In his speech during the opening session of MEIF 2013 being held at the Gulf Hotel, he said that insurance in the Middle East must prepare itself to take on the huge untapped life products, such as medical insurance in Saudi, is growing.
“But for this trend to grow, the distribution channels to make these products more widely available need to be in place,” he added.
“In its relatively recent history, the region’s insurance industry has made great progress.
But as the business needs of the Middle East grow ever more sophisticated, more inter-connected and more global, our industry in this region must do the same.
“The next twenty years or so will be challenging for insurers in this part of the world. Those who recognise these challenges and start putting global standards of best practice at the heart of their business will emerge as the clear winners of the future.
“We all recognise that the last five years have seen a fundamental shift in many of the old certainties– economically, politically and regulatory.
“Today, I’d like to look at the impact these changes are having on our industry globally and identify some of the key trends in the fastest-evolving insurance markets.
“I think that looking at what works in other regions can help Middle Eastern markets identify their next steps in meeting the increasingly complex risks in this region.
“Let me start with Europe. A highly developed market, which is firmly regulated and due to become more so with the eventual introduction of Solvency II in a few years.
“Insurers’ qualified welcome of the principles of Solvency II had positioned them far better for lobbying their own governments and the European Commission than many other financial services.
“The European insurance industry generally accepts the importance of the principles behind the requirements. We are essentially on the same side – and are in a much stronger position to work with, and inform, our regulators as a result.
“European markets are open, with high levels of competition and extensive distribution networks. In many ways the region offers a positive example of good practice for high-growth economies.
“However, this positive story has encountered the major obstacle of a five-year economic slowdown, halting growth in these markets. From Paris to Berlin, Madrid to Warsaw, businesses and governments have closed their wallets – investment in new facilities, plant and infrastructure is largely on hold.
“Couple this with poor investment returns, serious over-capitalisation and an enduringly soft market and its clear European insurers must exercise the tightest underwriting discipline to remain sustainable.
“This ongoing austerity has created another risk – that of growing levels of underinsurance, as many companies look to reduce costs on what they view as ‘non-essentials’. This, as the cost of the unprecedented number of natural catastrophes in 2011 showed all too clearly, can be one of the falsest economies of all.
“And we need to bear in mind that this is an issue which is not just confined to the struggling West. A recent report by Lloyd’s into global underinsurance levels for natural catastrophes found that, between them, 17 of the highest-growth economies were underinsured to the staggering annualised sum of $168 billion. For the highest-growth economies, it would seem that insurance levels are failing to keep pace with growth.
“When it comes to these accelerating growth economies, many African countries provide a different model of expansion. While the Eurozone’s problems seem increasingly intractable, in a growing number of African states governments have been busy implementing structural reforms to help them weather the current storm and define their long-term future.
“They promote good governance and good housekeeping – driving down deficits, providing consistent regulation and creating a sustainable place to do business.
“Gateway countries such as Egypt, Kenya, Mauritius and Nigeria are developing fast, while – notwithstanding recent tragic events in Algeria and the situation in Mali – the continent overall has generally become more peaceful and stable.
“Mozambique’s economy is predicted to grow nearly 8% this year, Tanzania and Botswana by over 7%. This fast-developing market needs a strong insurance sector to succeed; by protecting their growing assets businesses are freeing up more capital for growth and for investment. An economy would not be able to succeed without a healthy balance of banking, insurance and industry and, even if only one of them were missing, no sustainable growth would be achieved.
“Meaningful insurance in these high-growth regions of Africa requires underwriting expertise that the region has yet to grow for itself. Increasingly, it is sought from international insurers and the appetite of these market players for Africa is growing.
“At Lloyd’s we are seeing significant interest from firms like Marsh, whose acquisition of Alexander Forbes’ risk operations in South Africa, Namibia and Botswana is evidence of the commitment of international business to the region.
“But what’s happening in Africa cannot serve as a directly transferable model for the Middle East either, for a number of reasons. The first is the level of development of the regional insurance industry – as the number of delegates at this, the 9th regional insurance conference, clearly demonstrates.
“The second involves routes to expertise – and here there is a correlation with levels of FDI. Many African countries hold a significant share of the world’s natural mineral and metal resources – a huge diversity of substances which the rest of the world needs to live its modern life.
“Africa is largely growing because of the significant levels of FDI which are pouring in to the continent, particularly from China. In their wake follow experts in financing and insurance, many from the Lloyd’s market.
