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الاثنين، 1 فبراير 2016

Micro-Insurance in GCC / Opportunities & Threats - By : Anthony Bechara

The GCC region has become over the past decade a worldwide economic hub in all sectors due to many governmental initiatives and investments to attract MNCs to the region. Some of these initiatives included the rise of the Free zones, financial centres, Industrial & Logistics hubs, taxation incentives, etc. Back then, all GCC governments were earning tremendous profits on high oil prices and balance sheets recorded an overflow of revenue.

Without going into historical data, we are now in 2016 and Oil prices are recording historical losses (more to come after Iran sanctions ending, and additional Oil supply being put in the international  trading scene) putting all governmental budgets into a hard stress test, and affecting expenditures. Additional to that, is the new challenge rising for them on how to diversify economical activities especially that the world started its preparations for the Non-Oil Era.


As the economic wheel starts & ends with Governmental activities (Revenues & Expenditures), it’s expected that all corporate sectors will face hard times and already started to show with new taxes and fees being imposed especially on the Expats scenes.
This will affect local communities on the main 2 levels essentials to our subject:
 1- Social:
·         Expat population will decrease without foreign replacements;
·         Local workforce with increase at the same rate to cover gap.






2- Micro-Economic: 
·         Average Salaries will decrease especially in economies where locals compose the majority of population (KSA, Oman)
·         Inflation rate will increase as all the money will remain within the local economy due to the large hiring of local workforce (expats transfer nearly 50% of their salaries to their home countries)
·         Living costs will increase at the same rate of inflation;
·         Taking all 3 above factors into consideration, Disposable Income will decrease which is the main drive for Micro-Insurance.

Taking all the above into consideration, the Insurance industry will be affected heavily as it is known to be the reflection of the local economy throughout its wide products portfolio and distribution channels.
2016 is the perfect year to launch Innovative Micro-Insurance products in the GCC market and increase the penetration which our main challenge in the region.


Why?
Governments are running on “Survival Mode” and this will be transmitted to the corporate sector leading to budget shrinkage on Macro and Micro levels.
However, Insurance is still an individual necessity due to many mandatory schemes, and arising risks. Therefore, disregarding the budget shrinking, people still want to buy insurance products but for cheaper options, and here comes Micro-Insurance.
What are the benefits:
·         Risk diversification: rather than allocating marketing and underwriting budgets to corporate solutions, insurers will have the opportunity to diversify their risk portfolio and have a balanced portfolio, which will also benefit them on the reinsurer treaties negotiation.
·         Integrating in Bancassurance models: Financial institutions pride themselves of gathering all social groups under one umbrella (i.e. Blue collars, & While collars), thus insurers can design low premium/high volume products to attract low-income individuals (i.e. PA policies at 1 USD/month). That’s another way to benefit from a full fledge bancassurance agreement which generates added values to all stakeholders.
·         Increase in Insurance Penetration: As Insurance penetration currently on approx. 1.6% in the GCC area, and with the corporate sector being almost saturated, the opportunity is for personal insurance products to increase the overall penetration in the region. Based on my humble experience in insurance, we should adopt steve jobs philosophy to create innovative products with aggressive marketing, and the market need will arise for it.
·         Strengthening Liquidity: Micro-Insurance products are all paid upon inception, so this will enhance the insurer’s liquidity and reserve requirements, especially in markets like the UAE where new reserving regulations will be implemented in 2016.
·         Switching from Product-centric to Customer-centric product: At the end of the day, the rate is a combination of many risks and features into a certain actuary model, so each component has a certain rate in the final formula. Let’s think out of the box little bit, if we load additional 10% on each feature to cover the volume requirement, why can’t we develop a product where the client chooses the features he desires? After all, it’s his asset he wants to cover so he’s free to choose the appropriate feature for it. Welcome to Customer-Centric Era!!
At the end of the day, why should we let go something really great, just because it's gonna be hard??!!
Let's take this opportunity in 2016 and move insurance within the region into a more human industry rather than B2B investments, so the industry will become the true mirror of the society and economy equally.