A game of risk

Insurers have benefited from the massive influx of expatriates into the Gulf in recent years, while their investments in local bourses have also produced double-digit returns. But with local markets in meltdown, the sector may be braced for a bumpy earnings season ahead.

The global financial crisis is reshaping the financial landscape around the world but Jason Light, chief executive of Emirates Insurance, is unfazed.

"You'd be mad not to be concerned," he says. "But we have not so far observed any particular slowing down in the deal flow that's coming to us as insurers."

Until 2012, life and non-life premiums in the UAE are anticipated to grow by 20 percent annually, according to a report this month by Business Monitor International (BMI), which tracks country risks and specialises in industry analysis.

"Our portfolio of equities is not worth today what it was worth three or four months ago," Light says.

"However, by any calculation, we have more than five times more capital than we need to manage the insurance business that we do. So this, what I hope will be a temporary setback in the market, is not particularly critical for our business model."

The key drivers of growth in the UAE non-life insurance segment in 2007-2012 are anticipated to be a rise in nominal GDP from around $186bn to $303bn and an expected increase in non-life insurance penetration from 1.3 percent of GDP to 2 percent.

In the life segment, BMI anticipates the key driver of growth to be a moderate rise in the total amount of premiums paid per person per year until 2012.

The report lists key strengths of the UAE's insurance sector as low long-term financial risk, high GDP per capita, good odds of policy continuation, and a "reasonably amenable" taxation system by regional standards.

"Within the region, the UAE is notable for its high per capita GDP," the BMI report states.

"The economic outlook is sound, although high inflation remains a risk. Government policies are likely to remain constant over the long term."

But the country's Insurance Business Environment Rating (IBER) is held back by the underdevelopment of the life segment and the financial infrastructure; as well as the legal framework and bureaucracy.

Non-corporate insurance penetration levels in the UAE are low by international standards but public awareness is growing rapidly.

"Insurance hasn't been a part of the history of the UAE," Light says.

"That is changing and people are buying more insurance products for their personal needs than they used to, but it starts from a low base. Religion plays its part with some people."

A consequence of the country's booming real estate market has been growing demand for life insurance, which is usually required by mortgage lenders. As business grows, so does the need for experienced employees.

"One of the biggest challenges for the sector here is people. There seems to be an ever growing number of insurance organisations but there are only a limited number of people to go around," Light says.

"Insurance is an unusual profession perhaps in that unlike many other industries, people only work in insurance. It's very unusual for people to come into insurance having had a background of 10 years working in banking or 10 years in construction."

Then there's the inflation. "There is a lot of competition for good staff and the price you've had to pay for that staff has gone up a lot."

Mark Hartigan, deputy chief executive of Nexus Insurance Brokers, says attracting the right people to the industry can sometimes be difficult.

"Everyone thinks insurance is rather dull," he says with a laugh.

"But from my perspective, it [feels] good when you provide a company or an individual with protection that they never had before."

He regularly comes in contact with people who haven't understood what type of insurance they have paid for and whose existing coverage doesn't fully match their requirement.

This is the result of misunderstandings and, sometimes, a lack of qualified people in the industry, he adds.

"I think there has been a lot of very loose selling going on in the past, but I think customers are much more discerning now, and as they learn more about the market and the requirements, they're going to be more choosy."

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