Put customers first, S&P tells Dubai’s big health insurers

Big insurers are well placed to dominate Dubai’s burgeoning medical insurance industry – but only if they can improve customer service, said a new report from Standard & Poor’s.

“Over time, quality of service given, rather than price, will dictate who wins contracts,” said Kevin Willis, a credit analyst based in Dubai, who wrote the report for the international ratings agency.

Fierce competition between providers has pushed down underwriting margins, reducing the scope for insurers to cut prices further – so the insurers who attract the most business will be those who focus on the softer side of their product offerings.

“Many insurance companies, particularly the smaller and newer entities, have used aggressive pricing to win medical scheme covers and then struggled to make any underwriting margin on the business,” Mr Willis said.

The report predicts a “surge” in revenues from new underwriting claims as Dubai’s health insurance legislation brings new business to the industry.

But it’s not likely that customers will benefit significantly, Mr Willis argues, because low profits will mean limited scope for newer or cheaper products.

S&P does not believe that “the big insurance companies will automatically become the dominant medical insurers in the market”.

However, the new law creates opportunities from which they are well placed to take advantage.

“It is possible that the companies best placed to service demand [resulting from Dubai’s new health insurance law] will be the bigger companies … [as] these insurers can more readily provide … cost-effective service,” Mr Willis said.

Larger health insurers have numerous advantages over small players – risk becomes easier for insurers to predict and price when handling larger volumes of claims, while sizeable order books allow firms to benefit from economies of scope and scale.

Dubai’s new law is just the most recent change driving health insurance revenues higher. Abu Dhabi launched a similar plan in 2005.

S&P expects the Northern Emirates to introduce health insurance schemes soon – but suggests that if they don’t, companies may move employee residences out of Dubai and Abu Dhabi to save themselves the cost of health insurance.

The ratings agency does not expect the law’s implementation to affect the financial strength of Dubai’s health insurers in the short term.

The impact of the law would mainly be felt in 2015, Mr Willis said.