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Compulsory medical insurance in Dubai seen boosting income of insurance firms

Premium growth need not necessarily improve quality of service
By Babu Das Augustine,Deputy Business Editor, Gulf News
Published: 12:49 January 26, 2014
 
 
Dubai:The recent introduction of compulsory medical insurance for all workers and dependents in Dubai is expected give a boost the premium incomes of insurance companies operating here, according to Standard & Poor’s Ratings Services.

Although no immediate impact is expected, the rating agency sees a progressive surge in premiums to positively impact the balance sheets of these companies.

The recent experience of Saudi Arabia and Abu Dhabi, where compulsory medical insurance is introduced, shows there has been a significant increase in premium incomes.

“We have seen medical insurance become the dominant line of business in both Saudi Arabia and Abu Dhabi since compulsory medical schemes were introduced there in the past decade. In Saudi Arabia, we estimate that medical insurance is now about 55 per cent of total insurance premiums, up from about 40 per cent in 2008; in Abu Dhabi, we estimate it is about 40 per cent,” said Kevin Willis, Director - Financial Institution Rating Services, Standard & Poor’s Ratings Services.

The Emirates Insurance Authority (EIA) report for 2012 identifies medical business as contributing 32 per cent to market premiums in UAE.
 
According to EIA statistics in 2005, medical premium accounted for 8 per cent of the UAE non-life insurance market; in 2007 it had grown to 18 per cent. In 2009, medical was 25 per cent of the nonlife sector, with premium volume again twice that in 2007.

The growth of medical insurance premiums in this period reflects both the introduction of compulsory cover in Abu Dhabi, and also that this was a period of high economic and structural growth for the country.
“We expect similar factors to influence the growth of this line for the next five years or so. We also note that the UAE is planning for its population to increase significantly over the next decade, and this too will prompt growth in medical insurance, as the number of employees and dependents requiring cover rises,” said Williams.
Medical insurance is a high-volume and usually low-margin business. According to the 2012 EIA report, the market loss ratio that year was 83 per cent for medical insurance leaving only a 17 per cent margin to cover production and management costs.
Analysts say the immediate impact of the introduction of compulsory insurance in Dubai on premium growth will be limited -- many large employers in Dubai already have medical schemes in place; the real impact on market premium levels is unlikely to be felt until 2015-2016, when the smaller employers are required to introduce it.
“In our opinion, premium growth will not necessarily enhance the quality of the insurance market. Medical insurance has seen a fiercely competitive market in recent years. Many insurance companies, particularly the smaller and newer entities, have used aggressive pricing to win medical scheme covers and then struggled to make any underwriting margin on the business,” said Williams.