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Life and health insurance in the era of COVID

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As 2022 gets underway, the Middle East region’s life/medical insurance markets are moving steadily toward a new equilibrium.


The pandemic ultimately sparked several positive shifts but, at this point, nearly two years in, the industry overall as well as individual insurers are still finding the optimal balance and path forward.

In March 2020, when COVID-19 first hit the region, the greatest concern was finding ways to continue to conduct business effectively without the in-person contact so culturally necessary. Worries about infection spread as well as global macroeconomic gyrations combined to accelerate some existing trends, most prominently digitalization, and spark some new initiatives.

Surprisingly, companies did not opt to reinsure more risk. And even though some contraction did initially occur in some sectors of the small to medium enterprises market, other sectors – primarily medical practices and hospitals – wound up expanding, as the scope and impact of the pandemic made acutely clear the need for life and health insurance cover.

Despite some tough initial challenges – the enforced need for effective remote work, the contraction of expatriate populations in some countries and the early oil price crunch – insurers in the Middle East have come, two years later, to a stable plateau. Companies have clearly adapted: Pandemic-generated losses are being absorbed, effective remote work structures have been developed and the many changes that emerged starting in 2020 and continued through 2021 are likely to sustain into 2022 and beyond.

Digitalization

For several years prior to 2020, digitalization was steadily but slowly being integrated into medical records, telemedicine, wellness apps and compulsory health insurance programs, but its integration into life and comprehensive health insurance processes had been far slower and more of a challenge.

Some companies were already focused on leveraging digitalization. One bancassurer introduced a fully digitalized online-only product during the pandemic’s early months which is now available through 150 of its branches, and other banks are currently exploring how they can offer something similar. Most institutions, however, still had primarily semi-manual processes at that time.

Necessity accelerated the digitalization trend substantially once the pandemic’s dangers became apparent, as insurers realized they would have to digitalize and automate many processes as quickly as possible in order to maintain business flows effectively.

At this point, most day-to-day digitalization and automation needs have been accomplished, and life and health companies are focusing on the next step: Facilitating greater standardization of products and simplifying process flows for online buyers. Multiple companies in the Middle East are actively working with insurers on a range of initiatives, from third-party digital distribution platforms to integrating cutting-edge technologies such as artificial intelligence, machine learning, and predictive analytics in order to strengthen the drive to transformative modernization.

New and growing markets

Although the small to medium company market throughout the region slumped somewhat at the beginning of the pandemic, it has had a surprising and robust turnaround. Most of the newer groups

obtaining cover are driven by requests from their employees due to personal experience with COVID-19 – either themselves, someone in the company or a relative who contracted the virus.

Thus far, this new business segment is proving sustainable: There has been no appreciable drop in renewals. Cover for SMEs is not expensive, which might also have been the reason for their staying – the companies might not have realized previously that group employee benefits could be obtained affordably.

Some markets also saw growth in certain products. In Egypt, for example, the 50-basis points cut in interest toward the end of 2020 spurred growth in loans and accordingly in credit life.

Regulatory changes

The pandemic did not stop regulators in the region from taking steps to strengthen the industry.

The UAE enacted new life insurance regulations in October 2020 in order to have better control over market dynamics and ensure customer rights. One of the regulations’ main changes was a substantial decrease in first-year life insurance commissions for long-term contracts – a change promoted as part of a package of new rules to reduce mis-selling and improve customer transparency. In early 2021, the Central Bank of the UAE launched its merger with the country’s Insurance Authority, in order to raise the efficiency of the insurance sector and the competitiveness of the local markets. More new regulations are likely to follow in early 2022.

In mid-2020, Saudi Arabia’s tax authority announced an increase in its VAT rate from 5% to 15% for all non-life policies including health insurance, which increased premiums across all these lines of business, but life insurance continues to be exempt from the VAT.

Saudi Arabia’s insurance regulator has also been encouraging M&A in the market, as a means to strengthen companies financially against unforeseen events. So far, the market has successfully completed one acquisition in 2020 and two mergers in 2021.

Qatar announced in October 2021 that a mandatory health insurance system will be implemented to provide healthcare via public and private companies for all foreign nationals. Bahrain and Oman are also working on the mandatory health insurance programs, with the objective of boosting their health insurance activities.

Egypt’s long-awaited revised insurance law is currently forecast to be ready sometime in the first quarter of 2022. The draft may be introducing new categories of compulsory insurance under the oversight of the Financial Regulatory Authority, one of which will be microinsurance, as well oversight of private insurance funds. The law may also increase capitalization requirements for insurance companies, while enabling standalone low-capitalized microinsurance companies. All of this may change the dynamics of Egypt’s market.

The future

The financial strength and stability of the region’s insurance companies enabled them to come through the pandemic’s first two years in good shape. Still, with inflation increasing worldwide, there may be less interest in purchasing savings- and investment-linked life insurance policies. And if the US raises its interest rates, loans might be more challenging for customers in the region to obtain, which might impact the credit life market and insurers’ growth.

There could also be additional challenges, especially in the group market. Higher group claims experienced due to COVID-19 resulted in higher-than-expected losses, and group carriers have sought premium increases to offset these losses. Some customers, however, are resisting these increases, which might impact overall profitability if insurers agree to renew at lower than technical rates or if portfolios shrink due to loss of business.

Overall, the outlook is cautiously positive. For insurers in the region, maintaining and strengthening the new equilibrium into 2022 may have its challenges, as the pandemic’s future path is still unknown and financial headwinds could derail growth. The continuing digitalization push will definitely benefit the market both over the short and long term, and regulatory refinements under way in the region are likely to benefit the market as well. 


Printed with permission from the Middle East Insurance Review.


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