Why?

Bastille Day Massacre 2016

In my working life I have had the fortune of  living in 6 countries and of visiting many countries across 4 continents. .

Rubbing shoulders in multi-cultural societies can go one of two ways:

  • one can appreciate more the diversity in life. This leads to a process of personal, self-enrichment; or
  • one can approach it negatively with a, “better than the Jones'” or “holier than thou” sectarian sentiment that breeds racism and radicalism.

Focusing on the positive, when living in the Middle East, we experienced significant support from authorities, for example, when organizing Christmas and Easter festivities. We were invited into homes by Muslims during Ramadan and Eid celebrations. We celebrated Diwali and Onam with Hindus. It was very much a culture of ‘live and let live’ provided that natural laws of mutual respect prevailed.

Beneath the benevolent exterior there was, however, a ‘big brother’ regime of strict security by the authorities with a zero tolerance towards radicalism even if so called islamic miltantism (http://www.thenational.ae/uae/courts/23-on-trial-in-abu-dhabi-for-al-qaeda-links)  and (http://www.thenational.ae/uae/courts/terrorist-group-that-planned-to-bomb-uae-malls-given-life-in-prison)

It is, perhaps, this iron fist that maintained the peace and allowed society to otherwise live freely, peacefully and uninhibited. While I love Europe I sometimes feel that we are too tolerant and too politically correct for our own good.

There was also one very important consideration for expatriates to keep in mind in the Middle East. None of us were there on a perpetual basis.  It was understood that we were all there on renewable residence visas. Even people who own property in, for example Dubai are on renewable residence visas.

It was made amply clear that we were guests. We therefore had to behave like guests and had rights and duties of guests and not of nationals in the various Middle East countries. This is a very important consideration that cannot in any way be under-stated. Some of those who ignored this through their actions (e.g. drunk and disorderly offences, driving under the influence, strong signs of physical affection or nudity in public etc.) resulted in incarceration and deportation. The policy was invariably one of zero-tolerance.

As a European I belong in Europe and I feel that I can live much more freely in Europe. But somehow, somewhere we seem to be getting it wrong. I am all in favour of an openly diverse society governed by mutual respect. Unfortunately not all people are people of goodwill.

Last year a Maltese newspaper ran an article about a runaway debtor living it off in Dubai ( http://www.timesofmalta.com/articles/view/20150215/local/runaway-boss-ryan-schembri-in-dubai.556066) . Similarly in Malta, the Times reported on a money for passports scam (http://www.timesofmalta.com/articles/view/20150819/local/sammut-charged-with-residency-permit-scam.581125). Other European countries have similar schemes. The sad reality is that it is not the refugee or so called illegal immigrant that affords these schemes. It is people with money that afford to finance their foreign residency. And while not all people with money have accrued this illicitly, some of them have and if their gravy train stopped serving them in post-Qaddafi Libya or post-Mubarak Egypt or Post-Saddam Iraq, they need to park their illicit gains somewhere. They need to start a new life elsewhere.

How effective have we been in Europe in weeding these specific individuals out? Or have we accepted them (and their money) with open arms?  I cannot understand why we have been so openly liberal with the granting of residence, citizenship, freedom of movement and passports within Europe.

Terrorism is an expensive business. Refugees (or the pawns who blow themselves up for the cause) do not afford it. Terrorism is run by people with money. Terrorism is backed by people with money; people with a lot of money.

Terrorism is also often dependent on weapons. There aren’t too many arms manufacturers and dealers globally. These are also known to authorities.

Any war front is only as effective as the logistical support behind it. Severing the logistics and finance lines kills the war effort.

Is it that impossible to weed out the network of money  and arms feeding terrorism?

As a Christian I stress, “Let us stop blaming Islam. Islam is a peaceful religion as is Christianity”. Peaceful Muslim European citizens also suffer from repercussions of so called Islamic terrorism in Europe. If IS terrorism were truly Islamic why would they try to bomb a holy shrine in Medina?

As a secular European I stress, “Let us stop putting a religious label on terrorism and call it what it is, i.e. a crime universally against humanity. Let us stop focusing on the chessboard pawns and instead focus on derailing the gravy train.”

There is only one queen per chess set. She wields the power and calls the shots in the name of a seemingly impotent king. How hard is it to kill her? Why are we seemingly perpetually paralyzed in a stalement position?

