In May 2024, Deutsche Rück started underwriting life and health insurance business in the MENA region, with a focus on the countries of the Gulf Cooperation Council (GCC) as well as Maghreb countries. The move is a continuation of its strategy of gradual internationalisation and diversification. “The life insurance sector in the MENA region is poised for further growth and we are committed to supporting our partners,” says Himes, a Moroccan-born reinsurance specialist who is based in Düsseldorf. As well as bringing an innate understanding of Arab cultures, Himes has 17 years of experience in reinsurance, serving the Middle East and African market in several senior management positions at Société Centrale de Réassurance (SCR) in Casablanca.

Deutsche Rück is not new to the region: it has been active in North Africa and the Middle East for some time in property and casualty insurance. Laurent Beauregard from DR Swiss, who looks after property and casualty business for the Deutsche Rück Group in Morocco, Algeria and Tunisia, is satisfied with the results so far, even despite the devastating earthquake in Morocco in 2023.

Morocco: Stability anchor in the Maghreb

Morocco is the country with the greatest market potential in North Africa. “Major events such as the 2030 FIFA World Cup, which will be held in Morocco, Spain and Portugal, are generating investment in infrastructure. Also, large-scale projects such as the construction of several reservoirs in the Atlas Mountains and investments in rail and port infrastructure, are driving the country's economic development,” says Beauregard. This potential is reflected in economic growth: while the GDP growth rate was 1.3 percent in 2022, it has risen to 3.0 percent in 2023. Forecasts by the International Monetary Fund (IMF) predict that GDP will show similar growth rates in 2024 and 2025.

This generates clear opportunities for insurers. “The Moroccan insurance market has achieved major advances over the last years in terms of growth, customer experience and innovative products and services,” says Himes. Life insurance represents almost half of the total premiums. The forthcoming legislation and reforms that are designed to regulate the market demonstrate the ambition of the sector to strengthen its solidity, competitiveness, and attraction.

“Morocco has developed into a business hub for the African continent,” says Claudia Schmidt from the German Chamber of Foreign Trade (AHK) in Morocco. Visas are not required for travel to most other African countries and free trade agreements facilitate the movement of goods and merchandise. This attracts many large international companies to the country, which use Morocco as a springboard for their African business. Therefore, protection insurance that is provided by employers is also driving the market. The most popular benefits include cover in the event of illness – be it insurance that covers visits to the doctor, therapy and medication, or insurance that provides financial support in the event of serious illness or disability. Although state health insurance has been available in Morocco for several years, the service gap between public and private healthcare offerings is still wide: “The differences between a private clinic and a public clinic are considerably greater in Morocco than in Germany,” emphasizes Schmidt, who has been living in the country for six years.

Digitalisation is a success factor

However, DR Swiss specialist Laurent Beauregard observes that in Morocco private individuals often simply lack the financial means to invest in insurance without being obligated to do so. However, InsureTech applications are becoming increasingly popular, and this could give a boost to the life insurance market beyond mandatory cover.

InsureTech applications not only promise greater convenience, but in the best examples, they simplify the underwriting processes which will ultimately bring down the cost of insurance, even for Moroccans on an average salary. These technologies help to optimise operations by reducing costs and improving efficiency. Unsurprisingly, the country’s Supervisory Authority of Insurance and Social welfare (ACAPS) has prioritised InsureTech in its strategic goals and it has even established a department dedicated to this topic. “The increase of Moroccans’ living standards and the demand for more attractive saving and protection solutions are major drivers for the market’s growth,” observes Himes.

United Arab Emirates: Life in the Gulf Region

While significantly more developed than the Maghreb region, the Gulf Cooperation Council (GCC) states are also worthwhile markets in the life and health sector. Political and economic stability, combined with a certain glamour factor, characterise the United Arab Emirates. “The UAE is a shining beacon of stability in the Middle East, with a thriving economy and political landscape,” says Markus Brandt, Senior Consultant, German Emirati Joint Council for Industry and Commerce (AHK). “The country offers great opportunities for businesses and investors seeking a favourable climate for growth.”

The companies represented in the Emirates of Abu Dhabi, Ajman, Dubai, Fujairah, Ra's al-Khaimah, Sharjah and Umm al-Qaiwain include heavyweights such as car manufacturers, but also service providers and plant manufacturers. “Service providers from various regions across the globe have been progressively establishing their presence in the region, with a particular surge noted in the field of artificial intelligence”, explains Brandt. Microsoft, for example, has invested 1.5 billion USD in the Arab AI company G42, based in Abu Dhabi. Deals on this scale, alongside major infrastructure projects, are the markers that give economic experts confidence in the Emirates. The IMF anticipates economic growth of 3.5 percent in 2024.

