Both of the global insurer’s main wings in the Middle East – Zurich International Life and Zurich Insurance Company – have identified MENA as a key region for growth. Like other fast growing regions, insurance in MENA is underdeveloped but growing quickly on the back of rising wealth.
Levels of insurance penetration in the MENA region, measured as total premiums as a percentage of GDP, are among the lowest in the world, research from reinsurer Swiss Re shows. For instance, although the UAE has one of the highest insurance rates in the MENA region at 2 per cent, this is comparatively low versus penetration rates in Singapore (6 per cent), Hong Kong (12 per cent) and the United Kingdom (12 per cent).
“The MENA region is still an insurance market in its infancy and we have barely scratched the surface in terms of the opportunity that we all have,” says Mohamed Choksi, CFO, Zurich Insurance Middle East. “We could double or even triple premium growth and we would still not come anywhere close to reaching the full potential of the market.”
To realise this opportunity, Zurich has invested in expanding the presence of its international life business, which has been in the region for more than 25 years. The group has also entered the region’s general insurance market with the acquisition in 2010 of Lebanese insurer, Compagnie Libanaise D’Assurance.
Hub and spokes
Zurich has had to overcome several challenges on its road to growth in the Middle East including finding ways to service the region’s unique customer base, adapting to local payment systems and developing an operating structure that complies with regulations but allows the insurer to pursue its strategy.
“We realised quickly when we came to the Middle East that we couldn’t operate in each country separately as we often do elsewhere,” says Choksi. “The Zurich approach of providing a consistent service to customers, be they in Bahrain, Qatar or the UAE, wouldn’t work if we operated at a country level.”
By operating from a main hub in the UAE with spoke operations in other MENA countries, Zurich is able to get closer to its aim of 100 per cent ownership of its business – something which is not possible in several countries – and thus the consistent customer service it desires.
Unique customer base
This unique customer base combining extensive expatriate populations hopping from one market to another, local populations growing in wealth, and international trading businesses, posed payment and cash collections challenges for the insurer.
“We tend to have US dollar and local currency transactions, but we also have international clients with Middle Eastern operations. I could have an Indian conglomerate who wants to transact with me in rupees, and I could work with a Geneva-based company) in Swiss francs,” Choksi says.
Cheques remain the dominant form of non-cash payment in the region but several states wish to encourage personal electronic payments. The UAE launched its new Direct Debit System in October 2013 and the platform is now bedding down as consumers, banks and businesses become connected to the network.
“The UAE is encouraging personal electronic payments but in Kuwait we wouldn’t be able to function if we didn’t accept cash. Other countries in the GCC range along that spectrum,” says Choksi.
Paper meets paperless
When Zurich sought out banks to manage its payments and cash management, HSBC was a natural choice. The bank and the insurer work together in many different global markets and the pair had signed an exclusive 10-year agreement for HSBC to distribute personal and commercial general insurance products in the UAE.
“The majority of personal general insurance customers in the UAE and other Gulf markets are expats, who like to buy insurance from brand names they are familiar with,” says Kashif Rauf, Senior Sales Manager for FI Payments and Clearing at HSBC Bank Middle East. “They’re investing in homes, boats and cars which are financed by banks so this makes banking a natural platform to provide insurance.”
HSBC provides payments and receivables solutions to both Zurich businesses in the key markets of UAE, Bahrain, Oman, Qatar, Kuwait and Lebanon. In Saudi Arabia, services are provided by HSBC subsidiary Saudi British Bank.
Zurich uses HSBC’s online and mobile platform, HSBCnet to make international and domestic high value payments, and low-value bulk payments for salaries and expenses. The system allows Zurich staff to instantly determine their cash positions and control payment flows from a single point.
On the receivables side HSBC manages a paper-based cheque collection on Zurich’s behalf in the UAE. The bank collects physical paper cheques, provides reconciliation services and adds several days of liquidity ahead of formal clearance.
As a correspondent bank, HSBC also manages inward flows in a variety of currencies for Zurich received from expats holding policies based in the UAE who have moved elsewhere in the region such as Bahrain, Qatar and Oman.
Preparing for the future
A central part of HSBC’s solution for Zurich is being future-ready, as electronic payments begin to supplant cheques.
“A key feature of HSBCnet is that now that direct debits have gone live in UAE, they are able to use the same platform to monitor incoming receipts without installing new software,” Rauf says.
With a high-volume of monthly recurring payments from personal customers, insurers stand to make a major saving with direct debits, says Rauf, and it makes sense to get involved early with the UAE’s new system.
“Even though the system has been in planning for a while, firms are not yet well informed about the potential benefits and implementation details,” Rauf says. “We’re educating clients about the functions, and the system’s local flavour.”
Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article.