Insurance opportunities in the Middle East

Insurance
opportunities
in the Middle East
1

Contents
Foreword
Introduction
• United Arab Emirates
• Kingdom of Saudi Arabia
• State of Qatar
• Egypt
• Kingdom of Bahrain
• Kuwait
• Sultanate of Oman
• GCC VAT
• From outsourcing to “robosourcing”
• Technology revolution
• Cybersecurity
• Digital redraws traditional structures
• Dawn of a new world of reporting
• Data analytics
Luca Russignan
EY Global Insurance Analyst Team Leader
lrussignan@uk.ey.com
Zahir Kachwalla
EY Global Insurance Senior Consultant
zahir.kachwalla@in.ey.com
Nilabh Kumar
EY Global Insurance Analyst
nilabh.kumar@in.ey.com
2 Insurance opportunities in the Middle East

Foreword
Insurance markets in the Middle East have remained resilient despite economic headwinds and lower oil prices.
Two of the region’s largest markets, the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA), are
in excess of US$10b each in gross written premiums — underlining the region’s increasing significance to global
insurance markets.
As Middle East markets continue to mature due to new regulatory requirements, mandatory lines of business
(primarily, motor and health insurance) are driving overall growth. Profitability remains a key concern for
insurers, as investment income is impacted by low interest rates, weak equity performance and a stagnant real
estate market. Technical margins remain poorly governed by obsolete processes, outdated legacy systems, low
productivity and high incidences of fraud, especially in motor and health lines.
In increasingly competitive markets with price and margin pressures, some insurers are cutting costs to maintain
their bottom line. Despite these efforts, short-term financial results in some markets are impacted by regulatory
change and the need for better reserving — leading some local insurers to actively look at consolidation.
Low levels of penetration are both a challenge and an opportunity. We believe that insurers willing to invest in
innovation and digital technology in Middle East markets will reap significant benefits. Penetration levels will
improve as insurance companies break the barriers of traditional distribution channels. This will require insurers
to adopt robust actuarial modeling techniques to improve pricing sophistication, apply data analytics to reduce
fraud, focus on customers and adopt advanced technology to revamp operations.
We expect economic activity in the region to revive, though at a slower rate than in the last decade. The industry
has many opportunities to capitalize on the economic revival, particularly with large-scale government spending
on infrastructure and mega projects. We expect the life and savings culture to develop, as states look for ways to
reduce subsidies and large government-funded social security schemes.
Exciting times lie ahead. We hope you will find this report interesting and a catalyst for further discussions. We
look forward to your feedback and viewpoints on emerging opportunities in the growing Middle East insurance
markets.
Shaun Crawford
EY Global Insurance Leader
Rohan Sachdev
EY Global Insurance Emerging
Markets Leader
Gordon Bennie
EY MENA Managing Partner
Financial Services
Robert Abboud
EY MENA Financial Services Advisory
Leader
Foreword
3

Introduction
Macro outlook — oil vs. non-oil growth:
What is in store for the Middle East in
2017 and beyond?
The Middle East region’s short-term economic outlook continues
to mirror the diversity across the region. While the world has
remained dependent on the Middle East for its energy needs
since the 1970s, fiscal positions in most oil exporting countries
are weakening because of sharp declines in oil prices in the last
two to three years. Measures to reinforce fiscal positions are
expected to limit economic mid-term growth, while deep-rooted
sociopolitical strains continue to weigh on the outlook for some
countries.
In this context, governments have been forced to explore
options to diversify economies, limit expenditures, create new
revenue streams such as value-added tax (VAT) and increase
public-private sector participation.
Although insurance has grown at an impressive double-digit rate
in the last five years, regional penetration remains lower than
in most of the world’s emerging markets. Growth has primarily
come from mandatory insurance coverage, i.e., third-party
motor and health insurance. Life insurance and savings have
made a negligible contribution, except for the UAE, Iran and
Egypt. Commercial lines (i.e., property and engineering) have
fared the worst due to poor economic conditions and receding
growth in commerce and trade.
Low oil prices are hurting the industry
Over the short term, the reduction in oil price is the key element
affecting the region with significant effects on the insurance
industry that are felt across the region:
• Reduced government spending is impacting engineering and
energy sectors, as in-flight projects are delayed or canceled
and new projects postponed; at the same time, government
tenders for insurance have become more price driven.
• As liquidity dries up, payments are taking an increasingly
long time to materialize. This has had a knock-on effect on
several sectors, with insurance companies experiencing
issues with timely collection of premiums.
• Consumers have become price sensitive, and costs has
become an even more important buying consideration. Sales
of optional/discretionary insurance products, such as home/
travel insurance, have been affected as consumers prioritize
spending. Motor customers opt for basic third-party liability
(TPL) over comprehensive coverage.
• Investment income has come down because of reduced
interest rates and poor performance across other asset
classes (equity/real estate).
4 Insurance opportunities in the Middle East

“Middle East insurance markets are growing
toward increased maturity supported by enhanced
regulations, as evidenced in the UAE’s 2016
GWP growth of 19%. Notwithstanding short-term
economic headwinds, we are extremely excited on
the long-term prospects for growth.”
Sanjay Jain
EY MENA Insurance Leader
Dubai, UAE
Life and takaful: questions remain
Unlike global markets where the life insurance segment is
often bigger or at least comparable in size to the non-life
segment, MENA markets represent a stark contrast, with
very few markets (e.g., the UAE, Iran and Egypt) having a
significant life insurance segment. This trend is attributed
to generous social welfare schemes, low customer
awareness for mortality-based products and cultural
beliefs that are incompatible with traditional concept life
insurance.
Despite the region’s predominantly Islamic population,
takaful insurance has struggled to establish a strong
foothold — largely due to lack of product differentiation
and competition with conventional players. Once a few of
the key takaful players achieve the desired scale, the niche
takaful market might be a good place to be in backed by
newly introduced takaful legislation in some of the key
MENA markets.
Product differentiation is generally low across the region and
has led to price-based rather than product design or servicebased
competition. This has eroded margins in several markets,
questioning the viability of players, especially those at lower
ends of the spectrum.
Profitability is elusive in most markets
Profitability remains a key concern for MENA insurers. As
investment income has not contributed significantly to
shareholder returns, insurers have focused on technical
profitability and cost reduction. With poor pricing and increased
reserves (reflecting the new regulatory guidelines), technical
profits have been under stress for most insurers. While costcutting
measures may bring short-term relief, sustained
results can only be achieved by well-executed operational
transformation strategy, backed by robust technology and a
customer-centric approach.
Insurance penetration in Middle East is much lower than the rest of the world
7.29% 6.89% 6.23% 5.34%
2.90%
2.45% 2.35% 1.57% 1.54% 1.51% 0.90% 0.68%
2015 insurance penetraion (%)
Source: Swiss Re: World insurance reports
Introduction 5

Kuwait
Egypt
Kingdom of
Saudi Arabia
Bahrain
Qatar
UAE
Oman
Middle East key macroeconomic parameters
GDP growth (%)
Oil rent
(% of GDP)
Inflation rate (%) Population Median
age
(years)
International
migrant
stock (% of
population)
2015
Avgerage
2010 -14
2014 2015
Avgerage
2010 -14
2015 (m)
Avgerage
growth
2010-14 (%)
2014 2015
UAE 3.2% 4.5% 19.0% 4.1% 1.2% 9.2 2.2% 30.3 88.4%
Saudi Arabia 3.5% 5.3% 38.7% 2.2% 4.0% 31.5 2.4% 26.8 32.3%
Qatar 3.6% 9.3% 19.5% 1.9% 1.5% 2.2 5.3% 32.8 75.5%
Egypt 4.2% 2.7% 5.8% 10.4% 9.6% 91.5 2.2% 23.8 0.5%
Bahrain 2.9% 4.0% 15.3% 1.8% 2.1% 1.4 1.9% 32.1 51.1%
Kuwait -0.4% 2.7% 53.0% 3.3% 3.6% 3.9 5.2% 29.2 73.6%
Oman 3.5% 3.5% 28.0% 0.1% 2.5% 4.5 9.5% 25.1 41.1%
Oil rents (% of GDP): Oil rents are the difference between the value of crude oil production at world prices and total costs of production
Source: World Bank
6 Insurance opportunities in the Middle East

Given the current competitive environment — strained
profitability and increasing regulatory requirements — a key
outcome is likely to be increased pressure on small insurers
leading to consolidation opportunities, which is already
evident in the KSA market. This could ultimately be positive
for the market as a whole, as a small number of strong players
would result in a more robust market.
Customer centricity will drive
innovation
Digital disruption is around the corner for the region and
given the young and connected population, insurers need to
take notice and explore opportunities to deploy technology
and automation. Another priority is to embed analytical tools
for precise decision-making, not only on the front end with
customer analytics but also to support profitability, through
claims and fraud analytics. Today’s customer is demanding
and is armed with the power of social media. While some
companies are responding with new products and services,
the sector as a whole does not seem to be doing enough.
Invigorated reform agenda: an
impetus to accelerated growth
Once the short-term impact of reduced oil prices is navigated,
we expect the economic activity in the region to revive,
even though rates may be slower than they were over the
last decade. The insurance industry has many opportunities
to capitalize on the economic revival, with large-scale
government spending on infrastructure and mega projects,
as governments focus on diversification (e.g., KSA vision
2030 and Abu Dhabi Vision 2030). If the GCC continues to
grow at an average of just more than 3% for the next 15 years
and overcomes its fragmentation, it could become the sixthlargest
market in the world by 2030. 1 The industry will be
positively impacted by:
1. Economic diversification and government spending
continuing to support new governments’ growth agendas
and move away from traditional oil revenue
2. Stringent regulations that redefine the sector, as
regulators address challenges such as poor pricing,
leading to declining technical profits and solvency ratios
3. Compulsory business lines, supported by health and
motor regulations
4. A younger population, increasing life expectancy and high
proportion of expatriates buying insurance
Regulators are focusing on improving market conduct and
solvency-based capital controls to ensure insurers develop
sustainable business models. With the introduction of new
insurance regulations, most recently in Qatar and the UAE,
the industry is grappling with enhanced regulatory and
corporate governance standards. In an unprecedented
move in November 2016, SAMA suspended a number of
significant KSA motor insurers from issuing new motor policies
until customer complaints and claims management issues
were addressed by the insurers — clear example of regional
regulators clamping down hard on conduct of business and
consumer protection aspects. In the first-of-its-kind move in
the Saudi insurance sector, Sanad Cooperative Insurance Co.
(Sanad) applied for voluntary liquidation after losing more
than 50% of its capital, in March 2017. A number of KSA
insurers have filed regulatory disclosures in the recent weeks
stating their intent to merge with other insurers.
In a move to improve customer centricity, UAE Insurance
Authority introduced a consultation paper in November
2016 for all the life insurers in the UAE. Once implemented,
these new life regulations are expected to change the way
the industry operates currently, something that has been
witnessed in developed countries (e.g., UK and Asia-Pacific)
in the past decade. UAE Insurance Authority also introduced
new motor regulations in December 2016. While these may
inflict short-term pains, from our experience, these are
crucially beneficial for the long-term development of a mature
insurance market.
In summary, regulators and insurers are expected to exhibit
increased agility in addressing emerging opportunities such
as digital and challenges such as low oil prices. Regulatory
changes, including the introduction of VAT/IFRS and higher
customer expectations, will be key drivers of change and an
opportunity for insurers to revamp their operating models.
In this report, we present an EY point of view on seven key
Middle East markets and region-specific trends that will
profoundly affect insurance dynamics in the coming years.
1
EY Strength in unity: Making the GCC the sixth largest economy in the world, Growth Drivers 3, EYGM Limited, 2016.
Introduction
7

