The long-awaited introduction of compulsory medical insurance in Dubai took effect in September 2014, through the first stages of a phased implementation that will bring universal health coverage to all the emirate’s residents by 2016. The plan, which was approved by the government in late 2013, is expected to create new opportunities for insurers, though price competition and thin project margins may be on the cards due to crowding in the UAE market. For the broader market, a jump in the overall penetration rate of insurance can be expected.
Early returns suggest that some of the companies impacted by the regulation initially failed to adhere to the new rules, though compliance increased as they realised that insurance was a pre-requisite to renewing workers’ visa. Furthermore, failure to comply may draw fines of up to Dh500,000 ($136,100).
Following In The Footstpes
Abu Dhabi, where medical coverage was made mandatory in 2009, provides a helpful roadmap for what can be expected in the segment in the coming years. Growth there started from a low base, but was nonetheless significant, with premiums in the life insurance segment, which comprises medical lines, increasing by 23% in each of the two years following implementation.
Before medical insurance was made compulsory, an estimated 30% of Dubai residents had medical insurance, according to SHUAA, a local financial services firm. This number is expected to rise significantly after implementation is completed in 2016. Indeed, the Dubai health insurance market is forecast to grow from 1.5m to 4m covered individuals by 2016, with 2.5m new policies expected in that time, according to market research from Takaful Emarat.
The law’s key change is to oblige companies to provide coverage for their workers, and in the first stage of implementation companies with more than 1000 workers were to have coverage in place by the end of October 2014. In phase two, those with between 100 and 1000 employees have a July 31, 2015 deadline, with all others to be covered by June 30, 2016. While the law encourages employers to extend benefits to employees’ families and deduct the cost from their pay, it does not mandate it. In the absence of such an arrangement, workers must purchase coverage for spouses and dependents by June 30, 2016. Meanwhile, Emiratis working in the public sector will continue to be insured by the government’s scheme, called Enaya, while Emiratis working in the private sector can choose coverage from their employer or through Enaya, according to SHUAA.
“With fewer than 130 companies in Dubai falling into the category of over 1000 employees, the first phase of compulsory health care insurance adoption does not represent the largest segment of clients,” Andrew Smith, CEO of RAK Insurance, told OBG. “The major emphasis among the participating insurers is the second and third phase of implementation during 2015 and 2016, respectively.”
Understanding The Numbers
For low-income residents – those earning Dh4000 ($1089) or less per month – the law provides an option called the Essential Benefits Plan (EBP). Costs and coverage levels are regulated by the Dubai Health Authority (DHA), with the price for 2014 set between Dh500 ($136) and Dh700 ($191), though it is expected to stabilise at around Dh600 ($163). Coverage at this level includes emergency services, a primary care physician, referrals to specialists, testing services, surgical procedures and maternity care, according to a report from the international broker Marsh. Regulations are also envisioned for plans at higher price points, to avoid both price wars that could be damaging to insurers and excessive annual increases.
Insurers wishing to extend coverage at this level must apply to the DHA to do so, specifying the rate they will charge, and cannot deviate from that price by more than Dh25 ($6.81). Insurers have the option to participate, and those that opt to must submit a new rate to the DHA each September for the following calendar year. As of April 2014, 43 of the UAE’s 60 insurers had qualified, according to the DHA.
While the Insurance Authority remains the country’s primary regulator, the DHA has established standards specific to medical insurance. Holding this responsibility since January 2013, it has since identified medical inflation as a primary concern. The DHA has also intervened in past tariff disputes between insurers and health providers. Fraud remains a key regulatory concern, and electronic prescription and claims systems are expected to help reduce bogus claims, according to the report from Marsh.
Market strategies are likely to differ for the seven insurers that qualified specifically as EBP providers, with some planning to profit from high volumes and low margins, while others are looking to serve a smaller niche. RAK Insurance, for example, told OBG it aims to add 60,000 to 70,000 customers initially, and perhaps increasing to 100,000 from there. According to predictions from RAK Insurance executives, one or two of the original seven providers may choose not to continue, though more would probably join, with the number of EBP-qualified insurers expected to reach 10-12. However, the DHA will likely have influence over these developments.
The rapidly rising cost of care is one of several factors eating away at the potential profitability of medical coverage. As the sector matures it is expected to reach profitability rates similar to those of vehicle policies – the other major mandatory coverage in the country. Profits remain low at present because insurers are competing on price; however, this is less of a concern when investment accounts provide the bulk of insurers’ bottom-line profits, and significant returns – in particular from equity investments – have at times obscured the difficulty of generating earnings solely from the core underwriting business. Higher pharmaceutical spending is expected as a result of the changes, in addition to greater usage of clinics and hospitals. One wildcard, according to Takaful Emarat, is the 20% co-payment, which could become a significant deterrent. Where workers will seek treatment is another unknown, with Takaful Emarat projecting a possible surge in attendance at low-price-point clinics.
Two of Dubai’s medical services providers are listed on the London Stock Exchange: NMC Health and Al Noor. According to market research from SHUAA, “NMC offers investors the be st means of gaining exposure to the expected expansion of the health care market in Dubai.” The company currently own two hospitals and one clinic, with another facility – DIP Hospital – scheduled to open and set to serve wealthy clientele, thanks to its location near higher-income residential developments. The other two – NMC Specialty Dubai and Dubai General Hospital – target lower-income segments. Over the longer term, the expanding market is expected to stimulate new investment in hospitals, clinics, diagnostics facilities and other health care sector infrastructure.
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