 

 

 

 

 

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Missing the Cue? Compulsory Health Insurance in Dubai


Compulsory Medical Insurance: Talk of the Town

The compulsory health insurance initiative in the Dubai is currently the talk of the town. And, this is not without reason. The concept of having medical insurance widely available to all Dubai residents and their dependents, at the expense of one’s employer, ensures access to at least a basic level of healthcare to all.

Needless to say, there are other reasons, in addition to the above, behind the compulsory medical insurance motive. For example, as residents increase the medical cost burden on state coffers also increases. The introduction of a cost notion – even if nominal – in principle should reduce frivolous spending or wastage. Empirical evidence from Abu Dhabi, a precursor in compulsory health insurance, suggests that medical providers (i.e. hospitals and clinics) are generally one step ahead of the game and therefore it is unlikely that spending – even proportionately – will not reduce.

The Dubai Health Authority has put significant efforts into this project which is years in the making. Needless to say, their efforts are to be lauded. The end result of their fieldwork can be summed up into the following main deliverables:

  1. A list of just over 40 insurers authorized as Health Insurance Providers (HIP). These insurers are authorized to sell enhanced medical insurance products to Dubai residents. By ‘Enhanced’ DHA means any product that is not targeted for residents below a certain salary threshold, say AED 4,000. Among these there is also a much smaller list of  insurers who have also been selected to provide the ‘Basic’ product. By “Basic” product. These insurers are known as the PI panel;
  2. A “Basic” product which would be available through the PI panel consisting of a pre-agreed table of benefits with a restricted local network, subject to significant coinsurance deductibles and with a fixed price range of, say, between AED 500 and AED 700 per person per annum. There is some possibility of marginal movement on this pricing. The Dubai Health Authority is, to date, signalling that the client demographic earning less than the predetermined threshold can only be serviced by the PI panel even if their employer wishes to purchase enhanced insurance for his employees. Although from an actuarial perspective this may seem to make sense in order to ‘preserve the pool’, from an economic and commercial perspective it does not. In addition, this move will also introduce protectionist practices into an a free market of insurers that has – to date – efficiently delivered on its promises in medical insurance within Dubai.

It is evident that the project involved significant number crunching with the help of actuaries to arrive at the model from which demographics, benefits, claims and pricing are being inferred. However, financial modelling suggests (i.e. 9/11, New Orleans hurricanes, New Zealand earthquakes, SARs in Asia etc.) that numbers draw justification only in hindsight. Unless significant economic thought goes into the process of relying on numbers, Dubai will later be faced with significant ‘re-calibration’ and adjustment while, in the meantime, the UAE insurance industry (and also, to some extent, the intended beneficiaries) would be the victims.

Economic Behaviour

Economic behaviour suggests that any commodity (and the basic medical plan is a commodity) will always have various determinants of demand. Admittedly, the strongest among them is price. But this is not the only one. There will be consumers who will purchase enhanced products for their staff (irrespective of their salary) and there will be consumers who will purchase the essential product even if they earn more than AED 4,000 a month.

Therefore DHA’s restriction on from whom buyers can buy enhanced insurance plans will not substantially regulate buyer behaviour. There is sufficient empirical evidence from previous command economies, for example, the former Eastern Bloc in Europe, suggesting that central authority may marginally influence but not significantly direct consumer behaviour. The main result of this will be to stifle competition and increase market aggression. Why? Competition is made up of:

  •  Ease of entry / exit to the market: Insurers with a PI status are being given a ‘preferred (or greater ease of)’ entry to the consumers. This can be a more important factor than pricing especially since time is always of the essence and insurance is becoming driven more by legal compulsion rather than consumer discretion (this is inevitable since medical insurance is becoming compulsory);
  • Consumer knowledge of the market / product: With PI panel being a ‘definite’ point of contact and HIP being a ‘maybe’, consumer knowledge will  inevitably be skewed in favour of PI insurers even for enhanced products;
  • Government acting as a ‘hands off’ regulator: By mandating who customers go to, DHA is overstepping the boundaries of market regulator and becoming more of a demand ‘gate-keeper’. This may be DHA’s intention but respectfully, when it ‘directs demand’ then by default it stifles competition.

Therefore, even the ‘Insurance Pool’ of consumers that is being labelled as the larger (enhanced) pool will, because of the above, be pushed towards the smaller PI panel of insurers.

