Is the bubble about to burst in the UAE?

The UAE healthcare market is over supplied with clinics, health insurers and brokers: is the bubble is about to burst?

The UAE healthcare market is now proving difficult for smaller providers to survive in, due to too much competition.

The Dubai Health Authority has already made it clear that new investors in the health care sector should think twice before wanting to get into already overcrowded categories or locations.

Of the UAE healthcare and insurance market, Mark Adams, of the Dubai Healthcare Network says “The health insurance sector in the UAE is under real pressure — insurers either have to find ways to lower claims or they have to increase premiums. The whole situation is made worse because of an unsustainable oversupply. We have too many insurance brokers, too many insurers or TPAs and too many healthcare providers. We are still opening new hospitals when there is already an oversupply and this means we have fundamental inefficiency.

The Healthcare Network adds: “The healthcare sector needs to consolidate and insurers need to channel their volume to fewer operators. Giving selected healthcare centres more business, insurers must also insist the centres stop taking referral fees for diagnostics and that they prescribe generic medications. It is not unusual to see clinics and small hospitals at only 30 to 40% capacity. The Insurers are suffering from too low PMI premiums, too much competition, abuse and fraud in the system; so are moving their business to the bigger networks.”

Fitch Ratings says that competition remains intense in the UAE health insurance sector. The recent regulatory changes, which made health insurance compulsory, were an incentive for new players to enter the market, which increased competition and eroded profit margins.

The health insurance sector did however remain profitable in 2017, but rising claims costs due to the introduction of VAT will put an additional strain on profitability. Insurers may struggle to pass on the full cost of these increases to policyholders due to intense competition for top-line growth. It may be time for insurers to raise their policy rates. With carriers offering mandatory health insurance set at low fixed rates and administration fees, regulatory fees, broker commissions further reducing the actual claim fund, current rates of premium are not sustainable.

Premium rates for health insurance are likely to increase from 2019 in Abu Dhabi, Dubai and across the UAE. This will contrast to the last two to three years during which PMI premiums in the UAE have been more or less stable.

To add to insurers’ woes, many employers have cut down on the health cover for their workforce during yearly renewals of health insurance policies, where cover is not compulsory.

With mandatory health insurance set at low tariffs, this increases the pressure on employers to contain healthcare costs, often at the expense of quality assured care. Innovation in healthcare technology with the introduction of telemedicine has left some traditional healthcare practitioners out in the cold and this combined with the removal of incentive fees, leaves the healthcare landscape across the UAE almost unrecognisable in just a few short years. This perfect storm is forcing smaller clinic groups and independent practitioners to close.

For clinics and hospitals medical tourism may be a partial saviour, but working together may be replaced by fierce competition for business that is finite.