01
United Arab Emirates
8 Insurance opportunities in the Middle East

Mandatory Dubai health insurance
to support premium growth
Overly competitive insurance
market with too many players
Evolving regulatory landscape
Profitability recently under stress
Resilience in the economy and insurance
As low oil prices weigh on consumer and business sentiment,
the UAE’s economic growth has slowed considerably; the gross
domestic product (GDP) growth declined from 6.9% in 2012 to
a projected 2% in 2016. Like neighboring countries, the UAE
Government has slowed outlays on non-essential projects,
removed energy subsidies and is exploring diversification of
income streams, including imposing a Gulf Cooperation Council
(GCC)-wide VAT effective January 2018. Private sector lending,
deposit growth, real estate transactions and stock markets have
shown signs of weakness, indicating tight economic conditions.
In 2016, as part of the UAE’s plan to revamp its
economy, which has been hit by low oil prices, the
two largest banks in the region — National Bank
of Abu Dhabi and First Gulf Bank — merged and
created a regional powerhouse, with US$183b of
assets and 26% of the UAE’s outstanding loans.
Amid these conditions, the insurance industry has proven
resilient, growing at a faster rate than the rest of the economy.
Most of this growth has been on account of introduction of
mandatory health insurance aided by recent policies and
regulatory measures, which have improved penetration levels in
both the life and the non-life segment.
As a result of this differential growth, insurance penetration
in the UAE is now one of the highest in the region, though
much lower than in most global markets. Although already well
diversified, the UAE aims to move further toward a service-based
economy by 2021, with oil contribution to GDP falling from circa
33% today to 20%. The UAE also ranks high for its ease of doing
business and openness to investment and trade, and these will
be the key enabling factors in this transition.
Although infrastructure spending is slowing, major projects
such as Expo 2020 Dubai are expected to create large-scale
employment opportunities and demand across sectors such as
housing, tourism, travel and services, leading to a sustainable
demand for insurance products.
Sustained premium growth in a diminishing economic growth scenario has led to notable improvement in penetration
2.5%
2.0%
1.5%
1.6%
2.1%
1.8%
1.5%
1.6%
1.5%
1.7%
1.8%
Non-life insurance
penetration
1.0%
0.5%
0.4%
0.4% 0.3%
0.3% 0.4%
0.5%
0.5% 0.6%
Life insurance
penetration
0.0%
2008
2009 2010 2011 2012 2013 2014 2015
9.0%
6.0%
3.0%
3.2%
1.6%
5.2%
6.9%
4.3%
4.6%
3.2%
GDP growth
(annual %)
0.0%
-3.0%
-6.0%
2008
2009 2010 2011 2012 2013 2014 2015
-5.2%
Source: Swiss Re Sigma: World insurance reports, World Bank
United Arab Emirates
9

Insurance growth engineered by
regulation
As in other Middle East markets, health insurance is the largest
and fastest growing line of business in the UAE as well. The high
growth in health insurance premiums (2011-15 CAGR: 23%) has
been the key driver for the overall UAE market’s double-digit
growth (2011-15 CAGR: 11%). Health insurance penetration has
been on the rise on the back of the introduction of mandatory
health insurance in Abu Dhabi nearly a decade ago and more
recently in Dubai and a shift toward private health care.
Other key segments have experienced flat to low growth. Motor
insurance sales have faced unhealthy competition, leading to
softer premium rates. Property and fire insurance sales were
impacted by slower growth in infrastructure, commercial,
industrial and residential construction.
Distribution landscape: channel
dynamics linked to line of business
The distribution space is dominated by insurance brokers,
especially in non-life and corporate sales. A high degree of
The UAE insurance market GWP grew substantially at 19% in 2016, driven by the introduction of mandatory
health insurance in Dubai overseen by Dubai Health Authority (DHA)
In January 2014, the Dubai Government started a three-phase implementation of a mandatory health insurance
system, the Insurance System for Advancing Healthcare in Dubai (ISAHD). The system required all residents,
including dependents (and domestic workers), and all employees (including blue-collared ones) to have health
insurance in a phased manner:
• Phase 1: More than 1,000 employees till October 2014
• Phase 2: 100-999 employees till July 2015
• Phase 3: Below 100 employees till June 2016, penalty exemption till December 2016
Life insurance has also expanded rapidly (CAGR 19% during 2011-
15), driven by growth in single premium investment products sold
through banks and by increased demand from a large expatriate
community. However, life insurance adoption continues to be
plagued by adverse local beliefs and low awareness and lags
behind global benchmarks. Also, the market for life products
has recently declined because of a drop in demand for single
premium products. In a strong move toward improving customer
centricity, the UAE Insurance Authority introduced a consultation
paper in November 2016 for all the life insurers in the UAE. Once
implemented, these new life regulations are expected to change
the way the industry operates currently, something that has
been witnessed in some of the other advanced countries such
as the UK and Asia-Pacific in the past decade. The key areas to
be impacted include product structure, disclosures, customer
communication and distributor remuneration. Restructured
products, increased awareness, a possible rebound in oil prices
and improved economic conditions can be expected to drive
future growth in the life segment.
fragmentation in the space and new insurance broking regulations
announced in 2014 are pushing the sector toward further
consolidation over the next few years. Increased activity is being
seen in the bancassurance channel where new partnerships have
been announced in recent years, especially in distribution of life
products.
While digital does not have a significant presence in the market,
with the exception of online motor policies, aggregators are
strengthening their presence and may see increased interest from
stakeholders in the coming years. Moreover, multiple insurers are
now offering online quotes for key product segments.
Competitive landscape: considerable
foreign presence
The UAE’s market is overly competitive with 61 insurers and can
be divided into three groups: large local or regional companies
Premium growth over the years (by line of business): 2011–15 (in US$b)
12.0
CAGR
(2011-15)
19%
23%
5%
-8%
-2%
4%
Source: Timetric
Total
10.0
Life
Medical
Others
Marine, aviation and inland transport
Fire
Accident and liability
8.0
6.0
4.0
2.0
6.5
1.3
1.5
0.2
0.6
0.7
7.1
1.6
1.8
0.3
0.6
0.7
+11.5%
8.0
1.9
2.7
9.1
2.4
3.0
10.1
2.6
3.6
0.3
0.4
0.6
0.4
0.5
0.5 0.5
0.6 0.6 2.6
2.2 2.2 2.0
2.2
2011 2012 2013 2014 2015
10 Insurance opportunities in the Middle East

“UAE’s insurance industry is likely to
experience consolidation — and inbound
interest from some non-Middle East markets.”
Mayur Pau
EY MENA Financial Services TAS Leader,
Dubai, UAE
with sustainable business models, small local legacy players,
and foreign insurers.
Lackluster financial results and recent regulatory changes
introduced by the UAE Insurance Authority such as changes in
reserving requirements, governance, controls, actuarial signoffs
and restrictions on equity investments are forcing insurers
to take a hard look at their business models. As a result, the
market is likely to witness an increase in capital raising from
the secondary market and consolidation activity over the
medium to long term.
Takaful insurance has seen some traction in recent years,
although it still remains a comparatively small segment of
the market. Of the current 10 takaful players, only the top
3 have noteworthy sales volume and most have remained
unprofitable, leading to accumulated losses and capital
solvency issues.
Profitability: focus on operating model
as health continues to underperform
Profitability in the UAE insurance sector has been weak with
scale being one of the key issues and several small companies
having higher expense ratios. The issue is particularly acute
in health insurance as rising claims have led to a deterioration
of the loss ratio (non-life, including health) from an already
high of 81% in 2011 to 92% in 2015. Also, the investment
income contribution, which for many years supported the UAE
insurers’ financial results, has been under significant pressure
because of poor performance of equity/real estate markets off
late.
Some of the key differentiators for players that are displaying
a stronger financial performance are a robust claims
management system, adoption of efficient pricing models,
prudent risk selection, lean operating models and use of
technology (digital and analytics). Stable or recovering oil
prices, combined with increased focus on operating model and
regulatory scrutiny, are likely to help insurers improve their
financials and move toward healthy profit margins.
Proactive stance toward regulation
The UAE Insurance Authority has increasingly shown its
willingness to take bold steps to correct the course of the
insurance sector’s evolution.
In early 2015, the UAE Insurance Authority introduced
numerous measures, including enhanced financial reporting
standards, reserving requirements, independent actuarial
sign-offs, risk management and controls, and solvency
requirements, for both conventional and takaful companies.
The new regulations also set investment limits for insurers to
optimize investment-related risk exposure and are expected to
help insurers create an improved risk profile. The regulatory
authority also introduced enhanced regulations for brokers
through the New Insurance Broking Regulations (October
2013), which have increased capital requirement standards,
unconditional bank guarantees and professional liability cover
requirements for them. Further, the UAE Insurance Authority
is driving composite insurers to operationally segregate their
long-term life business from the non-life business, which
should help in more effective regulation of the two distinct
lines of business. It is also increasing public awareness
and demand for insurance products through seminars,
conferences and public relations campaigns. The introduction
of a new life consultation paper (November 2016) and new
motor regulations (December 2016) are further regulatory
steps toward enhanced maturity.
Positive outlook despite challenging
operating environment
Besides concerns around operating model and profitability,
the sector currently faces low availability of skilled manpower.
It is difficult for insurers to maintain a steady employee base,
since attrition rates among expatriates are high. This is more
acute in specialized areas such as pricing, underwriting and
risk management.
Despite these factors, the insurance sector is expected to
grow at a steady pace. Government expansion of non-oil
revenue and planned investment in infrastructure projects,
coupled with rising life expectancy and increasing oil prices,
will support the industry’s growth in coming years.
United Arab Emirates
11

