With the announcement that VAT will be implemented across the GCC at a standard rate of 5% from 2018, UAE has been one of the first to declare that it will apply to non-life insurance policies; including motor and property covers. It is expected the other members of the GCC will follow suit, maintaining the exemption that will apply to life policies.

In a region globally recognised for it low levels of tax, the likelihood that businesses will achieve expected levels of compliance with the new rules by the start date of 2018 will be very ambitious. A number of sectors will undoubtedly be lobbying for more relaxed taxation rules on the services they provide and insurance will be no exception. 

For the UAE, increasing the cost of insurance for the consumer will do the industry no favours. In a market where insurance penetration, as seen regionally too, has not reached the potential outside investors were hoping would be recognised (UAE sitting 94th in the global rankings with an insurance penetration rate of just over 1%) increasing the price of insurance for the customer will not go down well with providers and policyholders. Some players have already began exiting the market, such as Zurich, although this was not for VAT-related reasons. Are we likely to see more players leave the region as consolidation takes hold, both for insurers and brokers?

The UAE is seen as the insurance leader in the region and the other members of the GCC will be keeping a close eye on how the UAE acts, and reacts, over the next 12 months to these new challenges. It is unlikely to be completely smooth sailing, but as the old Arab saying goes "There is always something to learn from experimentation".