Insurance is one of the oldest industries in the world, dating back as some historians would claim, to the Babylonian times. Over the years, the global insurance industry has gone through several changes and endured multiple economic shocks, leading it to be reluctant to change.

 

The reason for this lies in the fact that insurance is a highly complex and heavily regulated sector. The fact that the 2008 economic crisis was partly triggered by the downfall of global insurer AIG led insurance companies around the world to adopt more stringent risk management requirements. Accordingly, insurance companies, or incumbents, are found to be slower in catching up to the technological bandwagon. That's the case for insurance companies around the globe, including in the Middle East and North Africa region (Mena).

 

Similar to other sectors, insurance came to a real shock when the full extent of Covid-19 became visible and the consequences of the pandemic began affecting their bottom line. Incumbents have then had a renewed interest in investing in technology to increase efficiency and enhance the customer experience. In doing so, more and more companies either built their own technology or acquired tech products.

 

The momentum gathered in fintech has set the stage for forthcoming startups in the insurance space. However, these businesses are faced with a great deal of pushback from insurance companies since they are perceived as competitors rather than enablers. For Mena-based incumbents, buying a legacy or a large, monolithic system tends to be a safer option than dealing with smaller entities.

 

The increased risk appetite of insurance companies can be, in part, the reason why the insurtech space is still in the very early stages of evolution. The lack of proper tech adoption in the insurance sector led UAE-based entrepreneur Saif AlJaibeji to start his own SaaS startup, Sehteq, focusing on health insurance which was acquired by Cloud Kair in October 2021. 

 

“Insurance companies invest as little as two per cent of their revenues in technology. Meanwhile, banks, for example, spend seven per cent on technology. That’s why you see people using banking apps but not insurance apps,” he explains.

 

AlJaibeji, who currently serves as the chief government and development officer at UAE-based national health and insurance company Daman, emphasizes the widening gap between insurance companies and insurtechs.

 

“If an entrepreneur approaches an incumbent with an idea for a good solution or product, the answer they most likely would receive is: 'Go talk to the IT head,” says AlJaibeji. “As entrepreneurs, we should work with sales, customer service, and underwriters. But, there’s a huge divide playing out even in the language that entrepreneurs use, which is different from the one that senior management and executives of insurance companies use."

 

For the ecosystem to evolve, a corporate-startup reconciliation must be realised to carry the momentum forward, AlJaibeji argues. Meanwhile, Zohair Ali, former director of key accounts and operations at MIC Global, argues that the reluctance of insurance companies to deal with smaller tech companies is largely down to the fact that the entire sector is going through a “transformative phase”.

 

“There’s a lot of inertia, and this is the whole reason why you see insurtech companies emerging. The incumbent ecosystem is slower to react, but it's not something that we're seeing for the first time. We've seen this in the banking sector and in securities brokerage services, so it's not entirely surprising. And frankly speaking, I think that this is to be expected,” he adds.

 

The level of complexity differs from one insurance segment to another. For startups, health insurance is a tough nut to crack as it is highly regulated, unlike motor insurance, which is a growing area of focus for most insurtechs in Mena. Many startups reported that it is easier for them to bundle with motor insurance companies than their counterparts in health insurance.

 

Both health and motor insurance account for the overwhelming majority of written premiums collected by insurance companies. To facilitate the creation of a collaborative ecosystem in insurance, the Mena Insurtech Association was created in 2022 by Qatar Insurance Company (QIC) with the aim to convene innovators, insurance companies, technology service providers, regulators, and investors under one umbrella. The association hosted several hackathons and competitions across Mena and other countries around the world as well.

 

Shifting tides

 

In most Arab countries, health and motor insurance are now compulsory, which has driven the growth of the overall insurance industry. Saudi Arabia and the UAE are the largest insurance markets in Mena. Saudi Arabia comes out on top in terms of the size of the written premiums at $14.1 billion, registering a 26.9 per cent growth in 2022. In the UAE, the market has grown 6.5 per cent year on year in 2022 to reach $12.8 billion.

 

Consequently, these two countries are home to the most active insurtech ecosystems in the region, but given that both countries have different insurance landscapes, the dynamics of each insurtech market differs. As the region’s largest market, Saudi Arabia is increasingly becoming the market of focus for UAE-based insurtechs. AlJaibeji argues that there is greater supply of insurtechs in the UAE compared to the demand given its small pop ulation of 11 million compared to Saud Arabia’s 35 million. 

 

“The market boasts over 50 companies and over 300 agents (distributors), and the market share of each company is not that big, which creates both a challenge and opportunity for disruptors,” AlJaibeji illustrates.

 

Among these startups is UAE-based Klaim.ai, which offers healthcare providers a solution to help them streamline the claims reimbursement process. The company plans to launch in Saudi Arabia, catering specifically to its $7 billion healthcare insurance.

 

“There are multiple players in the UAE and the market is quite saturated, so, there's a good balance of competition and room for anyone to compete. This is not the case in Saudi Arabia, where a lot of health insurance providers still operate manually,” says Ghafoor Ahmed, co-founder of Klaim.

 

Despite the market opportunity, startups targeting the Saudi health insurance market, in particular, are grappling with a unique set of hurdles related to healthcare insurance, including inflationary pressures and the subsequent rising costs of healthcare services. Given the newness of the space, insurtechs, whether local or global, might find it hard to obtain an operational licence in the country, a challenge when trying to scale.

 

“It is quite challenging to operate there. It takes a lot of time for companies to register or be licensed. There's a lot of work being done to speed up all these processes,” Ahmed adds.

 

Other examples include UAE-based travel insurtech Democrance, which unveiled plans to establish a headquarters in Saudi Arabia; YallaCompare, which started in the UAE and then expanded across the GCC; and Mainslab, a Bahraini insurtech solution provider, which also now operates in Saudi Arabia.