02
Kingdom of Saudi Arabia
12 Insurance opportunities in the Middle East

Mandatory insurance expected
to continue fueling growth
Lower oil prices and
Government’s austerity measures
Enabling regulatory framework
Fragmented industry with low
penetration rates
Despite the oil slump, optimism
flourishes
The world’s largest oil producer is under significant economic
pressures resulting from weak oil prices since 2014. Construction
projects dropped significantly in 2016. In addition, the Saudi
economy is projected to expand at less than 1% in 2016, the
lowest growth since 2002.
The insurance industry is under pressure, with commercial
insurance lines experiencing a slowdown from reduced economic
activity and infrastructure spending. Motor and health insurance
lines have shown topline growth in recent quarters because
of improvements in product pricing. However, life insurance
penetration remains negligible because of the state’s strong role
and cultural attitude limiting demand.
In this challenging environment, the Kingdom of Saudi Arabia
(KSA) remains in a strong position thanks to the fourth largest
foreign exchange reserves despite a sharp drop since the
beginning of 2015. In 2016, the Kingdom announced “Saudi
Vision 2030,” which aims to improve economic growth and
reduce oil dependence by increasing non-oil revenue by nearly
six times over the next 15 years and enhancing the role of SMEs.
The plan will involve disinvesting from state-owned companies,
introducing VAT, boosting investments in non-oil sectors and
trimming Government expenditures.
Hindered growth though mandatory
products still thrive
Non-life represents a vast majority of the market and has grown
rapidly over the last decade. Health received an initial boost in
2006 when expatriates working in KSA were mandated to have
employer-sponsored private insurance. In 2011, these regulations
were extended to cover all private sector employees and their
dependents as well as non-medical travelers. Health insurance
now accounts for 52% of the insurance sector. Medical cost
inflation, increased access to and use of health care services, and
a high incidence of medical fraud continue to push prices higher.
Motor, which accounts for nearly 30% of premiums, also benefited
from the regulations and received a lift in 2007 from changes
to mandatory third-party insurance regulations, requiring each
vehicle to be separately insured.
However, growth in the motor and health lines in the last three
years has been mainly due to hardening of rates as a result of
new regulations around prudent underwriting/actuarial reserving
by the regulator — Saudi Arabian Monetary Agency (SAMA) — in
2013, instead of growth in demand for these lines.
With low awareness, lack of product innovation and high state
involvement in the social security system, life insurance is one of
the most under-developed segments in KSA’s insurance industry.
Most life insurance exists as group schemes with negligible retail
presence.
Non-life penetration rises swiftly, life remains a laggard in a diminished growth scenario
2.0%
1.47%
1.5%
1.0%
0.5%
0.0%
0.6%
0.0%
2008
0.9%
1.0%
1.00%
0.80%
0.87%
0.72%
0.1% 0.1% 0.10%
0.03.% 0.03.% 0.00.%
0.04.%
2009 2010 2011 2012 2013 2014 2015
Non-life insurance
penetration
Life insurance
penetration
12.0%
9.0%
8.6%
10.0%
6.0%
3.0%
1.8%
4.8%
5.4%
2.7%
3.6%
3.5%
GDP growth
(annual %)
0.0%
-3.0%
2008
2009 2010 2011 2012 2013 2014 2015
Source: -6.0% Swiss Re Sigma: World Insurance Reports, World Bank database
Kingdom of Saudi Arabia
13

“The Saudi insurance industry is expected
to benefit from better governance, prudent
underwriting, improved regulations, sustained
premium growth and the Saudi National
Transformation Program, which aims to
establish a more diversified economy.”
Sanjay Jain
EY MENA Insurance Leader
Dubai, UAE
SAMA has reached further agreement with the Ministry of Commerce and Investment to enact a new company law
that specifies that firms that incur losses of more than 50% of their capital have to rectify their financial status.
This regulatory change was in response to the heavy price competition, which was significantly impacting the
economic viability of several insurers.
The share of other non-life lines remains low (15.6% in 2015).
Reduced infrastructure and commercial spending affected
both engineering (YoY growth of -16% in 2015 over 2014)
and property and fire lines (rate of growth decreasing from an
average 18% during 2011–14 to just 2% in 2015).
Intermediate channels playing only a
supporting role
Despite the presence of 80 insurance brokers and 84
corporate agents, tenders and direct insurance continue to
be the largest channels, mainly because of the dominance of
mandatory group health business.
While bulk deals are carried out through the direct route,
brokers are the leading distribution channel for commercial
general insurance. Direct branches and call centers have a
major role in motor insurance distribution. Bancassurance and
direct channels are the key channels within the retail segment.
With most banks already having tie-ups with insurance
companies, the industry is working with the regulator to
explore more flexible bancassurance models.
A fragmented marketplace with few
large players
With more than 30 insurers, the KSA market is not as crowded
as other similar sized markets. However, it is extremely
fragmented at the lower end, with the bottom 26 players
having a cumulative market share of 31%. More than half of
the market is dominated by three players; these are the most
profitable players because of economies of scale and relatively
prudent underwriting practices.
Over the years, small insurers have been hit hard by marketdriven
pricing, poor quality risks and lack of scale resulting in
accumulated losses and solvency issues and questioning the
future of some of these insurers. Despite these issues, there
has been very limited M&A activity in the last decade, mainly
due to controlling stakeholders’ lack of appetite to relinquish
control and big divergence in expected selling price versus
market valuations.
Nonetheless, M&A activity is expected to accelerate as prices
on the Saudi stock market (Tadawul) move to realistic levels
Premium growth over the years (by line of business): 2011-15 (in US$b)
10.0
9.7
CAGR
(2011-15)
18%
29%
Health
Motor
9.0
8.0
7.0
6.0
5.0
4.9
5.6
+19%
6.7
3.4
8.1
4.2
5.1
-1%
Marine and aviation
14%
Property
3%
Protection and savings
11%
Others
Source: SAMA annual insurance report
4.0
3.0
2.0
1.0
2.6
1.0
0.2
0.3
0.2
0.5
3.0
1.3
0.2
0.4
0.2
0.6
1.7
0.2
0.4
0.2
0.7
2.1
0.3
0.5
0.2
0.8
2.9
0.2
0.5
0.3
0.8
2011 2012 2013 2014 2015
14
Insurance opportunities in the Middle East

Market share distribution 2015 — GWP
Other insurers: 31.1%
AXA-Cooperative:
3.2%
UCA: 3.6%
AL Rajhi Takaful: 3.8%
Malath Insurance:
5.2%
Source: Insurance companies filings, SAMA and Tadawul
Medgulf:
11.3%
Tawuniya: 21.2%
Bupa Arabia:
20.6%
and SAMA increases regulatory pressure on insurers to review
and restructure their businesses. The actuarial review of reserves
enforced by SAMA, coupled with a renewed desire to improve
profitability, is likely to generate further near-term pressure for
consolidation. Moreover, with acquisitions being the only route
to enter the market, in the long term, global players are likely to
explore this route.
Profitability woes: opportunities and
threats
With the recent hardening of premiums, following SAMA’s
underwriting and reserving regulations, technical underwriting
results have improved moderately. As a result, the ratio of net
earned claims to net earned premiums improved from 84% in
2013 to 71% in 2015.
The overall profitability of the sector has also improved, with 22
of the 34 insurers reporting profits in 2015, yet high incidences
of fraudulent claims continue to plague the health and motor
sectors. Insurers are looking at automation and IT transformation
to reduce fraud and abuse, enhance process efficiency and
improve customer experience as well as competitive positioning.
Baby steps in innovation
KSA has high internet, social media and mobile penetration, with
1.8 mobile connections per person and 64% of the population
having internet access. Yet, there is no notable online sales
or use of virtual branches. Low oil prices and a challenging
macroeconomic environment, coupled with solvency issues, are
currently hindering investments in innovation.
Regulation: strengthening industry
fundamentals
SAMA’s proactive measures on ensuring a robust pricing regime
and prudent reserving in 2013 have helped the sector improve
its financials over the last couple of years. SAMA continues
to actively monitor the financial stability of insurers.In an
unprecedented move in November 2016, SAMA suspended a
number of significant KSA motor insurers from issuing new motor
polices until customer complaints and claims management issues
were addressed — a clear example of regional regulators clamping
down hard on the conduct of business and consumer protection
aspects. While SAMA is taking steps to holistically develop the
sector, insurers need to be proactive in addressing process gaps
and improving underwriting capabilities and service standards.
In August 2016, the Ministry of Health announced its
decision to stop providing free medical treatment for victims
of traffic accidents. As a result, either the person who has
caused the accident or the insurer, if the vehicle is insured,
would be responsible for the medical expenses of the victim.
The decision will have significant implications for motor
insurance. In the short-term, increased risks and potential
losses for insurers may push up premiums, and in the midterm,
motor insurance penetration will likely increase and
shift from third-party to comprehensive vehicle coverage.
The net effect is yet to be determined and motor insurers
will need to react swiftly to address this seismic market
change.
Bright days ahead: evolving mindsets
and regulations
The Government’s bold steps to improve the economy will have
significant implications for the insurance industry. Any potential
withdrawal of the state’s role in providing health benefits to Saudi
nationals and a further expansion of compulsory health insurance
will drive notable growth in coming years.
KSA’s favorable demographic profile — large young population
and rising life expectancies — will also be positive for the sector.
With young Saudi nationals pursuing higher education abroad and
increasingly experiencing other cultures, a greater acceptance
and understanding of insurance products as a risk-management
tool can be expected to fuel healthy demand for insurance
products and position Saudi’s insurance industry for balanced
growth in the years to come.
Industry headed for a market consolidation
Signs of market consolidation are already evident — in the first-of-its-kind move in the Saudi insurance sector, Sanad
Cooperative Insurance Co. (Sanad) applied for voluntary liquidation after losing more than 50% of its capital, in March 2017.
In addition, a number of KSA insurers have filed regulatory disclosures in February/March 2017, stating their intent to merge
with other insurers.
After peaking in 2013, net claims to net premiums ratios have seen a gradual improvement across key lines
100%
80%
60%
40%
89% 83%
88%
81%
73%
66% 68% 74% 71% 70%
51%
49%
37% 37%
34%
84%
69%
64%
72% 71%
20%
0%
Motor
Source: SAMA annual insurance report
Health Other general Overall
2011 2012 2013 2014 2015
Kingdom of Saudi Arabia
15

03
Egypt
16 Insurance opportunities in the Middle East

Largest population in the
Middle East region
Currency devaluation
Developed life market
Market dominated by few players
Potential introduction of
mandatory health insurance
Recent terrorist activities
destabilizing the economy
Evolving regulatory framework
Restarting the Egyptian economic
growth engine
Egypt has a large but struggling economy, with lower dependence
on oil and gas exports, and very different economic conditions
from the rest of the Middle East region. Since the breakout of the
Arab Spring (2010) and the Egyptian Revolution (2011), Egypt
has witnessed large-scale political turmoil and increased terrorist
activities, which have halted growth in the once-flourishing
tourism industry. Economic slowdown followed the civil unrest,
with GDP growth falling to an average 2% (2011–14 CAGR).
While the return of political stability led to a brief revival in GDP
growth in 2015, the outlook remains weak, and economic growth
is predicted to decline again to 3.2% in 2017 because of a sharp
drop in the export volumes of natural gas and non-petroleum
products.
A sustained weakness in the private sector (PMI index remained
below 50, indicating contraction, for 13 consecutive months since
October 2015), a drop in remittances and rising inflation point
to a difficult macro-economic environment over the short to mid
term.
To tide over this tough landscape, the Egyptian Government
has received a US$12b bailout package from the International
Monetary Fund (IMF) aimed at reviving its struggling economy,
bringing down public debt and controlling inflation. As part of
the agreement with IMF, Egypt has removed its currency peg of
US$1=EGP8.8, which resulted in a massive devaluation of the
Egyptian pound (by 51% between 3 and 9 November 2016).
Additionally, the Government also implemented VAT in 2016
in an effort to boost the fiscal situation by improving tax
collections.
These changes are likely to show results over the long term,
helping foreign investments and tourists to come back to
Egypt. In this context, the fact that the EGX index is the best
performing Middle East market year to date (gained nearly 90%
from June 2016 till early January 2017) confirms the positive
view investors have taken on the stocks after the recent actions
by the Government.
Real growth is a major industry
challenge
In a weak economic scenario, the Egyptian insurance market has
the lowest insurance penetration among key Middle East markets
(0.68% in 2015). Despite sustained nominal growth in recent
years, a high inflationary environment has dampened real growth.
While most other markets in the Middle East report health or
motor lines expanding at the fastest rate, Egypt has seen life
insurance taking the lead. Growth in life insurance was bolstered
by group life insurance (18% CAGR in 2010-15) and a lower level
of social security than other oil-rich countries. Population growth,
increasing consumer awareness, new investment products and
the reintroduction of bancassurance as a distribution channel are
driving organic growth.
11.3%
5.1%
10.1%
7.1%
1.8% 2.2%
9.4% 10.1% 10.4%
4.2%
2.1% 2.2%
12.3%
3.0%
Inflation, CPI (annual %)
Real GDP growth (annual %)
2010 2011 2012 2013 2014 2015 2016F
Source: Oxford Economics, World Bank
Egypt
17

