Inside the GCC home insurance market
“I was in shock and thought it was a cruel joke. Our first home together and all the belongings my husband had worked so hard to acquire, gone up in flames.”
In November 2012, Lebanese expat Lubna Jawharji was on honeymoon when she turned on the television and saw news of the fire that had broken out at the Tamweel Tower in Dubai. On returning to Dubai, the newlyweds were devastated to discover their much-loved furniture and possessions were charred and the apartment needed significant structural repair. A police investigation concluded that a cigarette butt thrown onto a pile of rubbish started the fire, destroying part of the 34-storey residential building in Jumeirah Lakes Towers (JLT).
Jawharji and her husband are among hundreds of residents whose homes and belongings were damaged in the blaze and who have been unable to move back in. The tower is now habitable, but is yet to acquire the government approvals needed to allow residents to return home. Jawharji, who has since given birth to two babies, has been living with her husband in rented accommodation for the past three years. She tells Arabian Business they are desperate to buy a bigger property now their family is growing, but they are unable to sell the Tamweel Tower apartment until they can regain access.
As well as illustrating the devastating impact of fire — a topic that has been much discussed recently following a spate of building fires in the UAE — the story highlights another pressing issue: poor insurance coverage among Gulf residents. Jawharji says the disaster cost the couple at least $10,000 in furniture and other items, plus $272,000 in rent for the past three years. That is a staggering amount and, like many other Tamweel Tower residents, the Jawharjis were not insured and have been unable to recover a single dollar.
Arabian Business has spoken to other people whose belongings have been damaged due to fire or other reasons, and not one had taken out home insurance prior to the incident — a decision that has turned out to be costly. These people cited numerous reasons for failing to get cover, such as viewing their stay in the Gulf as temporary, meaning additional investments were deemed unnecessary, to low crime rates that fuelled a perceived minimal risk of burglary.
A survey of 1,500 UAE residents conducted in December by GCC-based Qatar Insurance Company and ServiceMarket (formerly Movesouq.com) revealed that only 9 percent of UAE residents had home insurance. The top reason, cited by 42 percent of respondents, was that many people are renting their homes and therefore do not value insurance, despite the fact that their belongings would not be covered in their landlord’s insurance policy.
The survey also highlighted a general lack of knowledge about home insurance, with almost one-third (31 percent) of respondents saying they did not know enough about available cover. Over one-quarter said they thought home insurance was too expensive — a belief that price comparison website Compareit4me.com sought to dispel with research claiming that the average cost of refurnishing a one-bedroom apartment in the UAE is $7,623. That amount is equivalent to 127 years’ worth of coverage given the average annual home insurance policy in the country costs less than $60, the report argued.
“That’s a small annual outlay to ensure you’re covered in the event of a disaster,” says Jonathan Rawling, Compareit4me.com chief financial officer. “For every 100 car insurance policies we sell, we’ll sell only three or four home insurance policies. This is despite the fact that it’s easier to buy home insurance online, you simply have to answer two questions.
The sector makes up a small segment of the GCC insurance industry, which is driven primarily by the UAE and Saudi Arabia, which have three-quarters of the market, according to Alpen Capital’s 2015 GCC Insurance Industry Outlook, the most recent available. The motor and health insurance segments led the way, the report said, accounting for 70 percent of the region’s market. Several global firms operate in the Gulf home insurance market, including Axa and AIG (both were unavailable for comment). However, there also have been casualties, indicating a tough market. One of these is Zurich, which pulled out of providing home and contents cover last year.
An anonymous source who does not work for an insurance firm but is familiar with the market says: “Zurich Insurance came into the UAE market to join Zurich Life, which had been here a long time, [since] around 2010. The two were to be run as separate companies, with separate management teams.
“For the new general insurance business, car insurance was to be the main business, with home contents insurance making up smaller shares of the revenue. However, in an effort to chase market share, the company offered policies that were too cheap and gave a much bigger scope of coverage than competitors’ offerings.
“Commissions to brokers were much bigger than competitors’ commissions, too. This meant that when the claims started coming in, the company started making a loss. Eventually, that model became untenable and the whole legal entity closed up shop.” Zurich’s local chief underwriting officer and head of claims at Zurich International Life, Chris Bagnall, says: “The reason we exited contents was that we were a relatively new entrant on the personal claims side and after some time realised gaining traction in the market would require further investment. It is a profitable segment but for new entrants it’s difficult.”
It is not only home insurance; penetration is low across other sectors in the region, such as life and travel. A Friends Provident International (FPI) and YouGov survey last September revealed the number of UAE residents without life or critical illness insurance increased compared to the same time a year earlier — from 48 percent to 58 percent. In total, only one-fifth of respondents had critical illness insurance, FPI said.
FPI managing director, Middle East and Africa, Marcus Gent says: “The cost implications of not having such cover if the worst should happen is likely to far outweigh the amount of premium necessary to secure a reasonable level of cover, which is concerning.”