Restricting the insurance pool: Does it make economic sense?  

One of DHA’s stated objectives is to reduce the pool in order to maintain economic sustainability. In theory this sounds good but in practice it does not work like that because:

  • Whether HIP or PI, most of these insurers are going back to the same third party administrators all of whom have been selected as part of the 7 PI successful applications. For the basic plan in particular, whether PI or HIP, most claims would be handled entirely by the TPAs with very little interaction by the insurer. Therefore whether a plan is managed by a PI or HIP is really of no consequence at the end of the day and does nothing to support the pool concept.
  • Irrespective whether an insurer is a HIP or PI, the reinsurance security behind them goes back to the same pool of international reinsurers active in the region. Therefore, the quality of their ultimate capacity, whether a PI or HIP is also the same.
  •  There are already on-going discussions between PI and HIP insurers to ‘share’ existing basic business of HIP insurers. Therefore, it is already clear that this objective is not going to be realized although on the face of it DHA would be lead to believe that they have. In short, DHA are not going to have a large pool with few players, DHA is going to have a large pseudo pool made up of the current smaller / fragmented pools.

The Principle of Insurance?

A smaller panel of insurers also goes against the objective of long, term economic sustainability. A smaller panel means that if one reinsurer who is currently backing, say, two PI insurers deciding to exit the market, this would result in almost 30% withdrawal of reinsurance capacity (which would be a risky upheaval). But the same scenario of the same reinsurer backing say 5 (not 2) of the HIP panel, withdrawing would result in a 10% withdrawal of overall capacity.

The larger your pool the less dependency a market would have on a single player and, consequently, the less volatility the market would have on pricing and availability. For example, the failure of ONIC (the largest insurer in Oman until some ten years ago) created a substantial vacuum until other insurers filled that gap. This was in a market and at a time where insurance activity was significantly lower than what we are currently experiencing in UAE thanks to its overall economic development. The withdrawal of one reinsurer (or insurer) from the PI pool is a significant risk as long as the pool remains concentrated.

Conclusion

Consultation and consensus are the foundation stones of long term socio-economic sustainable growth. There are still a few months to go until the first wave of compulsory health insurance implementation. There is still time for much needed fine tuning from which all parties would benefit. We are currently at a stage where an employer, by virtue of the various regulation, may need three or four types of medical insurance cover for his, one, work-force i.e. a basic policy for low salary earners, an enhanced policy for the higher salary earners (or an enhanced policy for the low salary earners but specifically purchased from the restricted PI panel) plus a separate policy for their employees resident in Abu Dhabi because these fall under a separate set of regulations. DHA and HAAD have not, to date, agreed on mutual accreditation of their schemes for the benefit of pan-UAE employers.

If I were an employer I would probably opt for the path of least resistance, i.e. one policy with one insurance provider who is Abu Dhabi (HAAD) and Dubai (DHA) accredited and also on the Dubai restricted PI panel. Oops, the already restricted panel has suddenly become even smaller. How is this imposition on consumer choice possibly to the benefit of the employer and their employees? What happened to free market competition where the health authority regulates health providers and the insurance authority regulates insurance?

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A Chartered Insurance Practitioner by profession James Portelli has spent the last 15 years of his almost 25 year insurance career in the Middle East. He is currently the General Manager of publicly listed insurance company in the UAE.  James has been described in the Top 50 MENA Insurance Power list as, “Portelli’s incisive and thought provoking analysis is exactly the type of thinking needed by the Mena Insurance Industry, if it is to continuing innovating.”

Views expressed are his own.

[www.insuranceguild.wordpress.com]

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Embracing the Challenge

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Insurance Climate Globally

The MultaQa Insurance Rendezvous, quoting Swiss Re reports, summarized the global general insurance market as follows:

  1. Global general insurance penetration is dropping.
  2. Profitability is challenged both due to thin rates and also the sluggish investment market.
  3. Average return on equity of 7% in 2013.

Within this global environment, the annual general meeting of United Insurance Company PSC, signaled that the company is embracing this challenge with resilience and optimism.

