Major opportunities for GCC insurance companies to increase profitability by improving underwriting approach

Managing underwriting is one of the key enablers to achieve this.

"Currently differentiation between regional insurance offerings is mainly focused on price - low brand awareness, limited advertising and no online direct channels are available - the ability to properly assess the risk and to price it accordingly is key to build a competitive advantage," said Mr. Cyril Garbois, Principal A.T. Kearney Middle East.

He continued, "the regional insurance companies prepared to use more sophisticated toolsets that take into account customer risk profiles and other external factors are likely to become tomorrow's winners."

Managing underwriting is vital for about 40 regional insurance companies to improve their competitiveness and operational excellence leading to increased profitability. In the UAE insurers cede more than 50% of their insured premiums to reinsurers with an obvious impact on their bottom line, as risk and profit is shared with the reinsurer. In comparison international benchmarks show that reinsurance is only 5-15% for global leaders with state of the art in-house underwriting operations.

The companies that get underwriting right can hence look at exactly which segments require reinsurance and which are better kept within the company. It is however vital to get the underwriting process in place first so risk/premium profiles are optimized.

Currently some segments (corporate mainly) have premiums which vary up to three times for the same risk. This can negatively impact competitiveness of insurers if premiums are above market evaluation or negatively impact bottom-line and risk profile of the insurer if too much risk is attracted at too low premiums.

International best practices point to the automation of underwriting as a means of becoming more sophisticated in insurance operations.

Automation of underwriting would have a double impact on profitability: it would improve the loss ratio and also decrease the intermediation costs making processes cost effective.

From a regional perspective this makes sense in terms of improving profitability both as the loss ratio is improved and the process is run cost effectively. In addition the topline may be improved by allowing better customer differentiation and competitive well managed packages.

Finally automation of the process may help overcoming the shortage of skilled underwriters in the region, allowing companies to reap the benefits of better underwriting operations without adding to the shortage of underwriters regionally.

"Underwriters are the key to a competitive insurance operation, ensuring that revenues collected reflect the level of risk being underwritten. Globally we are observing that the major property and casualty players are moving their skilled underwriters to the more complex negotiated product sets by automating commodity property and accident insurances with technology platforms. The experience of the underwriters assessing market specific risks is focused onto the more complex negotiated products, where the role of technology is limited to business process automation,"

said Anshu Vats, Principal of A.T. Kearney Middle East.

Automation of the underwriting process makes sense in this region as it gives insurance companies the opportunity to acquire a very sophisticated set of technology that underpins modern protection products. As these skills currently do not exist in the market, adopting them from world leaders and regionalizing them to meet GCC needs is more efficient than developing them from scratch.

It is also relevant to companies moving to Takaful insurance. Automation of the current commercial portfolio frees up the skill base in underwriting that could be utilized in the new environment. Additionally, adopting automation provides valuable insights into business process automation that allows the insurers to approach the Takaful market with the best practices in distribution and claims management.

"The market is currently underpenetrated and the size of the prize remains significant - we estimate that the insurance companies regionally can improve profitability with 20-30% while at the same time increasing market share if they get underwriting right. I believe the use of international best practices in underwriting along with the required level of sophistication in distribution is a key to driving future growth of the insurance market regionally," explained Cyril Garbois, Principal, A.T. Kearney Middle East.