“Egypt remains an interesting insurance market,
given its population size and potential for
growth. However, in the short term, much will
depend on the outcome of the IMF financial
assistance package, stabilizing the recent
currency volatility, and implementation
of reforms in the health care and financial
services sectors.”
Jonathan Matchett
Director, EY AIM Insurance Advisory
Manama, Bahrain
The non-life (45% share in total insurance premiums in
2015) market is almost as large as life market (45% in
2015) , while health and personal accident lines account for
the remaining market. Within non-life, motor is the largest
line with property growing rapidly, primarily driven by the
Government’s investments in infrastructure and demand from
the construction sector.
Egyptian insurance market — product mix
(basis 2015 gross premiums)
Marine, aviation
and transit, 6%
Health, 7%
Personal accident, 5%
The Egyptian Government has earmarked multiple
large construction projects in recent years, including:
• Developing new cities around Cairo
• Plans for 1m new affordable homes
• US$8.2b expansion of the Suez Canal
• Industry development of 75,000 sq. km. of land
on either side of the canal
Liability, 6%
Property, 15%
Source: Timetric
Motor, 16%
Life, 45%
18 Insurance opportunities in the Middle East

• Overall size of the market: US$2.16b GWP (2015)
• Five-year compounded annual growth rate: 14% (2010–15)
• Industry regulated by: Egyptian Financial Supervisory Authority (EFSA)
Traditional channels dominate but
disruption on the horizon
Over-the-counter distribution models such as branches, brokers
and agencies are the primary insurance distribution channels,
especially in the motor line, as people prefer to negotiate
their premiums, have face-to-face interactions and often
pay premiums in cash. Although branches continue to be the
main source of business, bancassurance, postal services and
e-commerce are emerging.
The Central Bank of Egypt imposed a ban on bancassurance in
2007 following reports of malpractice and operational disputes.
After the ban was lifted in 2013, as many as 17 bancassurance
deals were approved by the EFSA, positively impacting life
insurance growth in 2015 (official figures not available).
Public sector giant dominating; takaful
insurers gaining share
The Egyptian insurance market is heavily concentrated, with Misr
Insurance Co. (MIC) leading the non-life segment (54% share in
2015). The remaining 18 non-life insurers have a share of less
than 6% each. The life segment, too, is concentrated, with the
top four players accounting for 84% of the premiums. Misr Life
Insurance Co., a sister company of MIC, leads with a 37% share,
with the remaining 10 life insurers having a share of 4% or less.
Life insurance market share (2015 GWP)
Takaful life
insurers, 5.0%
Others,
11.0%
Emirates NBD (61 branches in Egypt)
extended its bancassurance agreement
with Allianz Egypt in January 2016 by
an additional five years.
Commercial
International,
13.3%
Misr Life
37.0%
Bank of Alexandria (170 branches)
signed a bancassurance agreement with
MetLife Alico to distribute insurance
products to 1.6m customers in 2015.
MetLife
Alico, 14.9%
Non-life insurance marketshare (2015 GWP)
Others,
20.6%
Allianz Life,
18.7%
In 2014, EFSA permitted Egyptian
Post, Egypt’s national postal service,
to sell insurance products through its
branches. This is likely to drive growth
in microinsurance and boost insurance
penetration in the country, where only
14% of the adult population owns or
shares a bank account, according to
a 2014 survey by the World Bank and
Gallup.
Takaful non-life
insurance, 9.2%
Arab Misr,
4.9%
Suez Canal,
5.4%
Source: Timetric
Bupa Egypt,
5.5%
Misr Insurance Co. 54.4%
Egypt
19

The Egyptian Government has allowed 100% foreign ownership
in the Egyptian market since 1998. However, some foreign
insurers have exited the market in light of adverse socio-political
developments and economic headwinds.
While takaful remains a small category for both life and non-life
lines of business, it is showing promise and has gained notable
market share in the last six years (from 0.3% in 2010 to 5.0% in
2015 in case of life insurance and from 4.9% in 2010 to 9.2%
in 2015 for non-life). This is supported by increasing awareness
of Sharia-compliant policies among Egypt’s conservative rural
population. Currently, there are eight takaful insurers and 23
conventional players.
In September 2016, Egypt’s biggest
insurance group, Misr Insurance Holding,
received preliminary approval from
EFSA to set up a takaful company Misr
Takaful Insurance, the first state—owned
Islamic insurer in the country.
Profitability and innovation: a long way
to go
Expense ratios have deteriorated in recent years because of
sustained high inflation. Being relatively low on both maturity
and scale, the sector has observed issues around operational
efficiency. Adoption of technology is in the early stages, with
most processes being handled manually. While key profitability
measures have improved for both life (incurred losses to gross
premium: 63%, 2009 to 55%, 2015) and non-life (loss ratio: 93%,
2009 to 55%, 2015), there is still a long way to go.
Reinsurers have been hit hard by significant payouts related to
security, terrorism and fire covers. While insurers have made
good on their promises in the aftermath of the revolution,
enhancing their image, profitability has been hampered.
Also weighing on profitability is the sharp deterioration of the
Egyptian pound, which has made reinsurance premiums more
expensive in local currency and led to the rapid rise in inflation,
thus impacting general and administration expenses. The
magnitude of insurance payouts, primarily in motor and health,
has been increasing as the cost of imported goods — such as
automobiles and automobile spare parts — and medical expenses
have risen significantly despite limited increases in premium
rates.
This environment necessitates leading insurers and foreign
players to focus on areas traditionally neglected, including
innovation, automation and efficiency.
Overhauling regulations and breaking
traditions
In recent years, EFSA has been seeking to address gaps in
governance, distribution, products and the overall insurance
adoption in the country. Recent measures include:
• Online distribution: In November 2015, EFSA passed a
resolution that allows policies to be issued and distributed
electronically. This allows insurers to issue compulsory motor,
travel and temporary life insurance policies online, provided
EFSA’s disclosure requirements are met.
• Bancassurance: EFSA, in conjunction with the Central Bank,
relaxed bancassurance rules in April 2016 to allow banks to
have dedicated tie-ups with one general takaful operator and
one family takaful company, in addition to the existing one life
and one general insurer.
20 Insurance opportunities in the Middle East

• Governance: EFSA introduced a new draft bill for insurance
supervision, regulation and control in August 2016,
establishing norms for mutual guarantee, micro and medical
insurance as well as governance laws.
• Reinsurance: Reinsurance rules for foreign reinsurers changed
in 2015 to cover minimum limits for capital, credit ratings,
solvency margins and other reserve requirements.
• Investment rules: Investment rules were relaxed in 2014,
enabling insurers to offer previously restricted professionally
managed investment funds, which provide customers with a
wide range of high-return yielding products.
In addition, a self-regulatory body for brokers, the Regional
Insurance Brokers Congress (RIBC), was formed in 2015 as the
official body of Egypt’s insurance brokers to bring order in a
relatively unregulated market.
As a conservative Islamic society with a large rural population
and minimal social security, Egypt provides excellent potential
for takaful. With rising awareness of Sharia-compliant products,
takaful is expected to build upon the high growth of recent years
(CAGR 32% during 2010-15).
Health is another potential opportunity for the sector. The
Government has had little success in increasing private insurance
company participation, because of the presence of key barriers
such as the lack of a unified infrastructure and poor health care
facilities. Most of the population is covered by social insurance
administered by the Health Insurance Organization (HIO) and
funded by salary contributions from employees and employers.
Government reforms to facilitate increased private insurer
participation could significantly impact the size of the health
insurance sector as seen in KSA and more recently the UAE.
Evolving marketplace and regulations
provide growth opportunities
While rising inflation and limited Government investment act as
growth inhibitors, recent EFSA transformational measures are
expected to support healthy industry growth. Egypt is a highly
educated country with high levels of technology adoption, but
financial services have not yet penetrated this market. Egypt
might actually leapfrog the traditional distribution channels and
move toward technology-enabled payment and distribution,
which could open the door to further innovation. To tap this
opportunity, insurers need to find ways to leverage technology
while acknowledging Egyptians’ preference for face-to-face
interaction.
In September 2016, the Egyptian
Government announced plans to
implement a comprehensive health
insurance law aiming to provide
coverage to low-income households.
Egypt
21

04
Qatar
22 Insurance opportunities in the Middle East

Expected privatization of health
insurance coverage to boost
health insurance premiums
Reduced Government spending
due to reduced energy prices
Implementation of recently
introduced Qatar Central Bank
(QCB) regulations
Relatively small life segment
Economy transitioning from a sprint to
a steeplechase
Within the Middle East, Qatar is one of the most remarkable
economic success stories. It was the world’s fastest growing
economy from 2006 to 2011, backed by high natural gas
production — Qatar is the third-largest producer globally — and
rich oil reserves. Backed by rapid economic expansion and high
infrastructure investments, Qatar now has one of the world’s
highest per capita income (on a PPP basis). While Qatar’s rate of
GDP growth has moderated because of low global energy prices,
it still remains one of the fastest-growing economies in the region.
Poised for solid growth despite
economic headwinds
Currently, Qatar is the third largest insurance market in the GCC,
with total premiums of US$2.8b in 2015, despite a relatively
low penetration (1.1% of GDP in 2015). Although the market is
sizeable, growing (CAGR 24.8% between 2009 and 2014) and
profitable, it is still in a developmental phase, as a significant
proportion of the reported premiums comes from international
operations of its largest national insurers.
Fire and engineering are the dominant lines of business, which
have benefited significantly from the rapid growth of Qatar’s
energy sector. The presence of the world’s largest liquefied
natural gas reserves in Qatar has been driving demand for marine
and aviation insurance, the next major lines of business. Motor
is third, backed by compulsory third-party motor insurance
and growing vehicle sales. Due to a strong social security
system, demand for life products is low and typically confined to
expatriates.
With a major portion of the insurance business being driven by
energy and infrastructure projects, direct channel is the biggest
distribution channel in the sector. Brokers have also been able to
match the fast growth seen by the overall sector, as major global
brokers have entered the market.
Though bancassurance’s market share remains low, national
insurers have tied-up with local banks for insurance distribution.
The online channel, though in its nascent stages, has begun
witnessing limited activity on the distribution front. Over the mid
to long term, brokers and online channels are expected to be
the fastest growing, as these will be best placed to tap into the
evolving demographics and young consumers’ needs.
After a phenomenal run, GDP growth (annual %) has moderated to mid to lower single digits
24.0%
19.0%
17.7%
19.6%
14.0%
9.0%
4.0%
11.9%
13.4%
4.9%
4.6%
4.2%
3.6%
GDP growth
(Annual %)
-1.0% 2008 2009 2010 2011 2012 2013 2014 2015
Non-life insurance penetration has picked up rapidly; life penetration remains negligible
2.0%
1.5%
1.5%
1.0% 1.0%
Non-life insurance
penetration
1.0% NA
0.8%
0.8%
0.6%
0.5%
0.5%
NA
0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
0.0%
0.0%
2008 2009 2010 2011 2012 2013 2014 2015
Source: Swiss Re Sigma: World Insurance Reports, World Bank database
Life insurance
penetration
Qatar
23

