The new Unified Motor Policy introduced from 1 January 2017 is said to have raised the cost of motor insurance in UAE by as much as 30-40% while loss ratios were seen to drop to roughly 65-75% in FY 2017 from 80-90% in FY 2016, according to a report by Insurance Monitor on the impact of the policy.

Apart from higher tariffs, several other factors were active contributors to improving loss ratios for UAE motor insurers in 2017. The report produced in association with Badri Management Consultancy, highlights that these factors included the role of the Federal Traffic Council in increasing road safety awareness and introducing the new traffic law from 1 July 2017, as well as the reduction in the number of road accidents by 16% and speed violations by 11% in 2017.

The report also adds that loss ratios were lower than expected in 2017 due to the transition of unexpired 2016 risks that would benefit from the Unified Motor Policy only on renewal in 2017 and the full year impact of the new policy benefits will commence from 1 January 2018. Favourable weather conditions and poor consumer awareness of new policy benefits were also positives for insurers in 2017.

Top line growth

Following the introduction of the Unified Motor Policy, insurers were broadly seen as:

risk takers who captured market share by offering minimum tariffs; or

risk averse who offered rates starting with the median or 75th percentile or even the maximum tariff in some vehicle categories.

Towards the end of 1Q2017, the former had exceeded their budgets by large margins while the latter were down in terms of policy count but content that the top line was maintained with modest growth and lower exposure.

As 2017 progressed some risk averse insurers were seen to reduce prices slightly and offered lower rates to certain segments. On average, the cost of motor insurance in the UAE is said to have surged by as much as 30-40% in 2017 while owners of lower valued vehicles buying third-party and comprehensive insurance were hit the hardest, due to the increase in minimum premium.

2017 was the second year when detailed mid-year pricing reviews on motor insurance were undertaken as a regulatory requirement. Unlike other regimes where insurers have to use actuarial pricing as a minimum, in the UAE insurers have flexibility with pricing. While bi-annual actuarial pricing reviews are undertaken, decision-making in terms of pricing remains with insurers, who are monitored and also held accountable. This flexibility enables healthy competition where underwriters can target niche segments without limitations on rates provided in the actuarial pricing report.

Towards the end of 2017, insurers were increasingly seen to shift away from unit or flat rates to factor-based pricing that would help them to target certain profitable segments. Claims experience As the year progressed, the actual claims were seen to be ‘lower than expected’. Actuarial pricing reviews undertaken for 2017 indicate that motor loss ratios dropped to roughly 65-75% from 80-90% in 2016 where combined ratios of some insurers exceeded 100%.

Motor insurance outlook for 2018

In 2018, Insurance Monitor expects competition to force prices down again. Feedback on breach of minimum thresholds by insurers has not been uncommon. The Insurance Authority has permitted some flexibility on rates in 1Q2018 in terms of no claims discount for retail customers (up to 30% off for three accident-free years) and additional discounts (up to 10%) to loyal customers. The discounts are specified as a percentage of the minimum premium and for no claim discounts can apply where the driver had not caused the accident.

The definition of ‘loyal’ remains open and could mean a long-standing renewing customer or customers who purchase other insurance covers such as medical or travel from the same insurer. There is room for innovation here and insurers can come up with unique definitions to attract customers. The no claims discount remains within the discretion of the insurer.

Lower motor loss ratios likely in 2018

It is expected that motor loss ratios will continue on the lower side in 2018 as all insured parties fully transition to the new motor benefits policy from 1 January 2018 at higher minimum premiums.

Stringent controls based on the new 2017 traffic law and greater awareness of road safety in 2018 will also play an important role in maintaining loss ratios of insurers. An increase in loss ratios is probable in 2019 as insurers start lowering rates during 2018 to remain competitive and consumers become more aware of policy benefits. Market discipline will be key in maintaining healthy profits for insurers going forward.



