In numbers

$2bn: Current premiums in Saudi Arabia, growing from $365m in 2005

2013: Date by which all expatriates in Bahrain must have health insurance cover

Source: MEED

Against a backdrop of rapidly growing populations and a sustained rise in chronic diseases, health insurance has risen up the policy agenda across the Middle East, as national health systems struggle to meet funding requirements.

Governments have, in the past 10 years, come to the realisation that they are no longer able to shoulder the burden of healthcare provision indefinitely. As cradle-to-grave welfare systems reach their limits, the benefits of private insurance have found renewed appreciation.

Private expenditure on health*
(Percentage of total health spend)
Bahrain 30.1
Egypt 57.8
Iran 57.6
Iraq 29.8
Kuwait 23.7
Lebanon 51.7
Oman 24.5
Qatar 28.5
Saudi Arabia 31.8
*=2008. Source: WHO

In the Gulf states, where chronic diseases such as diabetes – estimated to afflict 20 per cent of the UAE adult population – are rife, the authorities recognise that growing demand for healthcare will render their current open-ended systems too expensive to be sustainable.  

Compulsory insurance in the Gulf

The old welfare state model, where expenses are absorbed exclusively by the public sector, is slowly transforming into a competitive market-driven model, where both private and state-backed companies play a role.

For countries outside the GCC, the pressures are somewhat different. Egypt, for example, is committed to expanding health insurance for 25 million of its poorest citizens.

Saudi Arabia gross written premiums*
(Percentage of $16.4bn)
Protection and savings 6
Health insurance 53
General insurance 41
*=2010. Source: Sama

The advent of compulsory health insurance schemes, first in Saudi Arabia in 2005, then in Abu Dhabi two years later, has put the Gulf states at the forefront of change. GCC states have embarked on a phased programme of reform, the first step being to transfer to employers the responsibility for insuring expatriates – the test case for the rollout of compulsory insurance.

Bahrain and Qatar are among the other GCC states to have taken steps to formulate healthcare insurance programmes. By 2013, all expatriates in Bahrain must have health insurance cover, while Qatar is expected to release its compulsory health legislation in 2012.  

As part of its long-term goal of increasing cover from about 54 per cent of the population currently, Egypt’s Health Ministry hopes 85-90 per cent of the population to receive coverage in the next 10-15 years. With financial support from the government, 25 million uninsured individuals will be brought into the new system.

Government support is the key to increasing penetration, say experts. “There are other factors, for example you need to raise awareness of the benefits of insurance more generally. But certainly compulsory insurance is helping drive penetration because it immediately creates a market,” says Peter Hodgins, a Dubai-based partner at law firm Hodgins & Co.

Saudi health insurance premiums
(SRm)
2006 2,222
2007 3,065
2008 4,805
2009 7,292
2010 8,690
Source: Sama

The rapid growth in the Saudi market is a clear indicator of how strong an impact the compulsory mandate has had. Health insurance premiums were just $365m in 2005, but within five years had grown to more than $2bn.

For the health insurance providers operating in the kingdom, the Middle East’s largest insurance market, it has meant a sustained effort to provide cover to millions more residents.

Before 2006, the health insurance market in Saudi Arabia numbered around 1 million customers. Today, it is about 8 million.

Ensuring capacity

“It’s actually been a relatively smooth process in terms of adding 7 million people over a short period of time,” says Tal Nazer, chief executive officer of Bupa Arabia for Cooperative Insurance, the Saudi affiliate of the UK health insurance giant. “It’s all about making sure there is enough capacity – whether in terms of hospitals, or the capacity of the insurance industry to cope with the growth. We have a continuous dialogue among regulators, insurance companies and hospitals, which has meant that it’s been a relatively smooth process.  

“There are benefits to hospitals because of the volume created by a new industry,” he adds. “And from the customer point of view, people are gaining access to private hospitals in addition to government hospitals, which is opening up freedom of choice. And from the government’s perspective, it’s starting to reduce the cost of healthcare because the private sector is taking its share of it.”

Compulsory legislation is only one side of the equation. Governments are also under pressure to open their healthcare systems to private insurers – seen as essential to boosting both the quality of service and better control of costs.

In Saudi Arabia, more than 30 insurance companies are active in the health sector. Across the region, more firms are looking to penetrate the health insurance sector, including the international players that can boast the experience and investment to drive uptake.

International providers can offer a more flexible product portfolio to appeal to the higher end customers. In June 2011, Axa Gulf – the local affiliate of French-owned insurance giant Axa – announced a joint offering in the UAE with the local Now Health International, built specifically for people who want to access healthcare anywhere in the world.