“Qatar has emerged as an important insurance
market within GCC, with robust growth
expected in the medium to long term driven
by harmonization of onshore and offshore
regulations, infrastructure investments and
expected introduction of mandatory health
insurance scheme for locals and expatriates.”
Robert Abboud
EY MENA Financial Services Advisory Leader
Doha, Qatar
Onshore and offshore insurers competing in the same market
Qatar has 14 insurers operating in the Federal State of
Qatar and 12 in the Qatar Financial Centre (QFC), a special
economic business and financial center in Doha, offering tax
rebates, 100% foreign ownership and flexibility to operate in
the currency of choice. Qatar Insurance Company (QIC) is the
dominant player with nearly 60% market share; however, a
large portion is sourced from QIC’s regional and international
operations.
The five large local/ listed insurers (big five) — QIC, Qatar
General Insurance and Reinsurance Company, Doha Insurance
Company, Qatar Islamic Insurance Company, and Al Khaleej
Takaful Group — dominate with nearly 80% market share. The
remaining market remains extremely fragmented.
QIC has also introduced the nation’sfirst
loyalty program (U-Club) for
the policyholders of the company’s
comprehensive car insurance policies.
U-Club offers discounts and other
benefits from a variety of different
partners. These benefits are centered
around the car and the people owning
or using the car.
In 2016, QIC Insured, the retail arm
of QIC, launched an automated online
motor claims management service.
With this new service, customers can
register and track their motor claims
at qic-insured.com. It also launched
a pay-how-you-drive (PHYD) car
insurance product based on a platform
developed together with Qatar Mobility
Innovations Center (QMIC).
Within the takaful space, five onshore and three offshore
players constitute less than one-fifth of the market. Al-Khaleej
Takaful, which enjoys a 25% market share of the Qatari takaful
segment, converted from a conventional to a takaful insurance
company in 2010 to tap emerging opportunities from Shariacompliant
businesses. However, takaful growth has been
slower than in other regional markets.
While foreign insurers have a minimal presence, some local
Qatari insurers have ramped up their overseas operations.
24 Insurance opportunities in the Middle East

• Overall market size (including international operations): US$2.8b GWP (2015)
• Five-year CAGR (excluding life): 24.8% (2009-14)
• Industry regulated by Qatar Central Bank (QCB) and Qatar Financial Centre Regulatory Authority (QFCRA)
• Top players: Qatar Insurance Company (QIC), Qatar General Insurance and Reinsurance Co. and Doha
Insurance Company 2
Profitability and scale matter. While the big five insurers are well
placed with an average combined ratio below 100% and stable
income from investments, much of the market is struggling
because of weak underwriting performance. Margin pressures are
higher for companies underwriting motor policies as this line is
less profitable than others key lines.
QIC acquired Antares Holdings Ltd., a Bermuda-based
specialty insurance and reinsurance group operating
in the Lloyd’s market, in 2014. It also established
a fully owned, Malta-based European Union (EU)
subsidiary, QIC Europe Ltd (QEL), to expand in the EU
and other non-EU jurisdictions.
Maintaining market conduct and
enhancing growth
In December 2012, QCB assumed the responsibility for
licensing and supervising insurance companies, reinsurers and
intermediaries. As a result, insurance entities operating onshore
are now regulated by the QCB and offshore entities that are
currently authorized by the Qatar Financial Centre Regulatory
Authority (QFCRA) will come under QCB regulatory supervision
in the future. This change will reduce the disparity between
onshore and offshore regulations and create a more competitive
market. The Insurance Law introduced in April 2016 by the QCB
specifies the minimum capital requirements, actuarial reviews,
governance rules, reporting, reserving and investment limits, risk
management and other controls. While these regulations may
bring insurers short-term pains, the long-term effect should be
positive and support industry growth.
Qatari insurance industry outlook
Over the years, the insurance sector’s growth has moved in
tandem with Qatar’s economy and is expected to moderate from
the high double-digit growth seen so far. However, the level
of moderation will depend on the Government’s measures to
rationalize public spending and promote the role of the private
sector and SMEs in light of Qatar’s first fiscal deficit in 15 years.
The Ministry of Development Planning and Statistics forecasts
a fiscal deficit of 7.8% of GDP in 2016 as the Qatari economy
diversifies away from oil and gas.
In 2015, the Government cancelled “Seha” — the mandatory
health insurance scheme — administered by the National Health
Insurance Company (NHIC). The Ministry of Public Health,
Ministry of Finance and QCB have formed a committee to
consider the introduction of a new mandatory health insurance
scheme that would be managed by the insurance industry. This
could significantly increase Qatar’s health insurance market,
which is much smaller than that of most countries in the region,
through increased privatization and the anticipated mandatory
nationwide insurance scheme in 2017.
The insurance sector will be favorably affected by Qatar’s
ambitious infrastructure programs under the Qatar National
Vision 2030 program (projected £140b investment), which
will focus on economic, social, human and environmental
development. Additionally, Qatar will be the first Arab state to
host the FIFA World Cup in 2022 and as preparation progresses
the insurance sector, particularly the property line, should be
favorably influenced.
A favorable policy and regulatory environment, robust economic
fundamentals and strong economic drivers are expected to
ensure that the insurance sector makes significant progress.
However, insurers will also need to contribute effectively to make
the best use of the opportunities, by investing in technology,
people and processes.
2
Timetric.
Qatar
25

05
Bahrain
26 Insurance opportunities in the Middle East

Established regulatory regime
Indirect impact of sustained drop
in oil prices
Potential introduction of
mandatory health insurance
Small market size
Bahrain’s economic fundamentals have weakened in recent years
because of the sharp drop in oil prices and rise in debt levels (from
12.6% of GDP in 2008 to 60% in 2015) due to an adverse fiscal
deficit since 2011. The country’s GDP growth has declined from
4.5% (2014) to 1.6% (2016) as both oil revenue and Government
expenditure are contracting. Despite sustained diversification
efforts over the last three decades and recent fiscal measures
such as subsidy cuts, increased Government fees and general
cost cutting, Bahrain’s economy was downgraded by all key rating
agencies (Standard & Poor’s, Fitch and Moody’s) in March 2016.
Bahrain’s relatively well-established insurance sector has
experienced stable growth in recent years (CAGR 5.3% during
2010–15) despite weak macroeconomic dynamics. However, the
sector’s medium-term growth will depend on the fiscal and policy
measures adopted by the Government. While Bahrain boasts
of the highest insurance penetration in the Middle East region
(2.45% in 2015), it is still well below the global average (6.23%).
Motor is the largest segment (28% of GWP) driven by mandatory
third-party motor insurance. Life (20%) and medical (20%)
insurance are the other notable lines.
The rapid growth in the medical segment (CAGR 11% during
2010-15) can be attributed to rising medical costs and the
participation of expatriates (expatriates constitute 52% of the
overall population) who are not covered under the public health
care system. The sector is expected to experience healthy growth
because of the anticipated new regulatory requirements by the
CBB that will make it mandatory for companies to provide private
health coverage to local and expatriate workers.
Fire, property and liability lines (18% product mix) grew at a CAGR
6% during 2010-15, supported by rising demand for energy.
Despite recent Government spending cuts, ambitious projects
such as Bahrain Economic Vision 2030, which will create a
more balanced growth environment and increase investments
in manufacturing, transport, information communication
technology, services and tourism, are expected to maintain the
growth momentum over the medium to long term.
Takaful insurance has established a strong foothold in Bahrain’s
insurance market. Its share has grown from a marginal 3% (2001)
to 23% (2015). Its contribution to gross premiums is particularly
high in medical (27% of 2015 GWP) and motor (30% of 2015
GWP). Despite a relative slowdown in recent years, the growth
rate for takaful insurance has remained at a CAGR of 12% (2010-
15). Over the long term, takaful is expected to be a key growth
driver for the insurance sector, actively supported by the Central
Bank of Bahrain (CBB).
Bahrain’s distribution landscape is dominated by brokers, followed
by direct channel and agencies, particularly in the non-life
business. However, bancassurance and e-commerce are growing
in importance as insurers are partnering with banks to cross-sell
life products as a security against loans and reduce costs.
Life Insurance Corporation of India
(International) distributes products
through branches of Bank of
Bahrain and Kuwait.
Bahrain has one of the lowest tax rates in the Gulf, allowing
free movement of capital, and 100% FDI. This has ensured
strong participation from foreign insurers in the market. In
2014, the domestic market comprised 11 overseas insurers
(foreign branches) and 25 local players underwriting insurance,
reinsurance, takaful and retakaful. Of the locally incorporated
companies, 14 are conventional insurers and 6 are takaful firms.
Unlike in other Middle Eastern markets, the insurance sector
in Bahrain is not heavily concentrated at the top. No insurer
operating in the country has a market share greater than 10%,
with only seven insurers commanding a market share of 7%–10%
each. Overseas insurers currently bring in nearly one-fifth of the
sector’s total GWP (21% in 2015). While some global insurers
(e.g., Legal & General) have withdrawn from Bahrain, other global
insurers have shown willingness to stay invested for the long
term.
Bahrain
27

“Despite stressed economic conditions, the
Bahrain insurance market continues its slow
and steady growth at the back of an established
regulatory regime and mature competitor profile.”
Gordon Bennie
EY MENA Managing Partner Financial Services
Manama, Bahrain
28 Insurance opportunities in the Middle East