United Insurance Company PSC Performance & Outlook

The primary aim of this piece is to thank all those who contributed and continue to contribute to an enriching experience for our customers, staff, reinsurers and stakeholders at United Insurance Company PSC. A technical snapshot of the company at the end of 2013 reveals the following:

a)    Current assets of the company grew by 37%. Within these, insurance and reinsurance assets grew by 17% signifying increased insurance and reinsurance activity;

b)    Shareholders’ equity also grew by 19%;

c)    The increased level of insurance activity in 2013 saw an increase in unearned premium reserves at the end of the year of 35%. These will be released as earned premiums in 2014. In addition to this gross insurance revenue still increased by 30% in 2013 and continues to increase in 2014 on a year to date basis at more than 50%;

d)    Despite the reinstatement of certain claims and IBNR reserves, the impact of gross and net claims on the 2013 P&L was less than proportionate;

e)    The net result from last year’s activity was a net profit of AED 8.4m compared to a loss of AED 22m in 2012 resulting in earnings per share improving from a negative 0.22 to a positive 0.08; i.e. a higher than aggregate return to equity when compared to international markets.

The above are facts that meet the eye when one goes through the audited financials. However, behind these, there are other very positive factors that underline this progress. Around 1,000 participant-hours of training to staff and brokers was delivered in 2013. Qualified staff throughout the echelons of the company increased. Around 10% of staff now hold CII qualifications and around 20% are pursuing CII accredited training.

At a time when secondary quality reinsurance capacity is increasing in the region, United’s treaties are lead by the topmost layer of the top tier global reinsurers, i.e. Swiss Re, Munich Re and Allianz. Following is equally strong by internationally accepted investment grade reinsurance securities. At United we have also started the interactive process to be rated by S&P and will be announcing our credit rating before the end of Q2-2014.

The objective in 2014 is not to do different things; but to do things differently. Our appetite remains in line with our profile, i.e. one of the oldest, albeit small, UAE insurance companies focusing on the needs of personal, SME and smaller corporate clients, slowly growing into the larger corporate and industrial sector. We employ just over 100 dedicated employees, operating from around 10 premises (with licenses for all emirates), serving 50 brokers and having paid over AED 100 in claims in 2013 with our focus singularly on the client.

Thank you.

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2012: Three Gems and an Indomitable Spirit

23 years (or 30 kgs) ago today.

23 years [or 30 kgs] ago today :)  

When penning the first words for this piece in 2011 I christened it ‘To Hell and Back’. The reasons for this are self-explanatory as one reads through it. However, time flew and I found myself finishing off this piece now, towards the end of 2012. The perspective of time dictated another name for this piece focusing on the indomitable spirit.

 

In almost 15 years of living in four out of the six GCC countries and travelling extensively in Western and Central Europe, North Africa, the Middle East and elsewhere in Asia I have had to learn not only to adjust pre-conceived notions and innate prejudices that are probably the product of an essentially insular small island culture but have also learnt never to take anything at face value and anyone fore-granted.

 

When applying for my driving license in one of the GCC states I was once greeted with the question by one of the officers on duty, “What (not where) is Malta?” I felt like laying bare my nationalistic pride and giving the person and an hours’ long lecture on the 7,000 history and heritage of a small island that is unmatched even my some of the present-day economic or political super powers. Instead I told myself, “What the hell? Will it make any difference? This is very important to me, but is it to him? How much of it would sink in anyway?” I hasten to add, so as not to be accused of xenophobia, I had quasi-similar questions even from some Western expatriates. So, I guess, the truth of the matter lies somewhere between the fact that Malta can sometimes be overlooked because of its size and that there are, even in this age of digital connectivity, pockets of significant ignorance among the population of our global village. The island nation may be of biblical significance (Acts of the Apostles) and, from Ptolomy’s maps, may even have been the mythical Atlantis. It may have had a strategic role in old world politics from Caesar’s Mare Nostrum to the rebuttal of Mussolini’s notion of Mare Nostrum and we certainly rise to the occasion in world politics when others need a helping hand (the evacuation of tens of thousands of expatriates from Libya during the armed conflict is a case in point with Malta rushing in where angels feared to tread). But, independently of my nationalistic pride, the truth of the matter is that Malta is a small island and in the larger scheme of things it means nothing to many.

