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Disruption in the Middle East insurance market

Insights 30th January 2023

Disruption in Middle East insurance markets

A version of this article by Group Chief Executive and Managing Director, Manoj Kumar was first published in the January edition of Premium Magazine.

With the rapid digitisation of industries and markets across the world, businesses are left with a choice between joining what some are calling the ‘fourth industrial revolution’ or falling behind. The insurance industry is no exception and the swift global technological developments over the last decade have meant customers and clients increasingly expect quicker and higher-quality services from insurers.

Artificial intelligence, in particular, is playing an important role in disrupting industries worldwide, through innovating processes and services. In the Middle East, the annual increase in the contribution of AI to GDP is predicted to be between 20% and 34% per year. In the UAE alone, AI is expected to contribute to close to 14% of economic growth by 2030, the largest contribution of any country in the region. This is unsurprising given the nation is 31st in the Global Innovation Index 2022, which ranks the world economies according to their innovation capabilities.

The insurance industry has traditionally been regarded as slow to accept innovative technologies. However, the impact of the pandemic coupled with the growing competition of the market has led to the industry now modernising at a rapid pace. The swift adoption of AI technologies has helped insurance firms with issuing payments for customers, fraud detection, customer service and pricing through automation and machine algorithms.

As a result, we have seen the rise of insurtech firms in recent years in the Middle East, combining advances in technology with knowledge of the insurance industry to help insurance businesses become more successful. In 2019 alone, $26 million was invested in MENA-based insurtech startups. Furthermore, according to the Capgemini World Insurtech Report 2020, 67% of UAE-based insurers would like to collaborate with insurtechs, and 85% are keen to work with techno providers. In addition, 60% of traditional insurers are keen to work with large-scale technology solutions. With yearly events such as InsureTek, the Middle East’s largest insurance technology gathering, growing in attention globally, this region is on its way to becoming a hub for insurtech.

The development of this sector in the Middle East is reliant not only on businesses but on governments and central banks. In 2021, the UAE Central Bank implemented an insurance regulatory ‘sandbox’, to help refine the regulatory framework for more experimental products and services within the insurance industry and encourage innovation. Policies such as these combined with the growing use of insurtech services by traditional insurers in the UAE have played a significant role in disrupting the sector. Through adopting these new technologies, insurtech firms are freeing insurers from the limitations of their old systems and allowing them to fill the gaps that the traditional insurance market has found challenging to fill. This has contributed to the rise of innovative insurance products, most notably parametric insurance, where compensation is provided when an event occurs instead of a loss experience, and the details of the parameters are decided upon before the cover starts.

One of the most important technological developments within the sector that is helping the rapid growth of parametric insurance is Blockchain. Blockchain technology makes the insurance claim handling process easier through smart contracts and software programmes that automatically implement the agreement terms when the previously agreed conditions are met. This removes the requirement for damage assessments which are costly and timely to undertake. These computer automated contracts can therefore maximise efficiency and value for the consumer, particularly when pre-agreed parameters have been exceeded, such as a fire or hurricane of a certain size.

Governments in the Middle East are now looking to this technology more and more to maximise their business processes. The UAE Government, for example, launched the Emirates Blockchain Strategy 2021, which aimed to transform 50% of government transactions into the blockchain platform. This built upon the 2018 Future Blockchain Summit, the first and largest blockchain event in the Middle East, which included insurtech startups, insurers and investors. In addition, Saudi Arabia has incorporated blockchain technology into its 2030 vision to reduce the country’s dependence on oil and focus on the financial services sector.

The growing popularity of Blockchain has been coupled with the rise of the Internet of Things (IoT). Essentially, the transfer of data between multiple deices over the internet. Whilst in 2021 there were 12.5 billion devices connected to a network globally, by 2025 there will be over 50 billion. The effect of IoT on the insurance industry has the potential to be huge. This technology allows brokers to know what is happening to their insured assets in real time through maximising the flow of data to insurers. When it comes to parametric insurance, IoT allows insurance companies to give out claims instantly due to the information gathered from the devices.

In the Middle East, IoT connects 300 million devices. Dubai has aimed to exploit this through its IoT Strategy, which sets out plans to build the most advanced IoT ecosystem, to become the smartest city in the world. Moreover, data centres for cloud service providers in the UAE have been increasing in quantity. For example, IBM have launched multiple data centres, participating in the UAE’s smart transformation, and aim to form a 100% paperless government. Actions such as these taken by companies and governments in the Middle East on IoT will help shape the impact of this technology on a variety of sectors, including the insurance industry.

With the rise of technologies such as AI, Blockchain and IoT, it’s a very exciting time to be in the insurance industry in the Middle East, particularly in the UAE, where it’s looking like insurtech is likely to boom. In the next five years, these kind of innovations will continue to increase and lead to more disruption within the insurance industry in this region. The success of insurtech will be down to the government of the country and insurance businesses themselves. The most successful countries will be those with governments that not only accept these technological changes but support this kind of innovation. The businesses who will benefit most will be those that are adaptable and keen to integrate some of these technologies into their processes, refusing to get left behind in this rapidly changing market.

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