BROKERS FEATURE

36 November 2012 www.meinsurancereview.com

Despite more subdued growth forecasts than before the global economic crisis and ongoing political instability in the region, oil-rich countries in

the MENA region are still of very real interest to the international insurance market. A number of factors are driving ongoing interest, including:

• Education continues to improve across the region, paving the way for ongoing economic prosperity and making the hunt for local staff less onerous.

• Ambitious “mega” construction projects, either underway or planned, are boosting employment and wealth, and facilitating economic progress.

• Insurance penetration levels are currently low compared with those in other emerging markets.

• There is a growing middle class, with a greater understanding of insurance and its benefits.

• Larger companies in particular are becoming more aware of the need for risk management.

• Financial centres in the region are becoming more sophisticated and regulation is improving, making this a much easier region in which to do business.

Due to these positive factors over the last few years, there has been an influx of international insurers and reinsurers looking to benefit from the growth potential the region has to offer. This has created fierce competition for business, resulting in rates being kept unrealistically low. But following an increasing number of claims linked to some extreme weather in the region and political unrest, some insurers are reviewing their rates, wordings and breadth of cover.

Insurers and reinsurers are taking a greater interest in their client’s underlying risk, and are keener to understand the client’s attitude to risk management, international regulation and best practice. This is where brokers can assist.

As the market evolves, the role of insurance brokers in the future success of the insurance market in the MENA region will be pivotal. Insurance brokers will provide a vital link between the client and the markets, not just helping to place business, but also educating and working alongside risk managers and other insurance buyers helping them to understand the breadth of insurance protection available and advising them on the latest developments in risk management and best practice corporate governance.

Mega construction projectsAs a result of local government and foreign investment, the construction industry across the region is experiencing a

marked resurgence. There are some significant infrastructure projects planned over the next few years, such as the Al Maktoum International Airport, the Abu Dhabi Islands and the King Abdullah Economic City. These are worth hundreds of billions of dollars, which will require considerable capacity and local insurance expertise to underwrite and broker.

Other areas predicted to grow include renewable energy, education, tourism and health, all of which will require sophisticated insurance support if they are to take off in the way that government leaders would like them to. Brokers with the ability and locally based experience to provide due diligence and risk reviews can help companies to streamline their insurance portfolio, so that cover provided ensures full asset protection at a reasonable and proportionate cost.

Navigating in the Arab AutumnAs regional instability continues following the murder of the US Ambassador to Libya and with violence breaking out on the Turkish and Syrian border, countries are still struggling to take their first tentative steps towards democracy and economic transformation. They will require international support. This support will need to be in the form of financial investment in infrastructure development as well as in local training. International support can also lend weight to local reform agendas, allowing for more sustainable growth in these countries.

Locally based brokers can provide insight and advice to international investors, and in turn as the economies of these countries start to strengthen so will the need for insurance. The success of the Muslim Brotherhood could also drive growth for takaful and retakaful covers, as these are acceptable forms of insurance in Islamic societies.

Role of brokers in the Middle EastThe role of brokers in MENA is developing. Brokers from both local and international companies need to be prepared to invest in training local talent as without this it will be hard for the insurance industry to keep pace with the developing regions.

As new financial centres develop across the region, so too will the regulatory environment. While this is a good thing, it will place greater responsibility on companies to improve internal controls, increase financial transparency and improve risk management. It does have a sting in the tail, as insurers will need to be aware of the different environment in each jurisdiction and amend their approach and processes accordingly.

The changing role of brokers in the Middle East

Mr Wael Khatib of Lockton (MENA) Ltd explores how the role of insurance brokers is developing in the Middle East, and the impact of the global economic problems and events of the Arab Spring on the insurance industry across the region.

BROKERS FEATURE

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This of course is where a strong local broking community comes in to its own, as it steps up to provide advice on the particular requirements of each local market. Brokers need to work closely with clients to highlight the importance and necessity of honest and open financial disclosure in order to allow the appropriate information to be released in order to assess the level of coverage required and in turn to give underwriters a full understanding of the business and its risk mitigation needs.

Developing local talentThe development of local insurance markets will naturally create a change in the way that insurance and reinsurance is written. Previously, very little business was retained in the local market, with most business going to London and being written there. However, this is increasingly changing as local carriers become more sophisticated, and international insurers and reinsurers open up dedicated local offices. These local facilities are closer to clients and offer expertise and local knowledge. However, their success hinges on having appropriately trained local staff – and this is where significant investment needs to continue. While there is obviously a long way to go before local markets match the sophistication of the international insurance markets, things are changing and over time, the differences will become less apparent.

Joining forces Many international insurance companies and broking houses are looking to establish a local presence in MENA via joint ventures with a regional business partner that will offer access to the market and an understanding of the local business culture. Choosing the “right” partner is vital however, and many companies find operating under a joint venture can be more complex than they had imagined. Structural differences and variations in local business practice can provide significant management challenges for global businesses that are not used to operating on this basis.

Although there have been a few setbacks over the past few years to the ongoing growth of the region, the outlook remains very positive. The international insurance industry is keen to grow its business in the region, and the local market is developing too. Insurance brokers have an important role to play in the future success of the region providing insight, advice, specialism and risk management advice. If everyone is committed to training and developing local talent, the region’s insurance industry is set to go from strength to strength.

Mr Wael Khatib is President and Chief Executive of Lockton (MENA) Ltd.

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