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

A.T. Kearney experts estimate a potential to increase the bottom line profitability of insurance companies with 20-30 per cent by overcoming current challenges in underwritingentrepreneurship

Dubai (4th November 2009) —  The insurance market in the GCC is faced with an opportunity to significantly maximize profitability according to global management consultancy A.T. Kearney. In the developing GCC insurance sector cost efficiency and differentiation are key factors to remain competitive and improve margins. 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 only5-15 per cent 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 per cent 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.

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About A.T. Kearney

A.T. Kearney is a global strategic management consulting firm known for helping clients gain lasting results through a unique combination of strategic insight and collaborative working style. The firm was established in 1926 to provide management advice concerning issues on the CEO’s agenda. Today, we serve the largest global clients in all major industries. A.T. Kearney’s offices are located in major business centers in 33 countries. During our 80 year history, we have provided management consulting services to most major corporations and governments around the world. From our fast growing Middle East offices in Abu Dhabi, Bahrain, Dubai and Riyadh, A.T. Kearney actively contributes to the operational excellence and profitable growth of industries and services in the region.

About The Authors

Cyril Garbois,  Principal

Nine years consulting experience with A.T. Kearney  focusing on financial institutions, particularly in retail/investment banking and insurance.  His banking experience includes defining corporate governance for a leading Islamic bank.  Before moving to the Middle East, Mr. Garbois led projects for major European banks including the launch of a mortgage credit offer on the French market and implementation of new back/middle office design. Mr. Garbois also has extensive insurance experience with leading European insurers, including the elaboration of a 5-year strategic plan; identification and assessment of development scenarios in Latin America.  Mr. Garbois has also assisted in defining new organization for the controlling functions of leading life insurance  companies.  He is a graduate of the HEC School of Management.

Anshu Vats, Principal

Anshu Vats is a principal with A.T. Kearney Middle East. Before moving to the Gulf region, he was core member of Strategic IT practice in Asia Pacific for A.T. Kearney.Anshu has significant consulting experience in the field of financial services and telecommunications, where he has supported various large global organizations in addressing complex areas such as: core systems renewal, complexity management, large scale organizational changes and vendor selection and management. In addition, he has significant experience from other industries such as Private Equity, Consumer Media and Entertainment, Manufacturing, Retail and Agri-Business working across Australia, New Zealand, United States, Canada and South East Asia. With his broad global experience Anshu has valuable insights into the operational and strategic issues faced by companies across the GCC.