While the Takaful market in the UAE continues to see solid growth rates of between 5.7-10%, these figures have been continually constrained by inhibitive pricing competition between operators. This means that despite the significant uptake levels recorded by Takaful operators across the region, pricing competition has hindered overall corporate profitability and thus impacted the industry’s growth.
Osama Abdeen, CEO of Abu Dhabi National Takaful warns that there has been as much as a 50% decline in prices for some types of insurance due to intense competition in the UAE sector. He does however add that price competition can be healthy for the industry, as long as the prices correctly account for appropriate levels of undertaken risk and that actuarial standards are upheld.
The fierce level of competition has only served to highlight these issues further, bringing them to the forefront of the challenges impacting the wider industry. The Takaful industry can be forgiven due to its nascent stage of development, but an inability to address inherent failings in their product offerings will limit their overall quality and ability to compete within the larger market.
Pricing also has an impact at the consumer level and operators should ensure the continuity of its products and services. Limitations imposed through price constraints only serve to impact an operator’s ability to maintain credible customer satisfaction over the longer term and serve to distance customers from future Takaful products. Operational costs have also become an issue for the industry with many operators choosing to offer back to basics packages with bolt on additions as a way to achieve low costs and customized products.
Abdeen explains that the issues facing the UAE insurance industry are broad based and are impacting the conventional industry in equal measure. While the regional and global economic outlook for the MENA region has improved significantly over the past few years, UAE-based insurance companies are beginning to look at expanding outwards beyond their borders.
Yassir Albaharna, CEO of ARIG also notes that Takaful, in its quest for greater financial inclusion, is in fact cannibalizing the market share of its conventional market peers. Albaharna goes on to add that “Takaful in the region should be attracting the previously uninsured population” before embarking upon regional expansion. Penetrating the uninsured segment of the region’s population would help ensure Takaful’s success and cement itself a guaranteed consumer base from which to grow.
Regional expansion is deemed necessary for the industry going forward, to both cement Takaful’s position beyond its Family Takaful centric focus and allow regional dedicated Takaful powerhouses to emerge, “it just needs more stimuli, more patience and more development from the insurance companies” Albaharna said.
With market attention beginning to shift away from the saturated developed markets into the emerging markets of the MENA region, attracted by strong growth and low penetration figures and growing middle class. The upside of the competition between operators is that low prices have been a boon for consumers, creating vibrancy within the market. As a result this has significantly increased Takaful’s market share, as well as increasing awareness and acceptance to the Takaful proposition and business concept.
“There is no reason why insurance penetration should not be within the 8-8.5% area, which is the average in the large industrialized nations” Albaharna added. A lack of awareness of the benefits offered by both Takaful and insurance products are in part to blame for the continued lack of insurance penetration in the region, but Albaharna does expect to see growth eventually. — SW