Healthcare Insurance Industry in Gulf (Arab Countries) and Middle East – Research, Facts & Figures Points
Insurance Industry Insight Report
• Insurance is increasingly understood as social and economic necessity in the Middle East
• The field of providers is fragmented and industry structures are heterogeneous across MENA countries
• Underwriting activity in markets across the region is projected to expand at double-digit growth rates until 2012, accelerating the trend from the past five years
• Mandatory insurance schemes for health and motor covers are leading drivers of premiums growth
• Earnings of insurance companies depend greatly on investment returns
• Shortcomings in regulations, manpower, and general awareness are potential bottlenecks for the insurance industry
• The insurance industry is needed in preparing for and meeting the region’s changing socioeconomic needs.
• The insurance industry is a new focus point for economies in the Middle East and North Africa. Following demographic changes in the second half of the last century and a new surge in wealth since 2002, countries in the region have shown growing interest in risk mitigation through insurance.
• In turn, international insurance companies have started to express greater interest in the region, which is one of the world’s least developed insurance markets – or one with the greatest implied potentials for insurance growth.
• The industry faces a combination of significant challenges and great opportunities, which has increased the attention which investors pay to insurance markets and operators. Without neglecting the seriousness of the challenges it has to navigate, growth is the medium and long term outlook for this industry
• Making health insurance compulsory for expatriate workers seems to be becoming the preferred norm in several markets in the Middle East. Some have gone ahead with it with varying degrees of success.
o Introduction of compulsory health insurance will bring about tremendous opportunities and challenges for the insurers in the Middle East markets.
• With greater demand for quality healthcare and state-of-the art technology leading to rising medical costs, players in the field are constantly challenged to seek out solutions to ensure healthcare is available and affordable to all, and at the same time carve a niche for themselves as competition intensifies.
• There is much anticipation on how the industry will transform with the raft of new healthcare initiatives as the regulators draft out health policies and deal with the rise in demand and costs, including challenges ahead as more insurers, TPAs and managed care organizations (MCOs) enter the competitive marketplace to vie for the healthcare pie.
Health Insurance: Reviewing the Trends
• Healthcare, and the manner in which it is financed, is becoming an increasingly important topic for the booming economies of the Gulf Co-operation Council (GCC) states.
• A number of compulsory health insurance schemes, principally aimed at the expatriate populations of GCC states have come into operation already, or are in the process of doing so.
o A number of other states have indicated they are in the planning stages of implementing similar schemes.
• As different variations emerge, it ought to be possible to detect a number of trends and for states to learn from each other.
• The focus on healthcare insurance has come at a time when regulation in the GCC states is being radically reformed. Two examples come to mind:
1. Prior to 2003, Saudi Arabia had no formal insurance regulations whatsoever. However, in 2002, detailed health insurance regulations were published in the Kingdom paving the way for the implementation of the comprehensive compulsory expatriate health insurance programme. The market is now more fully geared towards providing the resources for this programme, with around 32 insurers awaiting final registration with the Saudi Arabian Monetary Authority (SAMA), which expects to complete the insurance licensing phase by April 2008.
2. The Emirate of Abu Dhabi, in the UAE, launched its compulsory health insurance programme in July 2006. Hardly a hotbed of insurance activity, Abu Dhabi’s state-owned insurer will have close on one million lives insured by the end of 2007. The implementation of the scheme comes at a time when the ageing insurance laws regulating brokers and insurers in the UAE are in the process of being overhauled.
• What are some of the trends that can be picked up from these examples? Can other GCC states learn from the Saudi and Abu Dhabi experiences? Will other states follow the patterns established by Abu Dhabi and Saudi Arabia? What sort of research is being undertaken by GCC states ahead of reform? What are the objectives of the reforms? Are they being met?
1. Time will tell what the answers to a number of the above questions are, and only time will provide a quantifiable yardstick by which to measure results of the various systems that have been put in place.
• However, there are a number of pointers which have been highlighted by experiences to date, that should be taken to heart.