“Bahrain, Saudi, Oman, Kuwait, the UAE and Qatar do not stand in need of foreign funds to grow. Indeed, at the start of the Eurozone crisis, it was your sovereign wealth funds which many in Europe turned to for rescue.
“The Middle East is wealthy – governments, individuals and businesses tend to re-deploy much of their resources domestically. And the results are clear – when it comes to buildings and infrastructure, this region does prestigious like few others.
“The Paris Sorbonnes University in Abu Dhabi, the Kuwait Metro, Saudi Arabia’s Medina Airport, The Energy City in Qatar and the Muharraq Wastewater Plant here in Bahrain were just some of the most global infrastructure projects showcased in KPMG’s 100 World Cities Edition last year,” he added.
“And, only two weeks ago in Saudi, the World Steel Association announced that the Middle East and North Africa is set to buck the global trend of falling steel demand this year, upping its consumption by nearly 6%,” he added.
“With major projects planned for the automotive, railways, petrochemical and urban building sectors, the list of interconnected assets requiring protection is growing fast.
“As the Lloyd’s market has long known, success depends upon expertise, upon supporting the right distribution channels and upon an excellent reputation for paying claims.
“It does not depend on growing market share regardless of profitability.
“Charging the cheapest premiums as we have seen in some motor lines as far afield as Britain and Kuwait is not sustainable nor does it add value for the policyholder,” he said.
“In this respect, the growing takaful and retakaful industries can learn from the mistakes of some conventional insurers and ensure they avoid them.
“At Lloyd’s, we don’t pursue growth for its own sake. Our Vision 2025, launched last year, is a roadmap to increasing the capital, the people and the business from high-growth economies.
“But we don’t plan on doing this by recklessly opening offices around the world in an indiscriminate attempt to grab market share.
“We will achieve this vision by developing our relationships with local industry players, listening to their evolving needs and requirements. Only by working in partnership with you can we provide the best insurance and reinsurance solutions for your policyholders.
“That’s where expertise comes into its own. And this is where non-life insurers in the region can really add value – by building their specialist knowledge base.
“One of the key pillars of Lloyd’s Vision 2025 is to diversify the people in the Lloyd’s market – making the Lloyd’s community more varied, inclusive and more representative of our customers across the world. We want to learn much, much more about domestic needs from local brokers and risk managers.
“In return, the long-established international market can exchange its experience and knowledge with local market players, many of whom are operating in a regional industry that is relatively young and has low levels of penetration.
“For any global – or regional – financial centre to thrive in the long term it needs a home-grown pool of talent. And talent is in short supply.
According to the Lloyd’s Risk Index, this talent shortage was seen as the biggest risk to businesses in this part of the world. That applies not just to our industry, but to the businesses we serve – businesses that welcome the risk management expertise that international players can both bring from outside and help foster at home.
“Oman is not the only state in the Middle East which has made it a public policy priority to drive up levels of professional expertise – and employment – amongst its educated young.
“This ‘Omanisation’ is a journey that that many of your countries have already started. Couple that with the currently low levels of coverage and the ongoing boom in construction and infrastructure and it seems inevitable that the picture for non-life lines in the region will be transformed within 20 years.
“Both today’s insurance professionals and those of the future need to equip themselves with the tools that add extra value to their clients while giving themselves a competitive edge.
“The first challenge lies in the development of new products. From the impact of dust storm and droughts to marine risks to the protection of some of the largest and most complex structures ever built, this region is throwing up new challenges for the industry every year.
Lloyd’s business in the MENA region is currently just over $0.7 billion, largely reinsurance in property treaty, marine, energy and aviation, but it is growing steadily. The need – and the market – for what we offer are growing.
“The experience and expertise of international insurers across the world can drive domestic development of the specialist products to meet this range and combination of risks.
“There is also the barely tapped potential of ‘talent transfer’ of knowledge from global insurance experts working together with the local market, creating employment and strengthening professional networks across the rest of the world.
“Distribution too, is a challenge in the Middle East. The relatively low levels of insurance penetration in, for example, the UAE, which came 28th out of the 42 countries analysed in our global underinsurance report, and Saudi Arabia, which came 35th show the hill that remains to be climbed in this respect.
“Dubai, amongst others, is laying solid foundations as it positions itself as a regional financial hub. But much more remains to be done to enable new markets to get directly involved. This kind of engagement not only brings international credibility to any emerging financial centre, but the spread of capital and diversity of expertise that will support the volume and scope of the risks it attracts.”