UAE Insurers Are Pricing Motor Below Burning Cost, and the Central Bank Just Ran Out of Patience

When the UAE's unified motor policy came into effect in 2017, most insurers priced somewhere between the regulator's minimum and maximum tariff bands, and the result was a genuinely strong couple of years -- 2017 and 2018 industry profits were driven substantially by motor. That's the setup Hatim Maskawala, managing director of Badri Consulting, offers before explaining exactly how that profitability got competed away, and why the story matters now more than it has in years.

How a good book turned into pricing below burning cost

"Burning cost," in Maskawala's definition, is the sum of expected claims, commissions, and expenses on a policy -- the floor below which a premium guarantees a loss. By late 2018, insurers who had realised how profitable motor had become started discounting to win share, and prices kept sliding through 2019. Then came a 2020 circular permitting discounts of up to 50% below the regulator's already-low minimum rates, conditioned on criteria so loosely defined -- "good loss history," "loyal customer" -- that Maskawala says most companies could plausibly claim them by default. "Minimum was already low," he said. "There was a range above that, but now companies have gone up to 50% below the minimum."

Layered on top of falling premiums, commission rates for brokers moved in the opposite direction: from a historical 10-15% range on motor business up to 30-35% for smaller companies more reliant on broker-sourced business, as brokers recognised how profitable the book had become and priced their own leverage accordingly. The arithmetic is not subtle -- premiums falling while commissions rise squeezes the same margin from both ends.

The reason this didn't show up immediately as a crisis is that 2020's pandemic lockdowns masked it: fewer cars on the road meant lower claims frequency, and insurers, uncertain about the pandemic's trajectory, reserved conservatively rather than reporting inflated profits. That prudence meant 2020 results looked stable even as underlying pricing kept deteriorating. By the time this conversation was recorded, Maskawala's early reserving analysis for the following year already showed loss ratios climbing again as traffic returned to normal -- the underlying pricing problem re-emerging once the pandemic's temporary cover was removed.

The regulator that stopped waiting

The more consequential development, in Maskawala's account, is a shift in regulatory posture rather than market pricing. Solvency regulations have existed for years without being strictly enforced -- a patience Maskawala attributes partly to the previous insurance-specific regulatory culture. That changed once oversight moved to the Central Bank. "Being a banking regulator coming in from a banking background, they might not be so patient, especially when it comes to solvency of prudential regulations," he said.

He described something concrete rather than speculative: the Central Bank sending letters to companies with known solvency issues, setting a hard deadline (30 September, with financials due 15 November) and committing to monthly progress check-ins, with explicit language that regulatory action follows if the position isn't corrected in time. "This is the first time we saw a very, very strict note from the regulator going out to companies," he said -- a marked departure from years of companies being given "a bit more time" without real consequence.

The practical read for any UAE insurer still competing primarily on price: the old assumption that regulatory tolerance for underpriced, undercapitalized business would continue indefinitely no longer holds.

Consolidation, finally, and why IFRS 17 isn't the reason

Maskawala was candid about having been a long-standing skeptic on UAE consolidation -- fourteen years in the market, multiple deals discussed and never completed. That's changed recently, with actual transactions closing: Al Ain Ahlia's acquisition of the two Noor Takaful entities, and GIG's acquisition of AXA's regional business, both of which he characterises as genuinely market-changing rather than incremental. Saudi Arabia is moving faster still, with three or four completed deals and more in the pipeline, driven directly by SAMA pressure -- a regulator he expects the UAE's Central Bank to increasingly resemble, given its prior experience pushing consolidation through the banking sector.

On what's actually driving the M&A wave, Maskawala pushed back specifically on the assumption that IFRS 17 is a catalyst. "At this stage, IFRS 17 is not going to be the driving factor, because companies are just trying to understand what IFRS 17 is," he said. The real driver is more basic: solvency pressure and the plain fact that competing on unsustainable pricing is losing money, making scale and consolidation a more credible answer than trying to win the current price war.