• 6 issues to examine:
1. Effective regulation of the market is key:
Saudi Arabia’s health insurance regulations, promulgated in 2002, were released into a vacuum. There was no insurance regulation in Saudi Arabia at the time.
• Consequently, the health insurance regulations were required to provide detailed provisions describing what insurance was, setting out the solvency margins and capital requirements for insurers, along with a host of other provisions which would ordinarily be the routine provisions of the central insurance laws.
• Since detailed regulations were published in Saudi Arabia 2003, one would expect that SAMA will assume primary responsibility for regulating health insurers in the market.
The Abu Dhabi system has been launched at a time of upheaval and regulatory uncertainty in the UAE market. Although a new insurance law, which will regulate insurers, brokers and all other service providers to the industry, has been passed, there is presently no sign of the newly-created Insurance Commission, which is intended to take control of the regulation of the UAE industry.
• In the meantime, the regulatory framework within the UAE remains relatively rigid, and not flexible enough to accommodate new and innovative means of providing insurance services.
2. Establishing boundaries for health authorities and financial service regulators
It is vital that the extent of control which the health authorities and insurance regulators seek to exert in the market is apportioned to reflect the core strengths of each organisation.
In Saudi Arabia, insurers and other service providers are required to go through two authorisation processes:
• registration with SAMA
• And approval by CCHI, the committee charged with implementing the health insurance regime.
In Abu Dhabi, the Health Authority for the Emirate of Abu Dhabi (HAAD) has seen fit to exercise a wide jurisdiction over insurers, brokers and other providers such as Third Party Administrators (TPAs).
• Although the regulation of insurance itself is a federal power, HAAD has imposed a number of additional requirements on participants in the system, including, for example, the need for all service providers to establish a branch office or presence in Abu Dhabi, irrespective of their registration in other emirates.
• This rather inflexible approach is unlikely to promote inn
ovation in the market, nor will it reduce costs for se
rvice providers who have to comply with this requirement. One can only expect that these additional costs will be passed on to policyholders.
Health authorities and insurance regulators should certainly aim to communicate effectively into the future, to ensure that each regulator looks after what it does best. If this is not the case, then it is likely that ineffective and prescriptive regulation could stifle the market and lead to increased costs.
3. Involving the foreign market:
One of the key debates for any GCC state concerns the question of involvement of foreign insurers.
In Saudi Arabia, SAMA appears intent on encouraging a well-capitalised, locally-established, and competitive local market.
• Foreign insurers (such as BUPA) have been welcome to join the market, but SAMA has insisted that international players participate through locally-incorporated companies.
• SAMA has also introduced restrictions on the proportion of foreign reinsurance that will be permitted from the Saudi market.
In the UAE, a relatively recent development has seen the local market opening up to applications by foreign insurers to register branches in the UAE.
• However, there are a number of international insurers who are very active in the area of health insurance for whom the UAE represents a small but important market, but for whom the cost and bureaucracy associated with opening a branch office would not be justified.
• The authorities appear to be unanimous in their view that international brands ought to be encouraged in the market. However, there remain a number of significant barriers to foreign insurers being able to operate effectively in the local market.
In Qatar, the Qatar Financial Centre (QFC) actively encourages foreign-owned insurers authorised to operate from the QFC to participate in the local Qatari markets at a direct level.
4. Can One Size Fit All?
Whether a one-size-fits-all approach can be applied to the region is a key consideration. The Saudi and Abu Dhabi systems, whilst sharing the basic characteristics of a core insurance package, differ fundamentally.
The work of the recently-launched Dubai Government’s Health Insurance Committee appears to have a wider remit than simply providing an insurance solution for financing the provision of healthcare in the Emirate.
Recent consultation exercises and think-tanks tend to indicate that the entire manner in which healthcare is provided and financed is under consideration, and could well result in a different model to that of Abu Dhabi. Insurance would provide one of the financing tools for the provision of healthcare generally.
The danger in having a plethora of different systems in a small country or region is the burden that is placed on employers, insurers and service providers to comply with multiple systems, each with their own peculiar requirements.