Like other countries in the MENA region, the UAE is also pursuing an economic diversification strategy. In Dubai, this is known as the Dubai Economic Agenda D33. Infrastructure projects include the new airport, which is set to handle 260 million passengers a year in its final expansion stage, as well as Etihad Rail's rail network, which now spans 900 kilometres and connects all the emirates. The line is already open to freight traffic and passenger trains will follow suit in the near future.

The UAE, particularly Dubai, has been attracting expatriates for years – and growing numbers of them are staying for longer and longer periods of time. As noted by experts like Brandt, many foreign residents are increasingly investing in real estate, starting families, and taking steps to secure their financial future in the long term. This shift reflects a growing sentiment among expatriates to put down roots and establish a sense of stability and permanence in the United Arab Emirates. In short, the UAE is no longer just one of many milestones on their CV – many are looking at it as a life-long destination or home.

It was a global wake-up call: in July 2024, there was a mass outage of IT systems running an application from the US cyber security specialists CrowdStrike. A faulty update caused around 8.5 million Windows computers worldwide to crash. Fortunately, the consequences were relatively minor in the end – because this was not a targeted attack, but an update error that was quickly rectified. However, the incident highlighted the huge risk potential that exists in an increasingly networked world. And for insurers, the CrowdStrike incident illustrated just how great the accumulation risk can be if global failures occur in the digital infrastructure.

The insurance industry is currently in the process of identifying what lessons can be learned from CrowdStrike with regard to the insurability of cyber risk. When dealing with accumulation risks of this nature, it is crucial to fundamentally strengthen resilience on the customer side. Dr Oliver Lamberty, who heads the facultative liability, accident and motor business at Deutsche Rück, proposes that companies should also try new approaches: “It would be worth considering whether insurers and industry could work together to install a kind of early warning system to prevent an accumulation escalation, such as that which can occur when computers are switched on in staggered phases worldwide.”

AI as an accelerator

Many security experts are also concerned about the increasing use of artificial intelligence (AI) by cyber attackers. AI is revolutionising cybercrime and acting as an accelerant, according to a recent urgent warning from US insurance regulators. At the same time, the use of AI to defend against cyberattacks and strengthen cyber resilience is also becoming increasingly important. But criminals, unlike service providers and insurers, do not adhere to ethical standards and data protection regulations. According to security companies, they therefore tend to be two to three years ahead of defenders when it comes to the use of AI. Without the targeted expansion of AI-supported defence strategies, customers and insurers will in future find themselves lagging dangerously far behind the technology used by cyber attackers.

It is not only the methods of attack used by cyber criminals that are changing, but also their targets. While ransomware attacks to block company IT were once the main threat, data protection violations are now the most common cause of cyber incidents. In the first half of 2024, two thirds of all major cyber losses worldwide were due to data breaches. If personal data in particular falls into the hands of cyber criminals, this can lead to considerable claims for damages in view of increasingly strict data protection regulations.

In order to make the economy more resilient in this respect, insurers must pay even greater attention to the secure handling of confidential data by their customers. European regulation can be helpful here: the implementation of the current DORA (Digital Operational Resilience Act) regulation and the NIS2 directive on IT security in all European markets should ensure significantly greater security for companies in their handling of IT and data. Because it is required by the regulator, even laborious measures such as the creation of an IT service provider directory are now being implemented, which provides a better overview of risk exposure.

SME target group: often overwhelmed when dealing with cyber security

Many cyber insurers have recently set their sights on SMEs as a customer group. Cyber coverage is still much less widespread here than among large companies, and the risk can be diversified more broadly across the entire market. However, there is a significant accumulation risk, for example due to the widespread distribution of the same software. Moreover, the vulnerability to cyberattacks is high, as many smaller companies in particular are overwhelmed when dealing with cyber security. “In practice, it is often the case that the cyber risk situation is actually much worse than all the relevant surveys suggest,” laments Manuel Bach, Head of the Cyber Security Division for Small and Medium-Sized Enterprises at the German Federal Office for Information Security (BSI). One of the reasons being that many of those responsible do not understand even the most basic technical questions – and then simply answer the surveys the way they feel they should.

“In order for small and medium-sized companies to increase their resilience, they need to do their homework when it comes to cyber security so that they can at least fulfill the basic requirements,” says Lamberty. This can be done relatively easily by cooperating with the relevant authorities, for example with the BSI in Germany. Bach also called on insurers to make the IT security standard DinSpec27076, developed by the BSI and others, a basic technical requirement of their policies for commercial customers. This would save everyone involved a lot of work.