• Overall market size: US$0.72b GWP (2015)
• Five-year CAGR: 5.3% (2010-15)
• Industry regulated by CBB
• Major product lines in 2015: motor (28%), long-term life (20%), health (20%) and fire/property (17%)
• Top domestic players: Bahrain Kuwait Insurance Company B.S.C. (BKIC), Bahrain National Insurance and AXA-
Gulf-Bahrain
Rising claims and expenses have been constricting profitability
for insurers and the loss ratio for the sector has deteriorated from
50% (2010) to 67% (2015). This is primarily due to increased loss
ratios in life, motor, medical and engineering.
Bahrain has one of the most mature regulatory frameworks in the
region. It was also the first to introduce regulations for takaful
companies that met the requirements of the Accounting and
Auditing Organization for Islamic Financial Institutions (AAOIFI).
To improve insurance penetration in the market, the CBB works
closely with the Bahrain Insurance Association (BIA) to promote
awareness of insurance products and skill building by conducting
targeted training.
Loss ratios in selected lines
74%
68% 74% 70%
65%
in crude oil prices are expected to improve the economic climate
in the country. The following key investments may drive long-term
industry growth include:
• The Government plans to invest US$15b to improve rail
infrastructure, build the Saudi-Bahrain Causeway and expand
the Bahrain International Airport under the Bahrain Economic
Vision 2030 plan.
• The Ministry of Housing (MOH) is taking multiple steps to
drive growth in the residential construction market. These
include ensuring mortgage availability to all income groups,
introducing low-interest financing and tax incentives for
low-income groups and entering into several public-private
partnerships (PPPs) to develop affordable housing.
• The Government plans to invest US$6b by 2019 to ramp up
existing energy infrastructure. Additionally, rising energy
demand (at 7%–10% each year until 2020 according to World
Bank projections) is expected to attract investment in energy
infrastructure over the forecasted period.
25%
17%
13%
Innovation at its core — developing the
insurance sector of the future
Life Motor Medical Engineering
2011 2015
Source: Insurance Market Review, Central Bank of Bahrain
Moreover, last year, CBB and BIA introduced the Motor
Compensation Fund to compensate victims of motor accidents
involving hit-and-run and uninsured vehicles, and emphasize on
social responsibility among insurance companies. Insurers are
required to pay 1% of gross motor premium income or at least
BHD5,000 annually to the fund.
While short-term economic conditions appear stressed, significant
investments planned by the Government and a potential rebound
• CBB is the only Middle East
representative on the Executive
Committee of the International
Association of Insurance Supervisors
(IAIS).
• Bahrain Institute for Banking and
Finance and Gulf Insurance Institute
are now recognized as premier
specialist training institutes in the
region.
• CBB mandates that all
independent financial advisors
attain internationally recognized
qualifications — a first for the Middle
East.
Bahrain 29

06
Oman
30 Insurance opportunities in the Middle East

Regulatory regime in
developmental stage
Challenging macroeconomic
outlook due to low oil prices
Potential introduction of
mandatory health insurance
Small market size and low
penetration
Being a small and growing oil-dependent economy, Oman has
been impacted by oil price corrections. With oil accounting for
almost 75% of the Government’s revenue last year, Oman’s GDP
growth was over 2% in 2016 after a high of 7.1% (2012) and 3.6%
(2015). Accelerated fiscal austerity measures adopted by Oman
brought down Government expenditures in 2016 by 7.5%, which
are expected to decline further. Despite the robust cost reduction
effort from the Government, the budget deficit has widened to an
estimated 21% of GDP while the Government’s debt burden has
jumped to more than 35% of GDP.
Despite volatile macroeconomic drivers, the insurance sector
has shown relatively robust performance, growing at a CAGR of
11% since 2009. Much of this growth has been due to the sharp
expansion in the health line (CAGR 32% in 2009–15), due to rising
public awareness and Government initiatives to boost health
care infrastructure. As a result, health insurance has grown from
a market share of 8% (2009) to 23% (2015). Life and non-life
segments (excluding health) grew at a relatively modest CAGR of
5% and 8%, respectively.
Bolstered by mandatory third-party motor insurance, the motor
segment contributed 36% of GWP in 2015. This is expected to
decrease in the medium-term, with the automobile industry
experiencing slowing growth in new car sales. Property,
the second-largest line at 23% of GWP, has been aided by a
construction boom in the last decade. At just 10% of GWP, life
insurance remains comparatively small, with group business
driving most of the volume (80%). In non-life, direct sales through
extensive branch networks are is the key distribution channel
for the motor segment, while most non-motor business is under
written through brokers. Agents lead individual life insurance
sales, whereas group life sales are led by brokers.
Insurers are increasingly entering into bancassurance agreements
to utilize the relatively mature bank distribution network. Online
sales and telesales are expected to gain importance in the
medium term.
With 70% FDI allowed in the country, Oman has more than 20
insurance companies and a healthy participation from foreign
players. The Oman insurance market is concentrated at the top:
five players command 62% of the market share (2015). The
sector also has two takaful insurers, which together account for
6% of the market.
Al Madina Insurance Company SAOG,
which was established as a conventional
insurer in 2006, changed its strategy and
converted all its insurance businesses to
become Sharia-compliant in 2014.
AXA Gulf and Bank Muscat, a leading financial services provider in Oman, signed a 10-
year partnership agreement in 2015 to offer bancassurance products for life protection,
investment and savings to Bank Muscat customers across 149 branches.
AIG and Bank Muscat also signed a 10-year strategic bancassurance agreement in 2015
under which AIG is the exclusive provider of non-life insurance products to Bank Muscat
customers in Oman.
Oman
31

“2017 is the year of regulatory changes resulting
in enhanced capital and IPO requirements. We
expect to see higher retentions arising from the
capacity built as well as some consolidation. The
recently introduced Omani taxation reforms and
the upcoming VAT regime will also impact the
sector.”
Sanjay Kawatra
Partner, Audit
Muscat, Oman
32
Insurance opportunities in the Middle East

• Market size: US$1.16b GWP (2015)
• Five-year CAGR: 12% (2010–15)
• Industry regulated by: Capital Market Authority (CMA)
• Major product lines (2015): motor (36%), health (23%), property (23%) and life (12%)
• Top players: National Life & General Insurance Company SAOC (NLG), Dhofar Insurance Company S.A.O.G.,
Oman United Insurance Company S.A.O.G and Al Ahlia Insurance
Both non-life and health lines continue to have adverse combined
ratios (average combined ratio during 2011–15: 106% and
101% for non-life and health, respectively) due to high claims
experience. Investment income has been weak on account of
large percentage of investments being held in bank deposit and
recentchallenging capital market performance (including equity
and securities). These factors have impacted the profitability of
the sector.
Under the CMA new regulations, all insurance companies
(excluding foreign branches) must convert to public joint stock
companies, divesting a 25% stake owned by promoters, instead
of the normal 40%, in initial public offerings, and increase their
minimum paid-up capital from US$12.9m to UD$25.9m by
August 2017. In the long-term, these regulations are expected
to improve insurers’ access to funds, strengthen capital, increase
transparency and enhance financial strength. This should result in
market consolidation and help ease competitive pricing pressures.
• A unified auto insurance policy, which aims to increase
transparency by amending legal definitions to limit disputes
arising from different interpretations
• A proposal to make health insurance compulsory and
encourage growth of health insurance premiums
Although the Omani insurance market is facing challenges due to
low oil prices and the resulting macroeconomic environment, it
is poised for robust long-term growth, benefiting from favorable
regulations, Government diversification policies to increase
private participation and a strong pipeline of infrastructure
investments. As per the Government’s 2016-20 plan, the oil and
natural gas industry’s GDP contribution will be cut from around
48% to 22% approximately and 52% of total investment will come
from the private sector (versus 42% in the last plan).
In 2016, CMA and the Omani Government launched these other
key initiatives:
• New disclosure requirements and minimum standards for
investment-linked products
Oman
33

07
Kuwait
34 Insurance opportunities in the Middle East

Potential introduction of
mandatary health insurance
A fragmented and small insurance
market
Underdeveloped insurance
regulations
Kuwait is among the 10 wealthiest countries in the world in terms
of per capita GDP. However, the global slump in oil prices has led
to an economic contraction over the last two years. The current
financial deficit is expected to grow to 6.1% of GDP in 2016
from a surplus of 5.3% in 2015. FDI declined by 68% in 2015, a
trend that is likely to exacerbate in 2016. Turbulent economic
factors have pushed the Government to introduce reforms
focused on reducing fuel subsidies, increasing taxes, driving
non-hydrocarbons diversification and enhancing private sector
participation.
Home to one of the oldest insurance industries in the Gulf, Kuwait
is one of the region’s smallest and least developed markets
and has low insurance penetration. However, with the sector
growth higher than the real rate of economic growth, insurance
penetration improved from 0.5% of GDP in 2011 (non-life: 0.4%
and life: 0.1%) to 0.9% in 2015.
With mandatory third-party motor insurance, motor remains
the largest line of business (30% share of premiums in 2014),
followed by health (22%) and life (17%). Like other neighboring
markets, Kuwait’s life segment is a small contributor to overall
GWP, as it is constrained by a strong social welfare system,
relatively wealthy population and religious beliefs. Therefore,
conventional life insurance has remained underdeveloped
with limited product diversification. As a result, individual life
contributes just 4% of GWP (group life contributes 13%).
Of the more than 30 insurance companies in Kuwait, most are
composite insurers. The top players in the market are domestic
firms, with Gulf Insurance & Reinsurance Company — a composite
insurer — leading in both the life and non-life segments. As the
top five insurance companies account for more than 56% of total
premiums, intense competition is seen among smaller players.
Being a small, fragmented market, implementation of any
stringent capital adequacy requirements in the future may raise
solvency risks for small companies, leading to consolidation over
a medium to long term.
Although six Arab and four foreign players are in the market,
domestic insurers continue to dominate. While expatriates prefer
foreign insurers’ products, domestic insurers have increased their
penetration among locals. Despite the Government allowing 100%
FDI in the sector since 2001, the entry of foreign insurers was
hampered by complex FDI laws. With the Government reforming
the FDI law in 2013, it is now easier for foreign insurers to enter
the market, though many have yet to take advantage of this
regulatory reform.
The takaful segment has been active in Kuwait since the early
1990s, making it one of the oldest Sharia-compliant industries
in the region. Nearly one-fourth of insurance premiums are
sourced through takaful products (24.5% GWP in 2014). Growing
awareness of Sharia-compliant policies has led to growth in
takaful premiums, giving notable competition to conventional
products, especially in the life segment. Takaful contributes about
one-fifth of total insurance premiums, though its growth has been
hindered by higher operating costs and lack of takaful-specific
regulations.
Agencies are the top distribution channel for non-life and health
segments in Kuwait. Within the life segment, brokers and agencies
are the two largest channels, accounting for four out of every five
policies sold. While direct marketing was the third-largest channel,
e-commerce has seen rapid growth in recent times and will play a
bigger role in the coming years.
Kuwait-Qatar Insurance Company, a
leading conventional and takaful insurer,
launched an online retail platform in
2015, allowing customers to buy or
renew personal insurance policies such as
travel, home and motor online.
Kuwait
35

Insurance sector growth, penetration and product mix:
• Size of the market: US$1.10b GWP (2015)
• Industry regulated by: Ministry of Commerce and Industry (MoCI)
• Major product lines (2014): motor (30%), health (22%) and life (17%)
• Top players (2014): Gulf Insurance and Reinsurance Co. (22%), Kuwait Insurance Co. (11%), Warba Insurance
Co. (9%) and Al Ahleia Insurance Co.S.A.K.P (8%)
Profitability for insurers has been affected by competitive pricing
and volatile investment income. Large players generally are
profitable because of economies of scale and have favorable
combined ratios. However, intense competition has resulted in
poor underwriting performance for small companies.
Kuwait’s insurance regulatory regime (regulated by the MoCI)
has not evolved to the degree of that in the other countries in
the GCC. Introduced in 1961, Kuwait’s Insurance Law No. 24 was
the first piece of formal insurance regulation in the GCC and is
is still in place today. The Government aims to introduce a New
Insurance Law to replace Law No 24 and set up an autonomous
regulatory body to regulate the sector. Other key initiatives
include the following:
High disposable income, low insurance penetration and
Government initiatives to develop the sector are likely to drive
long-term growth for the Kuwaiti insurance sector and attract
more foreign interest. The Government’s push to infrastructure
projects will support non-life sales, and compulsory health
insurance will boost the health segment. However, demand for life
insurance products is likely to remain constrained.
• In 2016, the Government introduced a law mandating health
insurance coverage for visitors to reduce state health costs.
• In 2015, the Government eased regulations for foreign
insurers. It is no longer mandatory for foreign insurers and
reinsurers to establish a publiclyheld company with prescribed
capital.
• In 2014, the Kuwait Direct Investment Promotion Authority
issued executive regulations to promote direct foreign
investment by simplifying the process to obtain a license.
36 Insurance opportunities in the Middle East

