On 19 November 2020, President Ibrahim Mohamed Solih inaugurated the Maldives' first ‘beach front airport’ in HA. Hoarafushi. However, just six months later, on 14 May 2021, disaster struck - the scenic airport was flooded with water and the runway covered with sand and pieces of coral due to tidal swells caused by strong winds and heavy rain.
To make matters worse, Mohamed Rizvy, the Managing Director of the Regional Airports Company Limited, revealed that the airport, constructed at a cost of MVR212 million (USD13 million), was not insured. According to insurance industry experts, this loss could have been managed if an additional MVR1 million (USD60 thousand) had been spent on insuring the airport. This raises the question on whether the concept of insurance seems alien to the government or whether the Maldives' insurance industry is perceived as too weak.
Misconceptions about insurance and low investment in human capacity development
Key indicators on the insurance industry published by the Maldives Monetary Authority (MMA) shows a healthy industry that has been growing rapidly over the last five years, with new market players entering the market.
Between 2015 and 2020, industry assets reached almost MVR2 billion (USD122 million) with an average growth rate of 14 percent. Meanwhile, the Gross Written Premium (GWP) also grew robustly on average by nine percent (except in 2020 when it declined due to the pandemic) and stood at MVR886 million (USD57) by the end of 2020. Profitability also grew by 23 percent over the same period, and profitability ratios remained strong; with a 24 percent return on equity and eight percent return on assets.
However, despite a slight increase from 1.1 percent in 2019 to 1.5 percent in 2020, the ‘insurance penetration ratio’, (the ratio of the GWP to GDP), remained much lower compared to developed countries such as UK the (12 percent), Singapore (nine percent) and neighbours such as India (four percent), indicating huge potential for growth.
According to Ahmed Munnawar, Head of the Claims Department at Solarelle Insurance, one of the key obstacles for industry growth has been misconceptions surrounding the benefits of taking an insurance coverage. Some believe it to be expensive, while others believe it is a waste of money, one that does not adequately compensate when risks occur.
After the devastating loss at the HA. Hoarafushi Airport, the Minister of National Planning, Housing and Infrastructure, Mohamed Aslam said that "the incident was a completely unexpected natural disaster’.
However, industry experts explained that during the same period of bad weather, a number of resorts had also suffered damages. These damages were, however, covered and compensated for by insurance companies. Given that the government has spent over MVR6 billion (USD370 million) on average on public infrastructure projects during the last four years, there is an immediate need to audit critical government infrastructure and to insure such assets immediately to avoid further losses.
To overcome such misunderstandings about insurance, both the MMA and the industry needs to conduct awareness programs, as not many seem familiar with even the most common polices, how such policies work and the extent of the coverage. One such example is third-party motor insurance. As per the Allied Insurance Company of the Maldives, there is considerable “lack of knowledge about the third-party motor insurance scheme”. Many are not aware that a third-party motor insurance policy does not cover injuries the person faces or the damage caused to the person’s vehicle — in many cases they are not fully aware of the policy's deductible amounts.
Another factor hindering industry growth is the lack of proper human resource development planning at a national level. According to the International Training Centre, the training arm of the International Labour Organization (ILO), ‘capacity gaps’ among insurers’ staff are one of the key factors why underdeveloped markets still struggle to offer insurance products which are valuable for their customers. Consequently, many local youth in the industry are of the opinion that, since there are very few scholarships and higher education opportunities within the sector, the government places little priority on the development of the industry. Hence, there are very few local staff who have undertaken specialised higher education in the insurance industry, or are members of professional bodies such as the Charted Insurance Institute.
Allied Insurance – the state owned company with the highest market share
Allied Insurance was formed in 1985 as a joint venture between Commercial Union Assurance Company, UK and State Trading Organization (STO). This year marks the 36th anniversary of a successful journey, spearheading major growth in the industry — with Allied as the largest insurance service provider in the market.
Within the five player market industry, Allied Insurance is estimated to enjoy over 44 percent market share, followed by Amana Takaful (Maldives) Plc and Ceylinco Insurance Company Pvt Ltd, each of which have a 16 percent share. New entrants to the market are quickly catching up, with Solarelle Insurance Private Limited estimated to hold about 15 percent, and Dhivehi Insurance Company Private Limited, the remaining 10 percent.
