Since Saudi Arabia passed its Co-operative Health Insurance Law in October 2005, setting out requirements for phasing in compulsory health insurance, governments throughout the GCC have been following the kingdom’s lead. Abu Dhabi has already done so, Dubai is in the process and Bahrain, Kuwait and Qatar are all considering following suit.

New legislation necessitates a new regulatory regime, and this is where the challenges arise for health insurers. To better govern the health insurance sector, governments are introducing restrictions on health insurance companies such as capital requirements, policy limits and licensing conditions that previously did not exist.

To date, only limited attention has been paid to the financial stability of insurers, and in some cases their ability to pay out was questionable. But this is changing.

Aware of these risks and at the same time determined to begin shifting the public health burden to the private sector, the Saudi Arabian Monetary Authority (Sama), the central bank, has set out clear guidelines for insurers wishing to secure a licence in the kingdom.

“The Saudi market is heavily regulated and Sama monitors the financial stability of companies,” says Cheryl Lynch, sales and distribution manager for healthcare provider Bupa International. “They must be locally registered, and have their products approved by the regulator. The level of cover is also dictated. For this reason, a standalone, independent company, Bupa Arabia, operates in the kingdom.”

Operational terms

Under the Law on Supervision of Co-operative Insurance Companies, insurers such as Bupa Arabia are subject to 25 articles laying out the terms of their operation. Further rules are then set out by the supervisory body, the Council for Co-operative Health Insurance.

These rules state that all insurers must be locally registered, joint stock companies acting only as insurance or reinsurance firms. They must not also act as brokers.

The law also states that insurance companies must have capital of SR100m ($26.7m) and reinsurers SR200m. In addition, 20 per cent of profits must be put aside as a statutory reserve until the SR100m figure is saved.

The companies’ activities are closely monitored, with Sama demanding insurers seek written approval before opening new branches or merging with other firms. Similarly, a firm must not cease trading without approval.

The result has been a streamlining of the sector as firms have struggled to meet the new criteria. Insurers had until March 2008 to become licensed, and those that failed to gain licences have now ceased to trade in the kingdom. Before March, there were 43 insurers operating; now only 34 are either licensed or awaiting approval.

According to Sama, 19 insurers are now fully licensed to operate in the kingdom, with eight having received approval from the Council of Ministers and a further seven having applied for licences through the Commerce & Industry Ministry.

Market potential

Given that Saudi Arabia’s health insurance market this year experienced annual growth of 57 per cent in the value of gross written premiums to SR4.8bn, companies are keen to acquire licences. Health insurance accounted for
44 per cent of the total SR10.9bn insurance market in 2008, up from 36 per cent in 2007.

Abu Dhabi has experienced similar growth in its health insurance industry. Since it launched its own legislation in July 2006, the emirate now has more insurance policies than residents. Its 2.1 million population are covered by 2.3 policies and more than 4.1 million claims were processed in 2008.

Residents now qualify for one of three
levels of cover. The Thiqa system is run by state-owned Daman National Insurance Company and covers all UAE nationals. A basic policy also run by Daman is available for those on low salaries – less than AED3,000 a month – and costs AED600 a month.

A third option for higher earners is an enhanced package of benefits, which locally registered providers are allowed to offer in competition with Daman.

However, the enhanced package must offer cover beyond that normally included in a standard health insurance policy.

“There is no limit on maternity cover, and usually an insurance company has a waiting period of 10 months for maternity treatment to be covered, but this is not the case in Abu Dhabi,” says Lynch. “It also requires that pre-existing ailments are covered.”

Common practice is for pre-existing conditions not to be covered without medical loadings being applied, and for financial limits to be placed on maternity cover. But the Abu Health Authority is demanding that insurers go further. The combination of extensive benefits plus the need to be locally licensed means some firms have dropped out of the market.

Partnering solution

“Establishing as a local company is not always viable,” says Lynch. “It can be very expensive and we have to look at whether the expense is paid off via the growth opportunity. What we do is partner. We partnered with Oman Insurance because having local knowledge is fundamental and Oman was one of the largest and, in our opinion, the best local insurer.”

Oman Insurance is the second-largest insurer in Abu Dhabi, with more than 16 per cent of the market for the enhanced insurance package, second only to the state-run Daman (see table).

So far, other than Dubai, which is about to introduce a different system to Abu Dhabi, the rest of the UAE is undecided about how to structure its health sector. Dubai’s plan is to force all employers to pay a flat fee called the health benefits contribution (HBC) of AED500-800 a person each year, which will used to provide basic healthcare. This will be provided through a network of outpatient care practices.

Two new health management companies will manage the system after being appointed in December 2008. They will help outpatient care practices meet cost and quality standards, and negotiate financial arrangements with hospitals and specialist clinics.

However, the system is running late.
Speaking at the second Gulf Health Insurance Forum in April, Qadhi Saeed al-Murooshid, director general of the Dubai Health Authority, told delegates the system would now be
introduced in 2010 to give the business community more time to prepare for the additional costs involved.

“Our ongoing discussions with our stakeholders make us realise we need to take into consideration the current environment in which they are operating,” said Al-Murooshid. “Therefore we shall implement the new system in phases starting in 2010.”

One of the two firms appointed to act as a health management company is US-based Aetna Global Benefits, working in partnership with Gateway -Healthcare. “We continue to be committed to working collaboratively with the DHA, to develop an appropriate and targeted plan,” says Mark Jardin, Aetna’s Dubai-based managing director for the Middle East and Africa. “We are looking forward to DHA guidance and perspective on 2010.”

Aetna only recently entered the region through its acquisition of insurer Goodhealth Worldwide, a deal completed in October 2007. It has more than 100 staff and four offices in the UAE alone. These are managed by Aetna Global Benefits, the group’s international arm.

“This acquisition allowed us to serve new markets and expand our health benefits offerings to current and prospective customers,” says Jardin. “Goodhealth’s products are complementary to AGB’s offerings, which has provided us with better access to the small and medium-sized employer market, and individuals.”

With Dubai and Abu Dhabi having set
out their new framework, insurers are keen
to see how the other emirates and Gulf states will proceed.

“The five other emirates are looking to see what Dubai will do,” says Lynch. “Will they go down the Abu Dhabi or Dubai route? For insurers, this means having flexible service offerings and products is critical.

“Depending on how complex the regulation is, we could end up needing seven different products and services. International clients want the same cover worldwide but increasing regulation means we cannot always offer this. Our challenge is to structure our packages so that there is no -confusion.”

Further opportunities

In fact there could be a call for even more
products and services as Kuwait, Bahrain
and Qatar all review their own healthcare
systems. Kuwait has been debating plans
to introduce compulsory insurance to gov-ernment organisations for several years, but
the sluggish bureaucracy in the state means
the legislation could take several more years
to materialise.

Qatar, where insurers are still able to sell their policies on an offshore basis as long as they go through a local broker, is likely to change sooner. “There are vast opportunities on both the health insurance side and the health management side, and these sectors have continued to grow despite the downturn,” says Jardin.

Despite the rules becoming increasingly strict for insurers, the region’s enormous growth potential means that both local and international insurance companies are keen to stay in the game.