, “Home insurance is not popular in the UAE and GCC area. This is mainly due to a lack of knowledge of its benefits. Consequently, there are not many products and services. Therefore, we as companies need to provide more education to the community regarding the benefits of having such policies.”

Health Insurance

RAK may institute its own compulsory health insurance, according to sources in the industry (see Health chapter). Abu Dhabi made health care compulsory in 2005, and other emirates may follow suit soon, including Dubai. As of May 2013 a draft law establishing mandatory medical care for workers in Dubai had been released and was under consideration. At present, citizens receive free treatment at public hospitals, but a compulsory system would create a new private sector market in health care, Raza Siddiqui, CEO of the Arabian Healthcare Group (AHG), which operates RAK Hospital, told OBG in February 2013. “As soon as Emiratis start having private insurance, they will have a choice to go to private facilities that can provide more customised care,” Siddiqui told OBG. “Therefore, the opportunity that will be generated for private investment when medical insurance becomes mandatory is very significant, not only for private hospitals, but also for clinics, specialty centres, pathology labs and medical equipment,” Siddiqui added.

Compulsory health insurance will also prove a boon to policy writers, with insurance firms expecting a marked increase in trade, which in turn could push down premiums due to higher volumes and greater competition. While mandatory insurance may encourage investment and reduce costs within the health sector, it will not directly solve one of the industry’s bigger concerns – the shortage of professional staff. At present, both private and public health facilities are having difficulty hiring and retaining personnel, particularly Emirati nationals.

RAK’s educational sector may be able to play a role in addressing this, however. The RAK Medical and Health Sciences University has agreed to open up more slots in its nursing school for locals, and is providing scholarships via a government programme.

While additional compulsory lines will certainly boost premium revenues, in the longer run insurers will need to convince customers of the value of purchasing insurance if the sector is to reach the penetration levels seen in more developed markets.