New regulatory measures help develop Saudi Arabia's insurance sector further

With one of the highest population growth rates in the world outside Africa, and an insurance penetration level of only 1.5% in 2015, compared to the global average of around 6.3%, there is serious room for sector growth and development in Saudi Arabia. Societal attitudes to some forms of cover and the industry as a whole may present obstacles for the development of some lines, but legal and regulatory changes could provide a springboard for growth in the short to medium term. “The insurance sector will continue to see revenue growth as the take-up of insurance will increase from present low levels,” Geoffrey Blofeld, CEO of Gulf General Cooperative, told OBG.

Health Premiums

In 2015 medical insurance gross written premiums (GWPs) accounted for 53.3% of the overall market, with the line posting 25% growth in the value of premiums. However, much of this growth was captured by a handful of the largest firms. Although health insurance is offered by 27 of the country’s insurers, BUPA Arabia is the clear market leader, and medical insurance is its sole line. With SR7.33bn ($2bn) of GWPs in 2015, the company accounted for 39% of all health premiums, and 20% of the country’s entire insurance sector. BUPA was also the most profitable insurance company in the Kingdom in 2015, posting a net profit of SR645m ($172m), up 114% from SR301m ($80.2m) in 2014. Indeed, this increase constituted 62% of the consolidated profits of the 15 companies that were in the black in both 2014 and 2015. However, the broader health insurance segment’s performance was more mixed. Tawuniya sold just under SR5bn ($1.3bn) in medical GWPs, 65% of its overall portfolio, for a 7% increase in profit, while Medgulf, the country’s third-largest insurance company with 70% of its portfolio in medical, registered a SR261m ($69.6m) loss after seeing its sales shrink by 9%. However, some insurance firms felt the dominance of bigger players made the health segment less attractive. “It is difficult to compete with the leaders in medical insurance, and so we focus on motor insurance and cross-sell medical insurance to those customers when we can,” Abu Baker Shehab, CFO of Malath Insurance, told OBG.

Expanding Coverage

The most promising areas for growth in the medical line are related to tighter laws requiring cover for private sector workers and their families. The Council of Cooperative Health Insurance (CCHI) has required compulsory health insurance for all non-Saudis working for private sector companies since 2006. However, industry observers feel there is room for more stringent application of these regulations to a broader base of foreign residents. Arqaam Capital, an emerging markets investment bank, predicted that tightening and enforcement of existing regulations could see health premiums grow by 14-16% from 2016 to 2020, and it believes this could create 3.5m new medical policyholders. At the end of 2014, CCHI issued a new decision requiring health insurance for the families of foreign residents working in the private sector, a ruling which spurred growth in the segment.

From 2015 private companies were also expected to provide health insurance cover for the families of their Saudi employees. In addition to these moves, significantly more attention is now being paid to health insurance for foreign workers employed by individual Saudi citizens. “There are many people working in the private sector who are not covered at present, for instance, those employed by individual sponsors, and working as maids or drivers, and enforcement of the insurance laws for these people and their employers could be stricter,” Basem Odeh, CEO of Arabian Shield, a local insurance company, and chairman of the Insurance Executive Committee at SAMA, told OBG. “I believe that regulation in this area could add a lot of people to the market.”

Universal Insurance

The notion that universal private health insurance could be introduced for all Saudi citizens is particularly sensitive because it could be seen as a challenge to the accepted social contract between the state and its citizens. However, with health and social care constituting 12.5% of the Kingdom’s total SR840bn ($223.9bn) budget for 2016, and recurring public sector wages, salaries and allowances in all departments totalling SR450bn ($120bn) – representing more that 50% of the country’s planned expenditure – many new ideas are being considered by policymakers in the Kingdom. “About one-third of the population is insured, but when it comes to Saudi citizens, there are many complications,” Odeh told OBG. “I would say that if the idea of universal coverage is being considered by the government, they should start a dialogue with the companies in the insurance sector so that we can give our ideas and allow ourselves to be prepared for any changes that may occur.”

Visitor Insurance

At the start of 2016 insurance companies were also waiting for implementation of a new law that decreed that any international visitor to Saudi Arabia must have health insurance cover supplied by one of the country’s insurance firms for the duration of their stay. The coverage would be arranged online and in conjunction with visa approval for visitors, providing insurers with a sizeable new customer base. There were some 15.6m international arrivals expected in 2015, according to the World Travel & Tourism Council.

Motor Line

Perhaps the most significant potential area for future growth is motor insurance. Arqaam Capital’s managing director and head of equity research, Jaap Meijer, predicted that an additional 3m vehicles in the Kingdom could be insured if more stringent enforcement of existing regulations was introduced. “Motor holds the most growth potential as it lags considerably behind medical in enforcement, pricing and penetration,” Meijer said in a press release. “Compared with the current regulation enforcement rate in medical of 70% to 75%, third-party liability enforcement stands at only 40%.”

Arqaam predicted that the average motor policy could be reduced from SR1750 ($466.55) to SR1200 ($319.92) per year, but the number of policyholders could double in size, leading to an additional 2m insured vehicles on Saudi roads by 2018. “Only 45-50% of the vehicles on the road are insured. In developed countries this number is usually around 90-95%. Clearly we have a lot of room for improvement in this regard,” Bader Al Ali, CEO of Najm for Insurance Services, told OBG.

One of the key obstacles to expanding vehicle insurance in Saudi Arabia is that owners are only required to register, and subsequently relicense, their vehicles every three years, while motor insurance policies last for one year. Many vehicles are left uninsured when owners fail to renew policies after their initial cover period expires. “We are all aware that the enforcement of rules on motor insurance could generate significant growth in that sector of the market, because it is estimated that more than 50% of all vehicles on Saudi Arabia’s roads are not insured, and there is no robust enforcement regime or mechanism,” Odeh told OBG. “As an industry, we have put forward proposals to the Ministry of Interior, and specifically to the Traffic Police Department, in order to try and prompt some reforms rather than just talk, and we expect to see improvements.”

Improvements

More open data sharing between insurers could provide further opportunity for premiums. There is no existing mechanism allowing companies to access a database of claims records and, as a result, no system of rewarding safer drivers with reduced premiums while increasing the coverage costs for motorists who have been involved in accidents where they have subsequently made a claim. “At the moment there is limited access to historical information on drivers or on vehicles, and so if we tried to increase the premium for someone after an accident they would simply change insurers, and that new company would not be able to make any assessment based on historical data,” Odeh OBG.