Mustafa O. Vazayil, Managing Director of Gargash Insurance, talks about opportunities and challenges for insurance firms, highlighting why motor insurance premiums could rise by 5-10 per cent this year
The insurance sector in the UAE is poised to experience double-digit growth this year, buoyed by the expanding economy and a flourishing workforce, according to Mustafa O. Vazayil, Managing Director of Gargash Insurance.
The UAE has become a great destination for work and leisure. We are witnessing a rise in the middle class, upper-middle-class, and higher strata of the population, who are choosing to stay and work in the Emirates. If in the past decade there was a surge in low-wage workers, we are seeing a shift towards entrepreneurs, professionals, and families. This is resulting in a surge in the requirement for auto, travel, medical, and home insurance, said Vazayil, adding, “The personal and commercial lines of business could grow at an annualized growth rate of at least 10 to 15 percent for the next three to four years. A stable geopolitical situation could, in fact, allow at least a 15 percent annualized growth rate for the sector.”
This opportunity for growth will be utilized by players who move with the times and invest in technologies that provide convenience to customers. “In the personal insurance space, people would want to do their transactions on mobile phones. So, digitalization and making insurance products available on digital will be the prime focus for insurers this year,” noted Vazayil.
Talking about challenges, Vazayil noted that the cost of operating in the UAE is escalating. “Rents, for instance, are already up 18 percent. The human resource cost, too, has risen. So, insurance industry needs to achieve optimum utilization of resources to overcome costs that are beyond control. Technology can certainly help companies scale up operations & increase efficiency.”
In the commercial lines of business, property insurance is expected to grow in double digits. “As the UAE is looking at doubling the population over next decade, there will be a sizeable investment going into the infrastructure and construction projects. Liability insurance is expanding as diverse businesses with global risk exposure set their base in the UAE. Besides, as people and organizations become more aware of their legal rights, the demand for this type of insurance will rise further. Similarly, there is no holding back for medical insurance. We expect medical insurance to become mandatory in the Northern Emirates, which will further propel demand for medical cover and 10-15 percent growth in the medical portfolios of the companies,” Vazayil added.
The industry veteran also pointed to the rise in demand for cyber insurance. “In today’s ecosystem, there is a growing necessity for cyber insurance by corporates as well as individuals due to the expanding nature of cyberthreats prevalent in each industry.”
This is a special year for Gargash Insurance as the company celebrates 30 years since its foundation in 1994. In three decades, Gargash Insurance has come a long way and emerged as a leader in the SME sector. Talking about its performance in 2023, the MD said, “We grew by more than 15 percent last year. We expect to maintain & outdo this trajectory of growth this year.”
Gargash Insurance’s optimism reflects in Alpen Capital’s research too, which forecasts strong growth for the UAE insurance sector in the next five years. The report suggests the industry will grow at a CAGR of 4.9 percent to $17.9 billion by 2028.
The insurance industry in the UAE is at an interesting crossroads where it is benefiting both from the rise in demand and tighter regulatory provisions. “The UAE Central Bank, which is the insurance regulator, has taken a very stiff position on solvency requirements for insurance companies. This has a direct bearing on the company’s underwriting laws. Insurers are being challenged to underwrite more sensibly, which ultimately will allow insurance firms to become stronger. However, it also means we are close to the end of the era of deep discounts on motor insurance, for instance. We expect a 5 to 10 percent increase in motor premiums.”
He also added that the implementation of IFRS 17 will make the industry more fiscally disciplined and be on par with global accounting & reporting standards.
On the outlook for growth for the next decade, Vazayil said, “We are looking to expand to other markets in the GCC and Central Asia. Where we are in the next 10 years will depend on how we perform in these markets and how we structure ourselves as a company. We are not ruling out the possibility of going public either.” he concluded.