Kuwait 37

38 Insurance opportunities in the Middle East

Key insurance
themes
Key Insurance Themes
39

Finbarr Sexton
EY MENA Indirect Tax Leader
Doha, Qatar
David Stevens
VAT Implementation Partner, Tax
Dubai, UAE
Jennifer O Sullivan
Director, VAT Implementation
Advisory
Doha, Qatar
1
GCC VAT: a stable revenue source
In response to somber macroeconomic determinants, the Middle
East has seen multiple fiscal adjustments over the last few years.
These range from spending reductions to new revenue measures
such as increasing corporate income tax (Oman), hiking taxes on
tobacco and alcohol (Bahrain), and reducing exemptions and tax
administration reforms (Iran).
The initial phase of VAT will be implemented with a low standard
rate of 5% and limited exemptions primarily on health care,
education and social services. The 5 % rate is likely to be
increased over the medium term. While VAT has immediate
implications for the end consumer, who ultimately bears the tax
burden, businesses also will incur costs:
• Implementation of VAT (or a similar tax regime) will increase
short-term inflation and possibly push employee and operating
costs a notch higher.
• As a pervasive tax on each entity transaction, VAT impacts
multiple functions within an organization. Therefore, VAT
implementation projects tend to be complex and lengthy,
particularly in a sector such as insurance, which is likely to
have supplies categorized as partially exempt and partially
VAT chargeable.
• Businesses need to significantly invest in training people,
upgrading technology, reviewing contracts, repricing products
and revamping financial systems and other processes.
With the insurance sector being partly VATable and partly exempt,
the challenge for businesses will be that not all input VAT on
purchases will be recoverable against output VAT on premium
income. The insurance sector will be within the scope of VAT and
will have to comply with both the quarterly and annual VAT return
pay and file obligation.
In this new environment, processes need to change to
accommodate enhanced governance frameworks and systems.
With VAT implementation expected in January 2018, GCC
insurers will need to act fast, given the annualized nature of most
insurance contracts.
The impact on the sector will vary and it will include:
• An increase in the cost of doing business — irrecoverable VAT incurred on purchases attributable to exempted
products, leading to a requirement to revise contractual charges to consumers
• Requirement to implement VAT in the business where the entity undertakes partially exempt and partially VAT
applicable purchases and complies with VAT compliance obligations once the legislation becomes effective —
resulting in VAT implementation projects in the insurance sector often becoming more complex and lengthy
compared with other industries
• Potential for business restructuring where current corporate and contractual structures give rise to VAT
inefficiencies
40 Insurance opportunities in the Middle East

Gavin J Maxwell
Partner, AIM Advisory Services
Dubai, UAE
Ata Malik
Director, AIM Finance Services
Advisory
Dubai, UAE
2
From outsourcing to “robosourcing”:
a major cost management
opportunity waiting to be unleashed
In the last 15 years, global insurance has seen a rapid increase
in outsourcing in areas that can be managed easily by shared
service providers. Sophistication levels have evolved, with highly
specialized services (e.g., actuarial) outsourced or offshored to
accomplished service providers or in-house captives in low-cost
destinations.
However, globally, potential gains from traditional outsourcing
appear to be peaking, as insurers are looking to leverage on
new tools of cost minimization and improve customer centricity.
Robotic process automation (RPA) is one such tool and is being
touted as the next IT revolution driven by artificial intelligence
(AI). It will allow enterprises to automate tasks such as policy
administration, claims processing and underwriting across the
value chain, thereby reducing costs and improving efficiencies.
As RPA matures, solutions are being developed to build cognitive
robots for simple signature comparisons and speech processing
and more complex regulatory (and ethical) and decision-making
processes.
RPA proof-of-concept by an international non-life and
life insurer for its finance function 3
• Robotics software implementation reduced time
to run a report from 90 to 12 minutes
• Reports were delivered free from mistyping and
formatting errors
• RPA software was installed locally, close to the
end-user, making it flexible and easily manageable
by users
With cost pressures, regulatory scrutiny and low oil prices,
insurers in the Middle East are increasingly focusing on
efficiencies in operations, underwriting, sales and marketing and,
most notable, claims processing. RPA can improve productivity
by automating mundane processes through robots at nearly onethird
of the costs associated with offshore full-time employee
(FTE) and digitized back office operations while improving quality,
control and audit processes.
Automated business processing operations are expected to rise
from 15% (2014) to 40% (year-end 2017). The major yardsticks
for success will be reducing the number of FTEs to complete a job,
improving cycle time and increasing cost efficiency.
While comprehensive RPA adoption in the region may
be a few years away, insurers can approach it by:
• Staying conscious about maintaining business
continuity while applying RPA techniques
• Preparing a robust roadmap for knowledge transfer
from employees and service providers to automated
systems and to employees managing these systems
• Partnering with service providers that are
technologically sound and functionally adept,
have a regulatory perspective and have a global
implementation experience
• Establishing regular checkpoints and mandatory
performance reviews
3
Robotic process automation in the finance function of the future, EY, June 2016.
Key Insurance Themes
41

Paul A Sommerin
Partner, MENA Financial Services,
Technology & Transformation
Dubai, UAE
3
Technology revolution: rewriting
insurance basics
While most Middle East insurers have been relatively slow to
adopt technology, those with strong global roots or financially
sound business models are investing steadily in technologydriven
innovation. Business models will be fundamentally altered
by the coupling of digital, analytics, platform architecture and
continuous delivery capabilities. This will impact the insurance
value chain as key back-end systems such as claims and
policy administration become nimble to allow strong business
collaboration, ensure seamless integration with other systems
and improve customer response times. This agility will further
enable intermediaries and agents to drive customer relationships
at multiple touch points while minimizing channel conflicts.
With increased regulatory scrutiny, it is crucial for insurers to
acquire flexible systems to the address ever-changing reporting
and compliance requirements, while not compromising on data
However, the area where technology will create the biggest impact will be access to real-time information
through new sensor-based tools popularly known as the internet of things (IoT). The following are some of the
most promising technologies in this space:
• Telematics leverages GPS and wireless communications to enable auto insurers to shift to more accurate
usage-based insurance. A major share of auto premiums is expected to be generated via this route in the future.
• Wearables help life and health insurers break from traditional business models and provide outcome-based
customer services in marketing, underwriting, risk management, new product development and claims
management.
• Almost every major auto manufacturer is planning an autonomous car initiative. Autonomous vehicle software
start-up NuTonomy launched a basic version in August 2016, while Uber launched the first self-driving taxi fleet
in the US in Pittsburgh, Pennsylvania, in September 2016. Driverless cars will change auto insurance from the
personal to commercial lines, where liability will rest with auto manufacturers or service providers, and increase
car sharing along with associated risk sharing and flexible premium pricing.
• Connected homes: In the foreseeable future, an entire home will be a single connected entity, both internally
and with an ecosystem of service providers, including insurers. The insights generated from connected homes
will not only generate more accurate pricing for home owners, but also reduce prices because of improved
prevention of losses. We have already seen a major push in this direction with the launch of the HomeKit app by
Apple in June 2016. This app provides a comprehensive home automation framework that will work seamlessly
with multiple select smart accessories.
42 Insurance opportunities in the Middle East

quality and security. Actuarial and enterprise risk management
tools will reassess threats and confirm that new technologies
address the right priorities. Technology is also a key enabler to
deal with cost pressures — a key concern given low oil prices and
unrest in the region.
In 2016, Qatar insurance Company launched the GCC’s first
telematics-enabled motor product, using pay-how-you-drive
(PHYD) pricing models that offer discounts to safe drivers.
The Middle East has been relatively immune to these technologies
so far, but it is only a matter of time before these changes will
completely alter the operating and competitive environment.
Insurers need to determine where to target their technology efforts:
• Develop an integrated claims-processing system to simplify processes and speed up claims resolution, reducing
costs and enhancing customer fulfilment
• Partner with industries with a strong affinity for technology and data analytics to capitalize on business
opportunities, and systematically reduce risks
• Achieve operational efficiencies and synergies through information system integration; manual processes,
prolonged processing cycles and disparate systems act as barriers to the speed at which the industry conducts
business
• Pre-empt changes that sensor-based technologies will bring in measuring risk and improving access to customer
information
Key Insurance Themes
43

Clinton M. Firth
EY MENA Cybersecurity Leader
Dubai, UAE
Narasinga Rao
Executive Director, AIM Advisory
Dubai, UAE
4
Cybersecurity: could hackers turn
the lights out?
Cyber attacks make headlines globally almost on a daily basis.
Cyber criminals can be in the form of ideologically motivated
hacktivists, insiders, vendors, political dissidents and organized
criminals. With business interruption, intellectual property theft,
data breaches and cyber extortion — both for financial and nonfinancial
gain — risks are increasing exponentially for Middle East
insurers.
Aside from the traditional form of data breaches, insurers in
today’s increasingly digital world face major vulnerabilities from
internal and external data and security breaches, large-scale
denial-of-service-attacks, cyber espionage, intellectual property
exposure and reputational damage. Cyber threats also put
sovereign and corporate level ratings at risk, which could lead to
significant restrictions on accessing capital.
The insurance industry continues to lag behind several other
industries in terms of monitoring and managing cyber risks. In EY
Global Information Security Survey 2015, 75% of insurers said
they are unprepared for an attack. Even within the Middle East,
industries such as energy and banking are at a more advanced
stage of cybersecurity prevention than the insurance sector.
Key challenges for insurers include:
• Loss of intellectual property (IP) and client data: Financially
motivated cyber intruders, and those pursuing corporate
espionage, often seek to steal IP including product know-how
and pricing, board books, business strategies, knowledge of
inorganic plans and target pipelines. Timely identifying data
breaches, maintaining integrity of electronic data and taking
corrective measures become paramount to prevent large-scale
distress.
• Risks from emerging technology and required competencies:
New ways of developing and distributing products generally
require new processes, systems, languages and cultures — all
involving varying degrees of security risk and threats. Security
and privacy measures are needed to protect insurers at each
level of change. Moreover, as more applications and solutions
are embedded in the cloud, insurers need to account for
additional third-party exposures.
• Evolving regulatory pressure: As regulators around the globe
crack down on cyber risks, insurers will be under significant
pressure to increase cybersecurity measures, especially
around demonstrating effectiveness of controls.
With high digital and social media penetration, most Middle
East markets are at the cusp of digital disruption. For insurers,
capitalizing on this opportunity requires establishing a robust
security architecture. However, faced with comparatively lessevolved
technical capabilities, weaker regulatory oversight and,
above all, lack of budgetary allocations in light of players’ low
profitability, adopting a comprehensive cyber risk management
framework remains a steep challenge. Nonetheless, as cyber risk
management becomes a necessity rather than a choice, insurers
will have to embed it in their strategic decisions.
44 Insurance opportunities in the Middle East