5. Are employers the key to the financing system?
A fundamental assumption thus far appears to be that that employers and ‘sponsors’ of expatriates should bear the burden of financing the costs of insurance cover for their expatriate employees. The nature of the Gulf’s expatriate workforce encourages this approach.
It remains to be seen whether the private sector will be able and willing to shoulder this burden. One would expect governments to be closely monitoring any trends that would point to the additional burden making the GCC states a less attractive place to do business.
In many states, the tricky aspect of healthcare financing will be to ensure effective cover for the uninsurable, the unemployed, the retired and the local populations. Employers would be justified in objecting to footing the cost of this particular bill.
6. What role should government subsidies play?
The Abu Dhabi system involves a built-in government subsidy on premium for an initial period of five years.
• Further preferential subsidies have been extended to the state-owned insurer in order to ensure that the system can effectively provide cover for the large number of low-paid expatriate workers in the country.
• How long this subsidy remains in place, and the measures implemented by other states to kickstart their schemes, will be interesting to monitor going forward.
• Healthcare insurance, and the financing of the GCC’s healthcare systems generally, is likely to remain a key issue for many years to come. The fact that the problem is being tackled pro-actively in many of the GCC states is encouraging, and observing the trends ought to provide valuable lessons for those charged with formulating and implementing healthcare policies.
Health Insurance fastest growing sector in Saudi Arabia
• The Saudi Arabian insurance industry has emerged as one of the fastest growing insurance industries across the world. While the global economic crisis has severely hit other industrial sectors, the insurance industry has marinated its 30-35 percent annual growth rate on the back of compulsory insurance lines.
• According to RNCOS latest report on “Saudi Arabia Insurance Market to 2012”, protection & savings and health insurance are the fastest growing insurance lines in the Kingdom, with health insurance accounted for around 50 percent of the overall insurance market at the end of 2009.
• The health insurance sector is expected to grow at fast pace on the back of increasing involvement of private companies and the obligation for foreign nationals and foreign pilgrims to buy insurance covers.
• In addition, the most recent introduction of compulsory health insurance for private employees, irrespective of the size of the company they are working with, will further boost the health insurance market in the country.
Strong Demand for private health insurance in Middle East
• Demand for private health insurance products has risen significantly since the start of 2007, as companies and individuals look to protect their health against a backdrop of a rising level of uncertainty about future provision of coverage.
• Changes in the regulatory framework regarding the provision of healthcare across the GCC have driven a high number of inquiries since the start of the year.
• In Saudi Arabia alone, demand is such that recent estimates predict that the insurance sector will be worth more than SR15 billion by 2009. Saudi Arabia has an expatriate population of seven million, making it potentially the largest health insurance market in the region.
• In the UAE, private health insurance has risen to the top of the agenda with Abu Dhabi recently passing a law requiring all employers in the Emirate to provide minimum cover for their employees. In November 2006, Dubai also announced that similar regulation will follow for the Emirate’s residents.
• Nexus has more than 250 professional and independent advisors in the UAE and Bahrain making it the largest insurance brokerage IFA in the region.
Insurance Markets and Private Health Insurance in Middle East
• The most important insurance markets in the Middle East are found in Turkey, Iran, the United Arab Emirates, Saudi Arabia, Lebanon, and Kuwait. In 2003, total insurance premium income amounted to about USD 8 billion of which approximately 80 % were spent for non-life insurance schemes (USD 6.5 billion); the remaining USD 1.5 billion can be attributed to the life insurance sector.
• According to these figures, the insurance industry of Middle Eastern countries merely accounts for about 0.5 % of global insurance premium income.
• Private expenditure is an im
portant financial source of health care systems in the Middle East.
• Nonetheless, PHI (Private health insurance) is a relatively new phenomenon in most of the countries in the region. Private funds are predominantly used for out of pocket expenditure (e.g., Yemen, where in 2001 58.4 % of total health expenditure was OOP) while only Lebanon and Saudi Arabia have a sizeable private health insurance industry. Although still at very low expenditure levels, PHI is also gaining importance in Turkey.
