How Covid-19 Affected Life Insurance Companies in UAE?

The business of the insurance industry is to be in charge of the protection of assets, livelihoods (albeit indirectly), and institutions. The pandemic, of course, acted as a once in a generation phenomenon disrupting businesses and supply chains across the globe. Coronavirus, responsible for Covid-19 was announced as a fast-spreading new virus in December 2019, with the eventual declaration by the World Health Organization that the virus had blown out to a full-scale pandemic. The global stock market has gone through a period of depreciation and uncertainty wherein economies have shown unpredictable behaviours. The main reasons behind the disruption of several layers of the economy can be summed up as – travel restrictions being enacted by different countries as they seek to seal their borders against hordes of infected individuals coming in, drop in oil prices as the main export of the UAE is affected, and self-isolation practices being mandated across societies, with workplace rules being modified to enforce work from home practices.

What Disruptions Has the Pandemic Created in the Industry Specifically?

The impact is being largely felt in the form of risk to assets, in addition to premium growth slowing down. The most direct impact has obviously been upon the travel and hospitality industries. Regarding the UAE economy specifically, the key changes have been a sharp drop in the price of oil, and like other places, a swift adaptation to the new circumstances by remote work. While the volume of premiums issues, as measured under Gross Written Premium, did increase, it was substantially lesser than in 2019. The growth in 2019 was 8.5% as compared to a 2.8% growth in 2020. Naturally, the growth has been subdued in 2020 especially in the second and third quarters, due to the pandemic hitting. Although executives working in the industry do expect that the rate of growth should rebound to pre-2019 levels in the next couple of years. While challenges have been encountered, the consensus is that the insurance industry has weathered them relatively well. Traditional insurers who were not invested in emerging technological tools have clearly struggled more. Fintechs operating in the life insurance domain, who had introduced online or digital interfaces that enabled faster resolution of claims fared better, and this will possibly set the track for the future. Although there may be certain challenges as to the profitability of operating through this mode, and thus managing costs will be a top concern going forward. While life insurance penetration is considerably low at present at 0.5%, there is bound to be greater awareness as well as normative subscription to life insurance policies. 

What has been the Response of the Insurance Companies & Government to the Challenges of the Covid Situation?

Business bodies in the UAE were subjected to a couple of measures introduced by the UAE Insurance Authority in order to keep the industry competent according to the changing situation. While the main focus of these moves was upon the motor insurance industry, there have been some other key policy directives as well.  It should be kept in mind, that the fortunes of the life insurance industry are directly connected with changes in the health sector. These mainly include the national sterilization programme, suspension of treatments which are not in a condition of emergency etc. An increasing trend which was visible was the increasing reliance that both customers as well as health institutions placed upon the tele-services that were available.  

The Central Bank of the UAE has dedicated a package of AED 100 billion to strengthen the economy, and enable the lending facility of the banks as well as spending capacity of businesses and small and medium enterprises. The UAE Insurance Authority has come out with Circular no. 3 in order to direct the specific measures that are to be taken by life insurance companies, with the goal of maintaining public health and preventing the further spread of covid. The main goals that the circular sets out to achieve are – to compel companies to adhere to a ‘Disaster Recovery Plan’, that should necessarily include the necessary infrastructure, necessary financing, control gathering of employees. There is a provision for specific aid given to policy holders who have been affected by the virus, and as to what claims they can make in the pandemic especially for life insurance claimants, while the final decision rests with the company. Of course, the interpretation of the policy guidelines would depend on further clarification by the courts or further directives given by the Government. Moreover, it is expected that the practical implementation of IFRS standards will continue through this year and following that. The IFRS stands for International Financial Reporting Standard, that seeks to regularise accounting principles regarding to their practical application in the insurance industry. 

Will This Experience Substantially Alter the Practices of Insurance for Good?

As could have been anticipated, customers largely expect the burden of the situation to be on the companies, since they expect the companies to make the adjustments that are required to handle the situation. A new trend that has been witnessed is that clients in the UAE are increasingly relying upon adopting telemedicine for accessing care for outpatient services. As with other sectors in the economy, Covid has decisively accelerated the thrust towards an increasing digitalization of the entire process – all the stages in the process from claims to handling to recovery, digitalization is being increasingly relied upon. Moving forward, it is incumbent that increasing digitalization will sweep the world of fintech, and especially so the insurance industry. We live in interesting times, where new technologies such as big data, machine learning, Internet of Things, etc, are being evaluated as to how they can contribute to practical solutions. Especially regarding the financial industry, blockchain has the potential of creating a major solution, if it is approved by the central banks following the Basel 3 regulations. Following are some of the potential technological interventions that can be achieved in the insurance sector:

• Artificial Intelligence can be leveraged to create statistical tools or models to create pricing structures, and also to build more dependable risk assessment mechanisms for life insurance.
• Internet of Things can be used to customize insurance policies from a general list of policy options provided by the company to specific, or customized options as per the individual needs of each customer.
• Other forms of technology are being used to track incidents such as accidents, or other such incidents which could result in the potential claim of a life insurance policy. Technology can be leveraged to resolve claim settlement issues which were dubious in earlier times.