The Saudi Arabian insurance sector is expected to show solid growth of around 10% per annum across most lines this year and throughout the forecast period to 2019, according to BMI Research, a unit of the Fitch group.
“Despite regulatory pressure, we do not anticipate any major restructuring of the insurance market as the solid growth rates create an incentive for sub-scale players to protect their independence,” said BMI Research in a report.
Life insurance, though, will prove a difficult sell to a Saudi population used to generous social security and suspicious of financial products that potentially violate Islamic curbs on interest and speculation. “The growth of the foreign workforce is critical to uptake, but we anticipate very slow growth in the low single digits,” said the report.
Prospects are brighter in non-life insurance, which will remain the most significant portion of the market.
The report said: “We expect premiums to grow at around 10% per annum over the forecast period, buoyed by the Saudi government’s shifting a greater burden of health provision onto private individuals and corporations. Despite a slowdown in growth, health insurance will remain an attractive investment opportunity over the forecast period and will record growth of well over 10% a year, with foreign-owned enterprises such as Bupa Arabia well-placed to take advantage.
“There is still some uncertainty over the pace at which the government will heighten requirements for private cover, although it has moved to make health insurance for visiting dependents compulsory. The Saudi health sector is feeling the strain of a growing population and as companies expand, their group cover premiums will reflect this too.”
Motor business
In motor insurance, many of the smaller operators are competing fiercely on price and ceding a large portion of their premiums to outward reinsurance. Nevertheless, the country’s young demographics should support growth in the vehicle fleet and thus sustain premium growth in the single digits for basic compulsory lines, although claims will also remain high given poor road safety in the Kingdom.
Although the market will remain fragmented over the forecast period, the direction of regulatory change suggests that from 2019, consolidation will shake out some of the sub-scale operators and allow survivors to compete more on quality of product and service.
Property insurance should also see solid single-digit growth, as homeowners gain a greater appreciation of the need to prevent loss. This consideration could also support greater uptake of life insurance in the longer term, particularly if insurers take the obvious step of bundling it with health and disability cover. “However, we expect only anaemic growth in transport insurance, although in the longer term the expansion of air and rail tonnage should increase demand,” said the report.