• The figures for Turkmenistan, on the other hand, are ambiguous.
o According to WHO data, 7 % of total health expenditure was channeled to PHI in 2001 (as contributions to social insurance that were considered as private social insurance). Conversely, the European Observatory on Health Care Systems (Turkmenistan, 2000) reports that private health insurance was not allowed in the country. Instead, the state would offer public voluntary medical insurance, which covered a large part of the population (approximately 90 % in 1999).
• Table below gives an overview of Middle Eastern countries where spending on private insurance has been recorded.
o In 1996, the WHO considered PHI to be the fastest growing insurance market in Turkey while coverage was still very low at that time.
o Subscribers to private schemes usually obtained higher quality service in addition to their public coverage. In fact, private insurers are the only means through which people can obtain supplementary voluntary health insurance in Turkey.
o Ernst & Young (2003) reports that, in the mid-1990s, about 30 institutions offered PHI, approximately covering 500,000 people. Considering the fact that this number had only amounted to 15,000 individuals in 1990, the private insurance industry had experienced significant growth in the first half of the 1990s.
o Although dissatisfaction about the quality and accessibility of public facilities have further raised the popularity of PHI, private risk-sharing programs still do not constitute a major factor in the country’s health financing system.
o According to recent estimates (Turkey, 2002; Colombo/Tapay, 2004), coverage through private providers remains below 2 % of the total population while approximately 650,000 people are currently insured.
o According to the European Observatory on Health Care Systems (Turkey, 2002), coverage was highest amongst employees of banks, insurance companies, chambers of commerce, and computer companies.
• Saudi Arabia:
o The high share of PHI expenditure relative to total health expenditure in Saudi Arabia predominantly stems from foreign workers (5-6 million) who now need to have mandatory private health insurance.
o Before the reform in 2003, expatriates in Saudi Arabia had been entitled to use public facilities that are not only open to Saudi citizens.
o Other forces driving the development of the private health insurance industry is a rising population, a quick growth of the private sector, the quick pace of industrialization, and high per capita medical expenditure (U.S.-Saudi-Arabia Business Council, 2004).
o This trend materializes in increased PHI spending while total health expenditure declined over the past couple of years. All these factors contribute to the ongoing readjustment of the country’s health care system.
o Due to limited public resources, policy makers in Saudi Arabia are currently searching for alternative ways to finance health care. The five stage program that introduced PHI for expatriates will eventually also allow coverage of Saudi nationals (Sekhri et al., 2004: 8).
o Another dynamic insurance market is reported for Lebanon, where private health insurance is already well established, largely due to insufficiencies of public health care institutions.
o Lebanon has a highly fragmented health care system, in which more than 70 % of total health care spending originates from private sources. Of this, a remarkable 16.5 % is used for private risk-sharing programs (WHO, 2003).
o Lebanon has a relatively large non-life insurance market with per capita spending amounting to USD 84.70 in 2003 (Swiss Re-Insurance Company, 2004).
o According to these figures, the country’s insurance density is much higher than its Gross National Income (GNI) would suggest. On a global scale, insurance density puts the country in 48th position while the World Bank GNI index only sees Lebanon in 81st position with per capita income of USD 4,040 in 2003.
o In 1998, approximately 70 private companies offered comprehensive and supplementary insurance programs that covered an estimated 8 % and 4.6 % of the total population respectively (NHA Lebanon, 2000).
These companies varied in size and premium income while insurance volumes ranged from below USD 1 million to USD 5-50 million.
o Due to the size of the insurance market, which also includes non-profit providers and mutual insurance funds, supply is very competitive. Nevertheless, there exists anecdotal evidence that high risk/high cost patients are prevented from joining private schemes.
o The Ministry of Health may consequently be burdened with an extraordinarily large share of bad-risk patients (ib.: 6). The government is also the insurer of last resort for all individuals without any health care coverage.
o In Jordan, approximately 240,000 individuals (5 % of the population) are reported to have private health care coverage. Adding to this, another 152,200 people receive coverage through employerbased self-insurance (data: NHA Jordan, 2000).
