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The Future is Bright in the Middle East and Africa

Rooftop view a big modern city by night. Travel background.
Business bay, Dubai, United Arab Emirates lit up at night. Some Middle Eastern countries are expanding beyond oil and gas, creating new opportunities for insurers.

Henri Labat, senior executive officer, IGI Dubai, and Youssef Alaoui, chief executive officer, IGI Casablanca, said that despite challenges, there are plenty of insurance opportunities in the two regions.

What are the current market conditions in the Middle East and Africa?

Labat: In the Middle East they are still favourable for reinsurers, but we are starting to see variations among different business lines.

On the facultative reinsurance side, classes such as PI, D&O and Engineering are still benefiting from healthy rate adjustments. As for Energy, Property and Marine, rate increases have started to slow down, mainly because of below-average claims activity in both man-made and natural events. For Political Violence, we anticipate some rate adjustments in the medium-term because of both global and regional claims activity.

Some countries in the Middle East are diversifying their economies away from oil and gas and this will generate some exciting opportunities.
Henri Labat, Senior Executive Officer, IGI Dubai
Henri Labat .jpg

For treaty reinsurance, we also anticipate some adjustments, mainly in Motor. We expect claims activity to increase following the Covid crisis, while pricing competition in some countries will remain fierce. This will undoubtedly impact reinsurers’ margins.

Alaoui: Meanwhile, the African market remains challenging, and is not experiencing the hardening we have seen in Europe and the Middle East. The only exception is in large Energy and Property accounts that require international reinsurance, in addition to a few niche lines such as PI or D&O.

What opportunities do you see in Middle East and North Africa?

Labat: Some countries in the Middle East are continuing to diversify their economies away from oil and gas production and this will generate some exciting opportunities. Saudi Arabia, for example, is investing heavily in the hospitality and leisure sector, allocating billions of dollars to develop new complexes and facilities around the country, which will create further prospects in Engineering and Casualty, as well as in some new classes such as Event Cancellation, which is a line of business with promising prospects that IGI has recently started to write as part of its entry into the Contingency business.

Alaoui: There are also growth opportunities in Africa, where there is a need to fill the protection gap and increase the low insurance penetration rate. It is essential to respond adequately to the needs of the emerging and growing middle-class with innovative and tailored products and an aggressive marketing approach. The region is seeing the emergence of new, specialised risks such as Agriculture, Environment Insurance, Medical (with Covid clauses) and Cyber. We are seeing opportunities in complex risks mainly for mega structures and big government programmes. Low claims coupled with low earthquake exposure make the area suitable for diversification.

What are the main challenges in the region?

Labat: The Middle East’s political instability remains a major challenge, as are premium payment issues in some countries where regulation is still too lax. However, IGI has been involved in the Middle East since the company started 20 years ago, and our deep regional knowledge has been a key to our success. We know the challenges in different countries and have learned to overcome them by investing accordingly in our people and systems.

In Africa, there is a need to fill the protection gap and increase the low insurance penetration rate.
Youssef Alaoui, Chief Executive Officer, IGI Casablanca
Youssef Alaoui .JPG

Alaoui: For Africa, the insurance industry needs not only to efficiently employ the tools and capital to cover the risks, but also be more innovative when creating adequate policies. Encouraging prevention to enhance risk quality is also important. Also, government support is essential to boost the sector, by granting tax incentives and by making some insurance covers compulsory such as natural catastrophe, Construction, and Professional Liability.

What are the distribution challenges in Africa?

Alaoui: Local and regional brokers need to improve their expertise and analytics to meet customers’ growing needs. Insurers, on the other hand, need to extend their network in under-insured, mainly rural, areas as well as in small and less-developed cities to serve the segments of the population that are not accustomed to using insurance.

How can insurers increase insurance penetration in these regions?

Labat: By continuing to invest in systems, digitalisation, and high-quality service. Today, almost all insurance is taken out online. For the younger generation, smartphones are essential.

We are starting to see some technology companies looking to diversify into the insurance business in the Middle East. Digitalisation of insurance has already started and that journey will continue. Insurance penetration will increase automatically as insurance companies become more digital, and this will also benefit reinsurers.

Alaoui: In Africa, insurance take-up can increase by getting closer to clients through digitalisation and targeted communication, and by adding more specific and tailored products.

What needs to happen for Dubai and Casablanca to become stronger insurance hubs?

Labat: Dubai, through the Dubai International Financial Centre, is already a well-known financial services hub, and even offers reinsurance. It has a unique position at the crossroads of Europe, Africa, Central Asia and the Indian sub-continent. This, coupled with the quality of the infrastructure and regulation, makes the DIFC a perfect place to operate for many players. Operating costs and sometimes-excessive regulation can, however, be a barrier for some new players. We are confident that, in the long run, the DIFC will continue to grow and remain the go-to place to handle financial services regionally.

Alaoui: In Casablanca, the insurance market needs strong support from the wider financial markets and more attractive conditions for establishing new companies. Tax incentives and changes in labour laws would be welcome, as well as help facilitating financial transactions. Insurance educational structures, technical and legal expertise are also a must for these hubs to develop and succeed.