Finding new ways into the Middle East

The London Market needs to find new strategies to tap into these booming markets.

The Middle East is a fast-growing insurance market. Gross written premiums already exceed  $10 billion in both the United Arab Emirates and Saudi Arabia – two of the region’s biggest markets – and are predicted to grow further to $18.1 billion and $16.4 billion respectively by 2021, according to Alpen Capital. But a vibrant local insurance industry has developed which may limit the London Market’s ambitions in the area.

Dubai has emerged “almost overnight” as an underwriting centre providing plentiful capacity for the region’s businesses, says Omar Zeineldine, Head of Specialty Lines, Middle East & Africa for Hiscox MGA.

“There are obviously large accounts for which local markets cannot provide the capacity, but if you have a $5 million retail risk in Beirut, for example, it can very easily be written in Dubai by a number of insurers. A local broker would be forgiven for thinking: ‘why would I take a risk to London, and have to share my brokerage with a London broker, when I can simply access a local market myself?’”

London will lose premium

If London fails to respond quickly, it will miss the chance, says Zeineldine. “Every year, the Dubai insurance market gets more sophisticated and more capacity. If it does nothing to compete, London will see whatever exposure it has in that market dwindle.”

One response is to try and find other ways to access Middle Eastern business that is not finding its way to London via existing routes. Hiscox’s response is to operate through its own MGA, which gives it the ability to access local business directly. “We provide a platform where a local broker or cedant in Dubai, Jordan, or Egypt can offer us their business. I want those political violence risks, but can’t justify the expense of opening an office for a single line of business,” says Zeineldine. 

Every year, the Dubai insurance market gets more sophisticated and more capacity. If it does nothing to compete, London will see whatever exposure it has in that market dwindle.”

The Middle Eastern insurance market also offers greater access to more business from sub-Saharan Africa. “Nigeria, Kenya and Ivory Coast, for example, where we see real potential for growth, are closer to Dubai than they are to London and the relationship between Dubai and the sub-Saharan market is growing,” says Zeineldine.

Keeping it personal

Key to making the MGA strategy work is developing personal relationships. “Frequent travel to the region and a command of the language are valuable as cultural nuances do matter," says Zeineldine. "Building relationships with local brokers in the region takes time – just as it does with a London broker. But it works.”

London underwriters shouldn't underestimate the sophistication of the Middle Eastern insurance industry, Zeineldine warns. “Everyone speaks English and they have a very high degree of technical competence.  Most people who work there have an insurance degree from a western university – something which most people who work in the London Market don’t have.”

Competition is fierce, so although there might be lots of wealth in the Gulf region, buyers there will drive rates down, making it a very difficult market to handle.”

But no London underwriter should expect an easy ride. “Competition is fierce, so although there might be lots of wealth in the Gulf region, buyers there will drive rates down, making it a very difficult market to handle.”

A happy middle ground

While using the MGA is proving to be a successful way to bring new business to the London Market, Zeineldine acknowledges it can be labour intensive. “We don’t have a Lloyd’s broker bringing us a slip and an explanation for the whole risk. Effectively, we are every step of the chain from broking to underwriting, producing slips and endorsements – and no local broker will help us record our aggregates. But we came to the conclusion that this is the happy middle ground to accessing the political violence business that we want without over committing ourselves in the region.” 

 

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