As cyber threats become increasingly sophisticated and cyber criminals more nimble, stealthy and persistent
in exploiting system vulnerabilities, insurers should have a holistic cybersecurity management plan, which
includes:
• Customer education: Clear messaging related to customer obligations and behaviors to support secure use of
online channels and education of customers about known fraud mechanisms
• Governance framework: Security organizational structure, oversight and reporting mechanisms that drive
security strategy, intelligence activities, risk appetite and operational security decisions
• Active defence: Deliberately planned and continuously executed campaign to identify and eradicate attacks and
prevent likely threat scenarios targeting most critical assets
• Monitoring: Systems and organizational capability in place to monitor customer behaviors and transactions
• Incident response: People, processes and technology in place to coordinate business, IT and customer contact
channels in order to manage online fraud and security incidents
Key Insurance Themes
45

Ross Maclean
EY AIM Digital and Innovation Leader
Dubai, UAE
Andreas Skopal
EY MENA Digital - Financial Services
Leader
Dubai, UAE
5
Digital redraws traditional structures
Technology disruption is fundamentally reshaping customer
expectations. Although other global emerging markets are in the
midst of transformation, Middle East economies have remained
largely untouched. Our view is that this is about to change.
Customers are driving the need to change due to:
• Shifting preferences toward mobile as the preferred channel
• Expectation that experiences are personalized and relevant
• Expectation that service delivery is fast, easy and straight
through
Insurers are looking at ways to address these needs and leapfrog
time to market by partnering with technology start-ups to access
these new capabilities.
With traditional operating models lacking the agility to meet
changing market needs, insurers in the region will need to make
digital a central component of their business strategy. The value
that digital can deliver includes reducing costs, to sell and service,
increasing customer engagement levels, improving persistency
and enhancing process efficiency.
Key challenges for insurers in the Middle East:
• Business case for digital investments: Insurers across the
region are struggling to understand how digital can drive
profitable growth.
Insurers and distributors who are able to differentiate their
customer experience through a carefully designed, thoughtfully
executed and agile digital strategy will win in the market.
Key components of a successful digital strategy:
• Understand how digital can enable the achievement
of the business strategy
• Create the “art of the possible” in terms of what
digital can deliver for customers, staff and partners
• Bring customers and partners into the design
process to capture what they need and value
• Understand what digital assets can be leveraged
versus what needs to be bought or partnered with
to deliver the target end state
• Equip channel partners with digital tools to deepen
customer engagement and supplement insurers’
own digital capabilities
• Embed digital into the organization’s DNA including
collaboration, test and learn, product, pricing,
underwriting and sales engagement
• Legacy process and system constraints: Most insurers are
wired to operate with legacy technology and processes.
Incremental changes to business-as-usual may not lead to
notable digital progression.
• Cultural and manpower constraints: With limited know-how
and low ability to attract the best talent, insurers often fail to
develop a culture of innovation; implementing effective digital
strategies will be difficult.
46 Insurance opportunities in the Middle East

Dr. Sandeep Srivastava
Partner, AIM Financial Advisory
Services — Risk
Dubai, UAE
Muhammad Qaiser
Executive Director, MENA Financial
Accounting Advisory Services
Doha, Qatar
6
Dawn of a new world of reporting: IFRS
9 Financial Instruments and IFRS 17
Insurance Contracts
The International Accounting Standards Board (IASB) has been
working on improving the current accounting standards IFRS
9 Financial Instruments and IFRS 17 Insurance Contracts as
weaknesses emerged, largely due to the complexity and lack of
transparency of current rules.
The new standards aim to improve the comparability and
transparency of accounting practices, especially through
enhanced disclosure of risk information and the adoption of
principles-based accounting frameworks. IFRS 9 applies to all
entities and to all types of financial instruments and will be
effective from 1 January 2018.
The implementation of these accounting changes will require
significant effort by insurance companies, particularly to enhance
the reporting and disclosure of risk information, adopt new
performance indicators, implement new informative systems
for managing the reporting flows and educate the internal and
external stakeholders on the impact of the new principles.
IFRS 9 introduces improvements to the accounting treatment of
financial instruments to address criticisms regarding weaknesses
of the existing accounting standard on financial instruments
— IAS 39 — especially in relation to the delayed recognition of
credit losses on loans and other financial instruments, which has
emerged during the financial crisis.
Insurance companies will have to adopt the forthcoming
accounting standard on insurance contracts — IFRS 17, previously
referred to as IFRS 4 Phase II — by 1 January 2021, i.e., three
The key changes introduced by IFRS 9 are:
• Principle-based approach for the classification and
measurement of financial assets, which improves
consistency of financial assets reporting
• Single forward-looking impairment model, which
requires a timely recognition of both incurred and
expected credit losses
• Substantially reformed hedge accounting model,
which is more aligned to risk management and
provides for enhanced disclosures as to the use of
financial instruments in risk mitigating strategies
years after IFRS 9’s effective date of implementation (i.e., 1
January 2018). The final version of IFRS 17 is expected in the
first half of 2017.
The misaligned effective dates of IFRS 9 and IFRS 17 raised
concerns in the insurance industry, as it will result, among
other things, in additional accounting mismatches, temporary
volatility in profit or loss and significant cost and effort for the
implementation of two sets of major accounting change in a short
period of time.
To address certain effects of applying IFRS 9 before IFRS 17 in
September 2016, the IASB issued amendments to the current
IFRS 4 standards.
Key Insurance Themes
47

With the effective date of IFRS 9 (1 January 2018) approaching rapidly, a key decision has to be made
by entities issuing insurance contracts within the scope of IFRS 4, based on the options proposed in the
amendments:
• Opting for the temporary exemption allows eligible entities to defer the implementation date of IFRS 9 up until
the date of adoption of IFRS 17 (1 January 2021). The eligibility for the temporary exemption is assessed
at the entity level; an entity meets the qualifying criteria if the ratio of total liabilities as on 31 December
2015 exceeds 80% (i.e., predominance of the insurance business); is automatically eligible if the ratio is
more than 90%; and an additional qualitative and quantitative assessment is needed for eligibility if the ratio
is between 80% and 89%.
• Overlay approach: The overlay approach allows an insurance entity to adjust its profit and loss account to
exclude the impact of moving from IAS 39 to IFRS 9 for assets that are required to be measured at fair value
through profit and loss (FVPL) under IFRS 9 but were not carried at FVPL under IAS 39. The overlay approach
is applied at an instrument by instrument level for eligible assets. An entity may also decide to apply the
deferral approach at the insurance entity level and apply the overlay approach at the group level when it does
not pass the deferral eligibility criteria at the group level. The overlay approach may be utilized until IFRS 17
becomes effective on 1 January 2021.
Insurers will welcome the possibility to defer the implementation
of IFRS 9 until IFRS 17 becomes effective (1 January 2021).
Insurance groups will need to finalize their analyses to determine
whether they are eligible for the temporary exemption and what
the impact of IFRS 9 will be at a group level. In addition, insurance
groups will also need to evaluate whether the temporary
exemption will be available for individual financial statements of
any subsidiaries within the group. The effective date of IFRS 9
(1 January 2018) is approaching rapidly; therefore, insurance
companies need to decide as soon as possible which approach
they will take toward applying IFRS 9 together with IFRS 17. 4
4
Insurance Accounting Alert, EY, September 2016.
48 Insurance opportunities in the Middle East

Ali Pirinccioglu
Partner, AIM Advisory
Services — Customer
Dubai, UAE
Utku Sarioz
Executive Director, AIM
Advisory Services — Customer
Dubai, UAE
7
Data analytics: shaping the future of insurance
With insurers capturing customer data through social media,
call centers and smart devices, it is only a short time before
legacy systems and archaic processes will be replaced. Data
will be leveraged analytically to create new opportunities and
enhance risk management. With most global insurers significantly
investing in recent years, it is only a matter of time before data
analytics gains importance in Middle East markets.
In EY’s survey 5 of 150 financial services firms globally,
84% respondents agreed that data will be a key source
of competitive advantage.
The insurance markets in the region are at a stage where product
portfolios are yet to mature. Developing a 360 degree single
customer view will reshape marketing, sales and customer
services around customers, not just products or policies.
Analytics will provide the next level of intelligence. While some
insurers are embedding analytics into their DNA, much of the
remaining market is grappling with capital and structural issues.
With a more pervasive digital ecosystem and increasingly
technology-enabled enterprises, insurers must look at the right
approach to leverage analytics and digital into their future
strategy. Analytical capability will be a must and a source of
competitive differentiation, allowing insurers to:
• Trim acquisition costs by enhancing information, improving
conversion rates, reducing duration to close a sale and driving
upselling of products to existing customers
• Tailor services, products and premiums in an increasingly
interconnected world
• Explore cross-sector collaboration opportunities by sharing
intelligence with external entities, such as health care
providers, banks and auto companies — turning customer
behavioral aspects into selling opportunities
• Improve time-to-market for new services and products by
assessing emerging trends that may impact future sales
• Develop a distribution strategy by targeting segments on the
basis of purchase behavior
5
The science of winning in financial services, EY, 2015.
• Improve underwriting and minimize fraud by avoiding risky
customer classes and improving customer selection
• Retain high-value customers, employees and distributors by
identifying those at risk
• Reduce claims costs through more effective identification of
fraud, waste and abuse
• Enhance risk and actuarial analysis by providing access to
previously unavailable data — enabling the development of a
robust risk management strategy
The insurers that ultimately achieve competitive advantage
will be those that are able to successfully integrate analytics
into all aspects of their business, including risk management,
financial planning, actuarial, distribution, underwriting and claims
processing. Insurers who acknowledge this and plan accordingly
will stay a step ahead of the competition.
A well-rounded approach for insurers to develop
their analytics capability will include:
• Assessing their current state for levels of
analytics literacy, skills and resources, and seizing
opportunities for innovation
• Identifying the right goals for new or different
products, change pricing, improved customer
loyalty and operating efficiency
• Developing an iterative design process for data
issues and new data sources
• Applying appropriate statistical and predictive
techniques by selecting the right variables
• Generating “buy-in” from stakeholders (leadership,
process stakeholders and users)
• Coordinating deployment of new processes with
other business changes and infrastructure upgrades
• Establishing responsibilities, key performance
indicators and supporting metrics to measure and
define success
Key Insurance Themes
49

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50 Insurance opportunities in the Middle East

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51

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Contacts
Shaun Crawford
EY Global Insurance Leader
+44 207 951 2172
scrawford2@uk.ey.com
Rohan Sachdev
EY Global Insurance Emerging Markets Leader
+91 226 192 0470
rohan.sachdev@in.ey.com
Gordon Bennie
EY MENA Managing Partner Financial Services
+973 1751 4717
gordon.bennie@bh.ey.com
This material has been prepared for general informational purposes only and is not
intended to be relied upon as accounting, tax, or other professional advice. Please
refer to your advisors for specific advice.
ey.com
Robert Abboud
EY MENA Financial Services Advisory Leader
+97444573400
robert.abboud@qa.ey.com
Sanjay Jain
EY MENA Insurance Leader
+971 4 3129291
sanjay.jain@ae.ey.com