Wednesday, October 5, 2016

A.M. Best Special Report: Accelerating Competitive Conditions Pressurises Motor Insurance in the Middle East

LONDON - Wednesday, October 5th 2016 [ME NewsWire]

(BUSINESS WIRE)-- Given the critical role motor insurance plays in developing a company’s profile in a market, it is not surprising that it is one of the most fiercely competitive business segments in the Middle East.

Whilst all Middle East countries have legal requirements for drivers to purchase motor insurance, regulation differs from country to country. A new report from A.M. Best, titled, "Accelerating Competitive Conditions Pressurises Motor Insurance in the Middle East," notes that in some jurisdictions, such as Egypt and Jordan, regulated tariffs on motor third-party liability (MTPL) mean that insurance companies cannot set the price or sometimes even refuse to insure the individual. As a consequence of the rigidity in pricing and the unprofitable nature of this product, some insurers are unable to compensate for MTPL losses through other profitable lines of business and have abandoned the motor market completely.

Mahesh Mistry, director and co-author of the report, said: "Companies that continue to write unprofitable tariffed MTPL hope that profits from comprehensive motor are sufficient to absorb MTPL losses. However, the ability to offset MTPL losses is dependent on the individual insurer’s ability to generate sufficient margin on other product classes as well as achieving sufficient economies of scale to absorb expenses."

In countries where MTPL is tariffed, there have been calls from market participants and insurance associations for the government to either increase tariffs to a profitable level or for a move toward premium rate liberalisation. However, governments historically have been reluctant to increase tariffs given the public’s perception of motor insurance as a form of indirect taxation.

The effect of MTPL products on underwriting performance is not only restricted to jurisdictions with motor tariffs. Salman Siddiqui, senior financial analyst and co-author of the report, noted: "Similar loss ratios are exhibited across markets where companies enjoy rate flexibility on MTPL. Interestingly, the loss ratios for MTPL are higher in the United Arab Emirates (UAE) than Jordan. A key driver of the UAE's high loss ratios is the intense level of competition with limited specialisation, which is a trend across the Middle East. As a result, all insurance companies compete for all lines of business, putting pressure on pricing."

A.M. Best believes that the outlook for motor insurance in the region remains negative given the high levels of competition leading to cut-throat pricing. Whilst some regulators have attempted to impose discipline in the market by requiring actuarial pricing for motor insurance contracts, pricing in the rest of the region remains largely driven by undercutting rivals. The trend towards commoditisation and reducing customer loyalty indicate a period of further pressure on motor profitability. Insurers with poor distribution networks and unsophisticated pricing are likely to suffer further in the medium to long term.

To access a complimentary copy of this special report, please visit

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A.M. Best

Mahesh Mistry, +(44) 20 7397 0325

Director, Analytics

Salman Siddiqui, +(44) 20 7397 0331

Senior Financial Analyst

Edem Kuenyehia, +(44) 20 7397 0280

Associate Director, Market Development & Communications

Jim Peavy, +(1) 908 439 2200, ext. 5644

Director, Public Relations