New risks are constantly emerging in the networked economy and other areas of life. Their risk and damage potential is unknown due to a lack of historical data, which makes it difficult to assess the consequences. Insurers are therefore faced with the challenge of recognising and assessing these so-called ‘emerging risks’ as early as possible. This is the only way they can prevent new risks from making certain business segments unexpectedly unprofitable. And it is also the only way they can protect customers against new risks at an early stage with suitable products.

Emerging risks are both a risk and an opportunity, says Janine Rincke, Underwriter and Data Scientist in Facultative Property Business and Property Line Management at Deutsche Rück: “Global networking, technological progress and far-reaching climatic changes are leading to an increasing number of emerging risks. To be competitive, it is crucial to identify them as early as possible and classify them correctly.”

Christian Rieck, Professor of Finance and Economic Theory at the Frankfurt University of Applied Sciences, has studied crises in depth and knows just how challenging it is to identify emerging risks. “Many risks are systemic in nature. They not only affect a single sector, but influence several players, industries or markets at the same time. If one component of the system changes, this can have unexpected consequences for other components. This makes it difficult to make precise predictions.”

Three of more than 20 emerging risks that the experts at Deutsche Rück have on their watch list

New forms of terrorism

In connection with motor insurance: when cars are used as weapons in terrorist attacks or to carry out rampages, this raises special legal and insurance issues. Who is liable for the damage caused? What compensation claims are victims entitled to? To what extent could additional terrorism insurance be effective? 

Nanotechnology

In connection with liability insurance: forever chemicals, also known as PFAS (per- and polyfluoroalkyl substances), are found in a variety of products and degrade only very slowly or not at all. They are suspected of causing significant environmental and health problems, which is being confirmed by more and more long-term studies. The harmful effects often only become apparent decades later, which makes it difficult to assess the risks and predict damage. 

Critical infrastructure failures

In connection with property insurance: the risk of power grids and power plants being disrupted by sabotage or natural disasters is on the rise. The increasing damage potential of such events requires flexible and ever more comprehensive solutions.

Many sources used for research

A cross-functional team at Deutsche Rück, made up of line and risk management experts, work closely together to analyse emerging risks and their impact on property, liability and motor insurance. Due to the unprecedented nature of emerging risks, there is no explicit data to work with, which means the experts are reliant on other sources of research. They have to adopt an extremely broad perspective: continuously monitoring business media, scientific publications and reports from international organisations on topics such as climate change, technology and geopolitics. Social media platforms are another useful resource. Last but not least, the team regularly liaises with primary insurers. “We collate information from numerous public and private insurers”, explains Rincke. “This gives us the opportunity to precisely analyse the current insurance portfolios and assess the insurance situation with regard to emerging risks.”

If the team determines that an issue has a potentially significant impact on the insurance industry, it categorises it on the basis of two parameters: time horizon and impact. The time horizon describes whether the risk is imminent or may only become significant in the future. The impact refers to an increased damage frequency and an increased amount of damage per incident. This allows risks to be categorised according to their urgency and severity. A risk with a short time horizon and a major impact could cause considerable damage in the short term – such as a flash flood. “Climate change is leading to a significant increase in flooding, for example, even in areas that were previously not at risk”, reports Rincke. “We see a great need for insurance here, which could be covered by extending homeowners or contents insurance to include natural hazards.” The team’s aim is to raise primary insurers’ risk awareness and help them to optimise their insurance products to meet future challenges.

How obesity could affect motor vehicle liability

Risks that emerge gradually are particularly difficult to identify. “They can develop over many years, fluctuate significantly in their severity and even come to a standstill from time to time,” says Christian Rieck. Deutsche Rück has categorised obesity as one of these risks. Among other things, the team looked at the development of the body mass index (BMI) over the past decades and researched the consequences of obesity. It found that obesity can have an impact on motor vehicle liability insurance. As a rule, the motor vehicle liability of the person responsible for the accident covers the costs of medical treatment and care for the person injured in an accident. If an obese person is involved in a motor vehicle accident, care costs can rise significantly, explains Deutsche Rück expert Rincke. “The person may require a customised care bed or two care workers instead of one may be needed to provide the person with adequate care.” The team analyses scenarios like these and keeps them on the emerging risks radar. The new risk is reviewed at regular intervals so that it can be recategorised if necessary. Depending on how the underlying circumstances develop, an emerging risk may even disappear from the radar completely.