A survey by Nexus Group last year found that less than 1 percent of UAE residents were covered by a comprehensive travel insurance plan, while a Moody’s report in 2015 found that average insurance penetration across the GCC was well below 2 percent of gross domestic product (GDP), compared to 7.3 percent in the US and 10.6 percent in the UK.
The financial impact on the industry in the past has been severe. Insurance firms listed on the Dubai Financial Market (DFM) incurred combined losses of $29.1m in 2015, although they appear to have recovered in the past year, posting 118 percent year-on-year growth in net profits in the first half of 2016. However, much of this can be attributed to the rollout of mandatory health insurance, which began in June, analysts have said.
“The GCC has historically been under-insured and this is still the case, as the region continues to exhibit lower insurance penetration rates compared to other developed markets,” RSA Insurance director of distribution David Harris says.
“Low rates in the UAE can be attributed to a few factors. If we take home insurance, although the majority of Western expats are aware of these products, the transitory nature of this demographic means they regard their stay as temporary and do not consider it necessary.
“Among South Asian and Arab expats, we see a lack of awareness of these products and their importance, which ultimately leaves many of their precious contents exposed in emergencies. Additionally, as a large proportion of UAE residents are not homeowners, they often disregard home insurance.”
Frederik Bisbjerg, Qatar Insurance Company’s executive vice-president retail MENA, says there is another reason why Gulf residents — especially GCC nationals — may not think to take out insurance. “Insurance, according to Islam, is forbidden,” he says. “[Sharia principles] dictate that everything is predetermined, so Muslims believe that if you take out insurance cover against something bad that could happen to you, you are going against the will of God.
“The way some Islamic companies get around this is to build up a fund into which people can chip in money, and if something happens to someone else, the fund will cover it.”
DFM-listed Takaful Emarat is one Sharia-compliant firm that provides life and health insurance. It reported a 42 percent rise in profits to $2.7m for 2015 in its last-reported year-end results. In November it reported a whopping 761 percent profit increase to $3m for the first nine months of 2016.
CEO Wael Al Sharif says the company has achieved “magnificent” growth due to mandatory health insurance and concedes this is “a phenomenon likely only to happen once in a lifetime”. However, he says the scheme has improved general awareness of insurance among residents and this could open the door for higher demand for other types of cover.
At the same time, Al Sharif says, the UAE’s Insurance Authority — driven by an overcrowded car insurance market that sparked a race to the bottom in premium costs and a subsequent decline in overall profitability — has introduced measures to regulate the industry. These include compulsory solvency requirements for insurers and other risk carriers by the end of 2017, as well as new car insurance regulations, which are expected to improve the health of the industry.
In the meantime, insurance companies are fighting back against low penetration rates in the region. They claim the outlook for the year ahead is positive and they are investing in public awareness campaigns and targeted promotion of individual products to fill the gap.
“There has been a growing focus on addressing this issue, particularly as GCC governments have identified the sector as important in their efforts to stabilise and diversify oil-based economies,” RSA’s Harris says.
The UAE Insurance Authority forecast double-digit growth for the industry in its latest annual report for 2015, while a study by EY and Oxford Economics in October said the UAE and Saudi Arabian insurance industries had remained “resilient despite economic headwinds” and stood to witness significant increases in premiums over the years to 2020 — by 12 percent and 9 percent, respectively. Meanwhile, the rise of internet and mobile technologies are expected to speed up the adoption of new insurance products.
“There’s high growth potential here, particularly as we are building from a very low base,” notes Bagnall. “When I came to the region ten years ago, the focus was on savings and investments cover and very little on personal protection.
“In the last five years we have seen a shift towards protecting families’ assets, particularly from health issues and critical injury. The UAE in particular is a strong market, and Qatar is smaller but seeing notable growth.”
He says the business is looking at protecting not just against untimely death, but also against the financial consequences of being diagnosed with a long-term illness, such as diabetes, heart disease or cancer — all three of which are prevalent in the Middle East.
Emre Guglu, in-house insurance expert at ServiceMarket, reports a marked increase in digitisation and transparency, with a growing number of insurance aggregators creating “a transparent marketplace and empowering customers to make better decisions”.
Hurdles remain, but also untapped opportunities, even in home insurance. Only 8-9 percent of the GCC’s non-labour population is covered, yet that eligible segment accounts for 35 percent of the population so the potential for growth is huge, notes Qatar Insurance’s Bisbjerg. “Demand is picking up fast — our own business is seeing growth rates of between 5-7 percent — but it is challenging. The industry needs to go out with educational initiatives and spend time explaining why people should take cover.”
News reports of fires or theft are key drivers for people to purchase home insurance — Bisbjerg says Qatar Insurance records an average 250 percent spike in enquiries after such events. But ramping up demand should not require disasters to take place.
Rawling concludes: “There appears to be an attitude among residents [in the GCC that they’ll only be here for a few years; life here isn’t permanent.
“But what gets me about this is, in many cases, you’ll have the same stuff no matter where you are. If your company has relocated you, you’ll have a home’s worth of stuff. If you’ve just moved here on a whim, you’ll still have your clothes, laptop, camera and phone. It all needs protecting.”
Inside the GCC home insurance market - /10