o Compared to other forms of health care coverage, the number of privately insured is relatively insignificant;
i.e., 81 % of Jordan’s population is reported to have any form of health insurance.
o Furthermore, private health insurance programs do not offer a real alternative to social schemes. Of the 20 companies that are licensed to sell health insurance only one offers full coverage.
o Coverage through PHI may equally be bounded by the small volume of group insurance that is sold in the country. Large companies, which would be the primary channels through which to distribute group insurance schemes, apparently prefer to rely on self-insurance programs.
o The number of uninsured people is estimated to be around 30 % of Jordan’s population while about 20 % of the ones insured are reported to have multiple coverage.
o Low coverage rates are also problematic in Iran. Although official statistics (e.g., Medical Service Insurance Organization, Social Security Organization) claim that 90 % of the Iranian population has health insurance, the number of uninsured is estimated to range around 30 %.
o This situation may be explained by considerable overlap between certain insurance categories (i.e., people have multiple coverage), which raises concerns about the efficiency of the specific insurance organizations (NHA Iran, 1998).
o Private funds are the most important source of health care financing in Iran. In 1998, household contributed 53 % of total health expenditure through OOP while 5.5 % where channeled through different insurance organizations.
o Apart from specialized insurance companies, PHI is also offered through banks that insure their employees (including dependents) and the through the radio and TV network. Contributions to specialized insurance companies are shared among firms and employees while insurance packages exclusively cover inpatient services in private hospitals.
The services covered through bank insurance schemes, on the other hand, include physician services, pharmaceuticals, dental and laboratory services, as well as expenses for radiology and imaging.
o Given the large extent to which people are willing and able to co-pay for medical treatment at private hospitals (on average, 65 % of all medical bills were paid by patients) PHI may be able to increase i
ts popularity and mobilize further resources by offering more comprehensive packages.
• A common feature of insurance markets in Middle Eastern countries seems to be a lack of policy co-ordination and institutional responsibility.
o Experience from Jordan suggests that there is little coordination between the Ministry of Industry and Trade, which is responsible for PHI regulation and control, and the Ministry of Health.
o In Lebanon, each separate branch of the insurance industry is associated with a distinct supervising ministry. Evidently, such shared responsibilities make public oversight very difficult.
o Strategic planning and policy co-ordination is equally constrained in Turkey as the whole health care sector is highly fragmented. Under such circumstances, it will be very difficult to formulate a national strategy for the future development of PHI.
• Due to insufficient public oversight the industry may produce inefficiencies like multiple coverage as reported for Jordan and Iran.
• Better coordination mechanisms between respective ministries may arguably decrease uncertainty and improve market outcomes. Similar objectives can be attained by clearly defining areas in which PHI may support, complement, or substitute other forms of health care coverage.
• Particularly important is a clear distinction between private and public responsibilities in order to prevent unnecessary overlap between the two.
• Without efficient regulatory instruments, it will be difficult to prevent market failures like cream skimming, cost and premium escalation, as well as fraud, which are basically confirmed for all countries in the Middle East that partly rely on PHI.
• Equity targets will equally be put into jeopardy if the state does not accomplish sound administrative and regulatory capacities.
o In Lebanon, the lack of an effective supply side control is seen to have contributed to the recent cost and premium escalation in the health care sector.
Low Penetration Level Makes Middle East Insurance a Lucrative Sector
• With the total insurance penetration below 10% of insurable population in the Middle East, it is expected that the region will witness rapid growth in near future.
• As per research report “Middle East Insurance Market Forecast to 2012”, takaful will play a major role in the Middle East insurance sector.
o In the past, it has grown at a rate of 135% in the UAE, followed by 69% in Bahrain.
o Young educated population and government initiatives will fuel growth in the insurance sector of the region.
• The report gives details about the market size of these countries and states that Israel was the largest market in the region for insurance premium, followed by Turkey and UAE. Additionally, the report forecasts the future growth rates of the insurance markets in all these countries.
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