In Saudi Arabia, Bupa offers an economic to high-end product range, including packages for large corporates, small and medium enterprises, families and individuals. Yet there are challenges associated with opening up the market to private health insurance providers.

Competitive advantage for state insurers

A report by consultants Booz & Co, The GCC’s Insurance Mandate, notes the competitive situation is complicated by the presence, in almost all markets, of a state-run health insurance organisation, such as Daman in the UAE. These state-operated insurers have a natural competitive advantage over private players, namely, their existing customer base and their relationships with providers.

But there are differences between the main Middle Eastern markets. “Saudi Arabia is an open market, so any insurance company can get a licence provided they meet all regulatory requirements,” says Nazer. “In Abu Dhabi, they have created a bidding model where only one firm deals in partnership with the government.” 

The international firms either offer services directly or through link-ups with local partners that offer an on-the-ground presence. Daman in the UAE is state owned, but has a 25 per cent stake held by German reinsurer Munich Re. 

Despite the growth opportunities afforded by the migration to mandatory health insurance strategies, in the long run, revenue and profit pools in individual markets in the GCC may remain limited, with the exception of Saudi Arabia, the biggest market.

The Booz report warns that there are significant impediments to turning a profit, including scale, data scarcity, and the wild card of government price regulation.

Margins are still low, despite rising premium volumes. In Saudi Arabia, Bupa reported a 21 per cent increase in gross written premiums for the first six months of 2011 to SR1.27bn ($333m), but still showed a net loss of SR5.5m for the period.  

“The big issue facing the market is that the premiums are actually very low because of the healthy competition,” says Nazer.

International health insurance providers may find it tough to compete on price, but they should at least be able to compete on quality.

The onus is on private market entrants to add value through the delivery of care via improved outcomes and cost-control measures. Booz says health insurance companies will have to drive broader healthcare objectives, improving provider quality, enhancing healthcare accessibility, and developing healthcare databases.

It is a challenge international insurers say they are up for. “We have different initiatives, from roving doctor visits to specific products, such as cancer safe, where we offer screening cover to our customers. There’s a broad range of wellness services on offer,” says Nazer.

The long-term trend is favourable. Many Gulf states are facing a sustained healthcare management challenge that will clearly call on a growing input from private health insurers.

Insurance as a concept is still in its infancy in the Middle East, but the steady rollout of compulsory health schemes will create a foundation for long-term growth. In the near-term, though, it will be tough going. The key to success will be to properly understand and manage the risk – and price accurately.

Middle East lags world in health insurance

Private health insurance is still in its infancy in the Middle East, with only Saudi Arabia and Lebanon boasting sizeable sectors by global comparison. Although health insurance is becoming an important line of business in some Middle East and North Africa (Mena) countries, it is growing from a low base.

The average penetration of non-life premiums in the Mena region – of which health insurance forms only a small part – is below 1 per cent of gross domestic product. In the new EU-10 countries, the equivalent figure is 1.7 per cent, according to the World Bank. In Latin America, it is 1.3 per cent. And it is higher in non-GCC states than the GCC, with the latter showing a 0.87 per cent penetration, compared with the non-GCC rate of 1.03 per cent.

Although private expenditure is an important source of funds for the region’s health systems,  accounting for more than 50 per cent of Lebanon’s health sector, for example, private health insurance across the region is still well below international standards. 

Even the GCC state with the highest health penetration ratio – Saudi Arabia, with 0.5 per cent – is well below the highest European country, the Netherlands, which showed a 6.4 per cent health insurance penetration rate in 2009.

These levels will no doubt change over time. The decision by Saudi Arabia and Abu Dhabi to require expatriates to take out private health insurance has had some impact in galvanising uptake of private health insurance, with the large expatriate populations leading the way.

Saudi Arabia’s health premium growth is the fastest of any business lines, with the exception of aviation, which had a one-off boost of 75 per cent growth in 2010. Gross written health premiums in the kingdom, which represent 53 per cent of the insurance market, increased by 19.2 per cent to SR8.7bn in 2010, compared with SR7.3bn in 2009.

Qatar is considering a compulsory system, while Kuwait – which currently has a blended voluntary system for expatriates with private insurers acting as distributors – is now planning a single specialist health insurer owned jointly by the government, the public and the insurers to handle all health insurance.

But there is clearly still a long way to go before the Mena region’s health insurance premiums match the developed world average.