 

While my expatriate life, overall since 1998, has been a very pleasant experience, sometime in 2011 I managed to dig myself into a hole and for about a year this period probably encapsulates the trough of my expatriate experience. It all started earlier, in 2010, when for no official reason I was emarginated at work. As head of risk and compliance I was a thorn in the flesh. Stories of alleged bribery and corruption that surfaced in 2012 in court and in the press and similar venial and not so venial sins suggest that my trying to pursue the straight and narrow was the reason for my horizontal promotion and persecution. But I soon learnt that, when leaving the kingdom of the Pharaohs one had to journey through desert to the reach the promised land. It is also probably true that the desert’s stay is as long as one makes it.

Life is a combination of people we meet and experiences that we go through. In 2011 I seemed to have mostly experienced a concentration of the motley crew largely prostituting themsevles in their pursuit to paradoxically serve self or worship the greenback. If the word mercenary previously evoked images of Swiss Guards in their colourful (if not comical) outfit; it is now distastefully synonymous with a breed of crass expat I rubbed shoulders with in the 2011 boondocks. Of course, everywhere has its good, bad and ugly. But, somehow, in my recent past experience, the bad and the ugly were conspicuously present whether in the male form of monsters, mignons and their stooges or the female Al Waab Wannabe or Pearl Pretense version that have largely off-staged Jumeirah Jane and Mirdif Mary. This may not have been the experience of others and I respect that … but it has been mine. It is also not to say that there weren’t some friends, local or expatriate, along the way that made life bearable. But there were very few of these even if the term is loosely used.

Settling back in Dubai in 2012 was like returning to an oasis after experiencing the desert with all its harshness. It was also the beginning of an end; commencing the last chapter and carefully unwrapping a detailed design to burn a bridge without leaving collateral damage in the process. I am not one to burn bridges. I have had friends in every country I lived in, worked in or visited. I enjoy meeting or corresponding with them even ten, fifteen or twenty years after befriending them. This will be an exception. This bridge will burn. The emotional and psychological baggage associated with it is too heavy to continue to bear. It will be a closed book gathering dust or, better still, a dead corpse that did not show respect when alive now buried in an unmarked and forgotten grave. Following in Tariq Ibn Ziyad’s footsteps, even the vessels bringing me to port will eventually be disposed of saving only the merchandize necessary for sustenance.

Life can be a bed of roses, thorns and all, wherever we are. But l actually subsequently embraced daily frustrations elsewhere knowing that they dimmed in comparison to the 2011 exasperation.

Dido’s white flag is no longer a battle cry; I did not go down with this ship. Rather, I brought the ship safely to port. No casualties …. All on board survived. Maybe some are bruised (I certainly was badly bruised) but none beaten.

In Pink’s words, “I took a wrong turn … (but) dug my way out with blood and fire.” Would I trade the scars I received for the lessons that I learnt? The price of the exit journey was high. I paid it; but only because I perceived the value of what followed to be higher.

Adversity sometimes brings out the best in people. In my case I attribute the stoic resilience seeing me through to by three gems:

  1. One of these gems is undoubtedly my upbringing in a home with strong values in a town that was otherwise the island’s red light district. I had school mates who graduated to be pimps, prostitutes and drug dealers or other who have taken up residence in the country’s jail or who succumbed to the substance. And yet, a strong home meant we flourished in the midst of adversity.
  2. Another gem is the love and support I have from my soul mate and our children. They bestow on me a trust that is as blind as the love we share. What hasn’t killed us made us stronger and more in love. 23 years on, our bond is what nourishes us.
  3. The third, and by no means the least, is the innate faith driven by Paul’s premise (Romans 8:28) that there is a reason and a season for all things.

 

Three gems ….. and an indomitable spirit.

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2012’s soothsayer

How I wish that the end of year results would prove me wrong because that would mean that insurance companies in the United Arab Emirates performed better than expected.

I had lunch with a chief underwriting officer of one of the local ‘A’ rated insurance companies in UAE recently and, inevitably, our conversation focused mainly on the performance of certain companies as we approach the end of 2012.

Previously I have alluded to 2012 being the year of reckoning for the UAE insurance industry for a number of reasons, one being that once the investment crisis softens industry leaders would not have a crisis to blame for their relatively poor results.

Another reason is that some hardening in the real competitive arena of this market (the reinsurers behind local capacity) would adversely affect results that are largely reinsurance commission dependent.

A cursory look at the half-year results of around 30 conventional and Takaful companies active in the UAE immediately reveals that almost half of them suffered a drop in their net earned premium, an increase in their net incurred claims, a drop in their net underwriting income and/or a drop in their net profit.