IFRS 17's real problem is comprehension, not software

On IFRS 17 adoption specifically, Maskawala identified something companies routinely get backwards: buying accounting software doesn't solve the problem, because the problem is that most companies don't actually understand the standard well enough to know what they're asking the software to do. He pointed to Saudi Arabia's regulator running an explicit test of comprehension rather than just accuracy -- a November dry-run deadline followed by companies presenting their numbers directly to SAMA, with management and the appointed actuary both required to attend, specifically to assess whether the company understood the process or had simply outsourced it to a consultant.

The data problems underneath this are mundane but real: "claims paid" dates in regional systems often record when a debit or credit note was issued, not when cash actually left the bank; premium payments frequently arrive as a single lump sum covering 10-20 policies rather than allocated per policy; and some data is only available at the broker or counterparty level rather than the individual policy level IFRS 17 requires. None of that is a software problem -- it's a data-discipline problem that predates and outlives whatever system a company buys to solve it.

Why UAE motor pricing is still leaving money on the table

On the underwriting side, Maskawala described the UAE as still largely a flat-rated market -- a broker asks for one rate for a saloon, one for a four-wheel-drive, and companies hand branches a tariff sheet rather than pricing the full set of individual risk characteristics. The specific failure mode he flagged is interaction effects: a Mercedes might get a low rate purely from its engine-size category, while missing that Mercedes-badged vehicles are disproportionately high-value -- two variables that should offset each other but don't, under simple independent-factor pricing.

Saudi Arabia's regulator has effectively forced the issue by mandating a minimum of 11 rating variables for third-party cover and 13 for comprehensive -- a level of granularity where the old independent-variable, burning-cost approach simply breaks down, requiring GLM (generalized linear modelling) or more advanced methods. Adoption in the UAE lags meaningfully behind, by his estimate roughly two companies compared with four in Saudi at the time. His warning to underwriters and pricing actuaries wary that GLM adoption threatens their role: it won't replace them, but the companies that adopt it first accrue a compounding data advantage -- what he called "the hockey-stick effect" -- that becomes progressively harder for late movers to close, especially once telematics adds driving behaviour as a further rating variable on top of the vehicle itself.

The bigger opportunity insurers are quietly giving away

Asked where genuine, underexploited profitability sits outside motor and medical, Maskawala offered a specific and somewhat contrarian view: pet insurance, despite its marketing visibility, "[has] more marketing mileage than actual profitability" given how small the volumes still are. Travel insurance, by contrast, he flagged as genuinely profitable and well-timed given the specific point in the travel recovery cycle. Home contents cover remains poorly understood and rarely sold -- he noted, pointedly, that even his own rental agreement bundles in an opaque insurance premium he'd never examined closely despite his professional background.

The larger opportunity, though, is commercial lines -- and the reason insurers aren't capturing more of it isn't capital, it's underwriting capability. Companies routinely cede large commercial risks (an oil refinery, for example) to facultative reinsurance partners because they lack the specialised skills to underwrite that risk themselves, and default to quota share treaties that hand off a proportional share of both risk and profit rather than retaining more and buying excess-of-loss cover to manage tail risk. Badri's standard analysis for clients -- reinsurance premium received minus reinsurance claims paid minus reinsurance commission, run over a ten-year window -- routinely shows reinsurers extracting very large net profits from that arrangement. "Companies don't undertake proper reinsurance optimization," he said, noting that reinsurance brokers advising on placement often have a structural conflict of interest, since their compensation is tied to the very placements they're recommending.

What this means for the region

Maskawala's closing message doubles as a warning against the industry's current instinct to treat digitization as a fix for problems that are actually structural: "Technology is going to be the enabler if you understand your business... don't assume you've done this in the past, it will work in the future." For GCC insurers weighing where to invest next, the throughline across pricing, reinsurance, and IFRS 17 is the same -- the region's insurers have real capital and real technology budgets, but the gap holding back profitability is technical and organisational capability: understanding risk granularly enough to price it, understanding a standard well enough to implement it, and building the underwriting skill to retain risk rather than reflexively ceding it away.

This post draws on the FS Brew episode 12: Go back to the fundamentals of Insurance: Interview with Hatim Maskawala.