The fire insurance business continued to be the largest class of business in 2020, with 38 percent of premiums, followed by health insurance and marine hull insurance at 20 and 11 percent respectively. Allied has a considerable share in all these classes as they provide a comprehensive range of general insurance in addition to Takaful services and is also the only life insurance provider in the country.
Many industry experts claim that the reason Allied still holds a large share in the industry is because it is a subsidiary of STO; one of the largest state owned enterprises in the Maldives. They argue that government policy has given a monopoly to Allied over some insurance products such as Expatriate Insurance and Health Insurance. Even though many such exclusivities have recently been removed, many believe that Allied still gets priority when it comes to government insurance contracts from public enterprises — such as STO and its subsidiaries.
As such, industry experts argue that in order to increase competition and drive innovation, Allied Issuance Company needs to be converted into a public limited company and be freed from STO's shadow.
Need for proper regulatory framework
Ahmed Ameel, the Managing Director of Dhivehi Insurance company, with more than 26 years of experience in the industry, is very optimistic about the growth of the industry, estimating growth to over USD200 million over next 10 years. Ameel, who previously had a long tenure at Allied Insurance as well, believes this can be easily achieved if the correct measures are taken by the government to drive growth and if the MMA addresses some major loop holes in the regulation. One such loophole is the lack of proper regulatory protection for local insurance companies in such a competitive environment. As a result many potential revenue streams for the Maldives are not retained by local companies and are, instead, taken out by the so called ‘brief case brokers’.
One such practice by foreign resorts is ‘fronting of policies’ which is the use of a licensed, admitted insurer to issue an insurance policy on behalf of a self-insured organisation or captive insurer without the intention of transferring any of the risk. This results in huge outflows of potential revenue — more than 40 to 50 percent — from the Maldives’s most expensive tourist properties paying over USD20 million in annual insurance premiums, and local companies seeing only a fraction of this as brokerage fees.
Ameel is confident that this can be easily prevented with the proper regularity framework and by imposing limits for such practices as is done in the Seychelles, which has an insurance penetration ratio of over two percent. Seychelles has modeled their Insurance Act on Singapore's and have an extremely strong legal framework. He further stressed the importance of establishing an ‘independent focused regulatory agency.' Similarly, as in Dubai which has an insurance industry of over USD7 billion, he highlighted the role of employing ‘appropriate international experts’ which would enable the country to attract international companies such as Lloyd’s.
It has been more than two years since the draft insurance bill was formulated — yet the bill remains stuck in a Parliament Committee. Many experts also note that due to the lack of proper legislation and lack of insurance lawyers, the insurance companies are, in many cases, at the mercy of courts.
One such recent case is when the Civil Court in July 2020 ordered Allied Insurance to pay USD22.7 million (MVR 339 million) to Yacht Tours Maldives Private Limited, a company owned by a parliamentarian. In most countries, such cases are initially attempted to be settled out of court using alternative dispute resolution systems mostly via arbitration. However, at the moment, arbitration centres in the Maldives are seen as lacking in capacity, with the Maldives International Arbitration Centre (MIAC) only founded very recently in 2019, although the Maldives Arbitration Act was passed in 2013.
Once legislation is enacted, experts are confident that it will spur further growth as the Maldives' insurance industry shows huge potential. Especially so since the Maldives can also take advantage of its location and provide some unique services in both marine and property insurance with its multibillion-dollar properties of the leading international hotel chains. Being a 100 percent Muslim country, the Maldives could also lead Takaful Insurance in South Asia. Further, there are many sectors which are currently not fully insured, such as government properties. Life insurance covers are also currently minimal.
With a millennial, tech savvy, population ‘insurtech’, companies such as Ping An Insurance (valued at USD236 billion), has overtaken China’s life and property insurance industry and has grown by redefining itself as a technology conglomerate built around the insurance business. In the Maldives, Allied Insurance, the winner of Maldives Business Awards for most ‘Innovative Business of the Year’ in 2018, has been leveraging expertise, and technological innovations to provide dynamic and customised solutions. Smart solutions such as Allied Mobile Application and ‘Paperless Insurance’ services via its AI enhanced website is a mainstay of the company.
The outlook for the Maldives' insurance industry is very bright, with the sky as the limit. All it needs is the right push.