These statistics are even more pronounced because four out of the five top companies in the UAE – controlling over 60% of premium income – all suffered an increase in net incurred claims and deterioration in their net underwriting result and net profit.

The one company, out of the top five, that didn’t continues to follow a philosophy of ‘If safe is good although safe is boring, then boring is good.’

Despite its equity it continues to cede proportionately more to reinsurers as they grow with the boring and unspectacular consistency of a postman on the beat.

From information available, some of the companies that do not publish results have not fared much better either. So, all are more or less in the same boat.

The prevailing technical results, the continued reliance on reinsurance (not only for capacity but for expertise and pricing) and the general all-round mediocre service expose a perennial problem that the market continues to turn a blind eye to. There is an acute shortage of talent in the market at all echelons.

This impinges not only on the technical capabilities and horizons of a company but on the more seminal issues of governance and principle-driven behaviour that should be led more by the spirit than the letter of the law.

The few companies that have a compliance function in place have one that is subservient to legal or management.

Although incumbents would perhaps vehemently disagree, there is a shortage of technical talent even at chief executive or general management level.

A major stakeholder in one of the local UAE companies recently succinctly described this as an “inverted funnel vision” wherein some, even senior insurance practitioners, frustratingly would not recognise an opportunity if it looked them in the eye if this required them to think outside the box.

It all boils down to lack of talent, lack of talent development and an overall culture where they felt comfortable.

A pessimist may call it a market of losers. I prefer to call it a market of immense opportunity. When one has hit rock bottom the only onward direction is up.

Sadly, many continue to languish lethargically in their status quo when the regional market has started to pick up again after the economic crisis. It is not rocket science that the UAE insurance market needs a different frame of mind. But how many acknowledge this? And who should be driving it?

If 2012 has exposed losers among the insurance companies, it has also exposed the regulatory authority’s continued procrastination as a contributing factor to the current state of the market.

One, of course, cannot blame it all on the regulator; but much needs to be done at regulatory and supervisory authority to harness an energy that is currently all revved up with many places to go but can’t somehow get into gear.

The biggest loser in all this is, sadly, the client. As we quibble over Directive 2 and the new draft broker legislation, other more important areas of consumer protection, such as adequacy of reserving, solvency testing, segregation of short-term from long-term reserving and the much needed technical supervision of insurance companies and brokers, transparency in pricing all remain in abeyance.

The journey is not for the faint hearted. Who will take the first step?

Posted in ERM, Governance, Insurance, Middle East | 1 Comment

Spoken in Jest? All true

I recently contacted a few regional ‘A’ rated insurance companies, in preparation for a corporate governance article, to get sound-bites from chief executives or managing directors on the drivers of corporate governance in our industry in the United Arab Emirates.

I soon gave up after learning from the horse’s mouth that there are publicly listed, A-rated insurance companies in the region that do not even have a compliance officer. Had I held my breath waiting for replies I would have died of asphyxiation.

Out of the three ‘A’ rated UAE insurance companies, one does not have a compliance officer, while a second has the compliance function hijacked by legal. However, the third does seem to have a compliance function in place. All are publicly listed and it is a securities and commodities authority requirement for public listed companies to have compliance function in place.

Is it a case of one out of three isn’t bad, or should regulators be taking a closer look at how insurers conduct their business in this market? These are, after all, the largest three companies in the market commanding around 40% of all UAE business.

Loaded questions

I attended September’s Compliance Connect Seminar and, while listening to David Cafferty, senior compliance advisory specialist at Clyde & Co, two loaded questions about insurance companies caught my attention. Is compliance over-ruled by legal? And is compliance over-ruled by management?

In a nutshell these two questions embody fundamental challenges that corporate governance faces universally and even more so in a region where the corporate governance culture is still in the relatively early stages of development.

Setting the tone

We are so used to hearing repeatedly that the tone needs to be set from the top, that management needs to drive change and so on.

To borrow perhaps a very harsh expression, many compliance functions are ‘fatigued with indolence’, trapped between a revenue hungry senior management and a politically correct legal function playing dodge ball.

While most of the clichés we hear may be true, neither senior management nor legal nor indeed the regulators are single-handedly responsible for corporate governance.

It is culture that drives corporate governance, and culture, by implication, emanates collective behaviour across the market.

