Competitive conditions threaten motor insurers in the Middle East

Motor insurance remains one of the most fiercely competitive business segments in the Middle East, according to a report by AM Best, that highlights the challenges facing insurers writing this business in the region.

The report, called ‘accelerating competitive conditions pressurises motor insurance in the Middle East’, notes that whilst all Middle Eastern and North African (MENA) countries have legal requirements for drivers to purchase motor insurance, regulation differs from country to country.

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 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, AM Best said.

“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 towards liberalisation of premium rates,” the special report added.

“Governments have historically been reluctant to increase tariffs given the public’s perception of motor insurance as a form of indirect taxation. Given that social and political unrest in the wider MENA region has been preceded by periods of economic dissatisfaction, governments are wary of any changes to policies that could lead to deterioration in the public’s spending power.

“In Kuwait, the tariff for MTPL has not changed in 20 years and remains at extremely unprofitable levels. On the other hand, the Egyptian regulator took positive steps in 2008 to improve rates. MTPL tariffs in Egypt were historically extremely low (Old Motor Act), which led to an improvement in MTPL performance.”