Impacts of War on Insurance in Arabia and the Middle East

The impacts of war on insurance in the Arabian Peninsula and the Middle East will create significant changes and impact the socio-economic markets in the coming years, leaving their mark on the insurance markets as well. Associated Alliance, Asinta’s Partner in Egypt and Saudi Arabia, wrote the following article outlining what insurance brokers and their clients can expect.

Geopolitical events, such as the Red Sea crisis, the war in Gaza, escalating tension along the Lebanese-Israeli borders, conflicts in Syria involving Americans and pro-Iran groups, and a significant influx of refugees from Sudan into Egypt, reached an unprecedented level in the last quarter of 2023 and continue to dominate headlines. This trend is expected to persist and broaden in 2024. As geopolitical conflicts remain a key driver of economic policy, their potential effects on trade, technological innovation, and economic growth are palpable. The demand for political violence insurance has peaked, extending beyond corporations to individuals seeking coverage for personal assets against political violence, war, and terrorism risks. Limited capacity has driven up prices.

Regulators are applying increased pressure on market regulations. The following is a high-level overview of the major changes expected in 2024 or those that occurred in 2023 and continue to impact markets in 2024.

• Saudi Arabia continues to advocate for more mergers within the insurance industry. In recent years, a series of mergers have been witnessed in the Saudi insurance market.
• Major insurers are withdrawing from the direct market, ceding ground to rear reinsurance seats. Examples include AXA selling their shares to GIG across Gulf Cooperation Council (GCC) countries, Allianz Group selling its 51% stake in Allianz Saudi Fransi (AzSF) in Saudi Arabia to Abu Dhabi National Insurance Company (ADNIC), Allianz selling their shares to a private equity firm in Lebanon, and RSA selling its insurance operations in GCC to the Omani Sovereign Fund. This has resulted in the creation of stronger and larger regional insurers across different countries in the Middle East.
• New insurance laws affecting insurance companies have been promulgated in the UAE, and a new brokers law is expected in the first quarter of 2024.
• Saudi Arabia has delegated insurance regulation tasks from its Central Bank to a new regulator, The Insurance Authority, expected to fully assume the insurance regulatory framework in the second quarter of 2024. This is contrary to the trends witnessed in the last five years, where almost all local markets shifted insurance regulatory responsibilities towards their Central Banks (Jordan, Qatar, UAE, etc.).
• New regulations about digital insurance have been enacted and are underway.
• Compulsory medical insurance is now almost mandatory in every GCC country or is about to be enacted.
• Nationalization initiatives (Saudization, Emiratization, Omanization, etc.) continue to impact markets by increasing pressure on the insurance sector to raise the employment of local nationals in the industry.
• Across the GCC region, the adoption of ESG (Environmental, Social, and Governance) requirements is largely optional at this stage, but the development of requirements remains ongoing. Out of the major insurers in the region, only half are disclosing ESG information, yet regional insurers are developing ESG practices and increasing maturity in ESG reporting, with key best practices emerging. Although the industry as a whole is at an early stage of understanding the ESG implications and integration, insurers are increasingly looking at ways to integrate long-term sustainability not only for shareholders but also focusing on leaving a positive influence on society and the environment.
• The implementation of IFRS 17 is now underway in most countries.

On a macroeconomic level, the UAE’s expected growth for 2023 has been 5%, and the market continues to grow. Saudi Arabia’s investments have reached unprecedented levels, with major investments in entertainment, transportation, infrastructure, manufacturing, and education, creating significant opportunities in the insurance sector. The UAE continues to lead the Middle East in terms of Gross Written Premium, followed by Saudi Arabia. Despite facing hyperinflation, Egypt has introduced structural reforms, and we expect these reforms to bear fruit in the midterm, reshaping and strengthening the economy in the coming five years.

Prices for property and, recently, marine insurance continue to harden while casualty insurance rates remain stable. Employee benefits renewals have seen increases of around 15%.

Automation and AI are already changing the way insurers interact with consumers across the value chain, from product design to underwriting, pricing, and claims. Some firms in the region have adopted technology to make this happen. For instance, some insurers are using AI, employing NLP (natural language processing) to extract data from documents and issue motor policies in less than one minute for the first time ever in the region.

We expect more product differentiation, with new products and features to be introduced in the market. Insurers are likely to focus on their core insurance competencies and eliminate non-core elements, as this is no longer optional, given their pursuit of better profitability. We anticipate that standards like IFRS 17 and new direct/indirect tax regimes will fundamentally transform how insurers operate, including their corporate structures and accounting policies.

 

Thank you, Associated Alliance, for this article on the impacts of war on insurance in Arabia and the Middle East. If you need support with your employee benefits in Egypt and Saudi Arabia, please contact Asinta, and we will put you in touch with the local experts at Associated Alliance.