Controlling the purse strings

Can one imagine a world where chemists dictate the order of the day for doctors, instructing them how to conduct their profession and controlling their purse strings?

In parallel with the medical profession, insurers, like chemists, sell products available on their shelves, or ones they can concoct from the capacity available to them. They do not generally carry professional liability insurance for the products that they provide.

Professionally liable

Brokers, in contrast, are like the doctors in the equation. They primarily provide independent advice and not products. They are also professionally liable for wrongful advice, hence professional indemnity insurance being a legal requisite.

I can illustrate the above from a recent incident I experienced. Called in to examine the policies of a potential client insuring close to €50m of stocks on the instructions of his clients I quickly realised that, by virtue of the marine clause under a standard property all risks policy wording, the client had virtually no cover.

No amendments

I queried this with the insurance company on the basis that it had happily received hundreds of thousands of euros in premium over a number of years from the client.

Their reply was simple and direct: “The client did not ask for any special amendments or qualification to the policy and we supplied a standard policy.” Needless to say the incident earned me a letter of authority.

If so much professional responsibility rests on the shoulders of brokers, why do they not seem to have a voice in the UAE insurance industry? Why is it that insurers seem to have a stronger voice when it comes to the implementation of legislation?

If consumer protection is paramount and it is the broker that is the agent of the insured, shouldn’t brokers be a respected voice at regulatory level?

Changes afoot

Changes are happening, perhaps because there is a new director general on board. But much still needs to be done.

Brokers’ views have been requested and received by the authority in anticipation of the new draft broker legislation. This is certainly a very significant and positive step. But several articles need substantial amendments. To what extent will the voice of brokers be heard in this respect?

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David vs. Goliath

On 24 August AM Best changed Oman Insurance Co’s ‘A’ (Excellent) rating from negative to stable and evoked a personal, positive sentiment.

This is perhaps the closest a whistle-blower can get to a ‘reward’ for upholding professionalism even at personal sacrifice.

As many of you know, credit rating criteria is a subject close to my heart and I have written about this before (Rated or not rated? What is the question?).
Oman Insurance’s board of directors has been bold enough to bite the bullet, resulting in wholesale changes in management echelons which should slowly but surely reflect in its strategy as well as its performance.

Old guard The concern that remains is that this is one company out of many that is still run by the ‘old guard’. Of course, in the spirit of the Arab Spring, it is easy to say: ‘Off with their heads.’ But are there enough new brooms in the market for a clean sweep?

One of the refreshing, albeit underlying, facts reading between the lines of the news piece is that AM Best does not seem to have struggled to elicit the information it needed.
Clear transparency There is now an air of significant transparency – a credit analyst’s Utopia – on the part of this company.

The same cannot be said when reading through similar reports for other companies in the region or, indeed, earlier reports of the same company.

One of the unstated but major considerations holding back certain ratings is the number of questions that either remain in analysts’ minds after exiting a credit review meeting with their clients, or that arise during such meetings but remain unanswered.

Gathering dust Although a lot of mathematics goes into rating reviews, the result has to reflect ethics as much as it does mathematics.

Sound corporate governance and risk management is embedded in all rating criteria, whether technical, financial, managerial, strategy or investment related.

One can write volumes in procedure manuals on corporate governance and enterprise risk management and, sadly, allow them to gather dust on a shelf somewhere in the company in between annual credit review meetings.

Some of the insurance companies in the region approach the annual, or biannual, credit rating review in the same way that a would-be bride and groom prepare for the big day – by engaging a wedding consultant but not a marriage counsellor.

Collective behaviour Corporate governance and risk management are all about internal culture and discipline. They are the mettle of the professional, engrained in one’s psyche.

The collective behaviour of professionals then creates the culture of sound corporate governance and risk management practice.

The opacity with which several insurance companies in the region run their affairs, the occasional wholesale management change in some, results eating into equity with others and the uneven playing field that some companies endeavour to maintain, all suggest that a culture of professionalism and sound corporate governance still needs to emerge in some of the Gulf Cooperation Council insurance markets, particularly in United Arab Emirates, the largest of these markets in the number of players.

Change and greater professionalism would need to come from within. Legislation and supervision will help, but these would only be the pebbles in David’s sling.

The champions of change, the Davids in the equation, would need to be you and me and every other Joe Bloggs working in and for the industry.

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