Insurers share the responsibility of raising awareness and must expand their offerings beyond the traditional lines of business, said speakers at the 5th Saudi Insurance Symposium (SIS) held in Riyadh last week.
Building confidence in the insurance sector is key to insurance growth, said Dr Ahmed Alkholifey, governor of the Saudi Arabian Monetary Authority (SAMA), at the opening of the 5th Saudi Insurance Symposium (SIS). He said that regulation of the Saudi insurance industry has strengthened confidence in the sector and this has been translated into the remarkable growth the sector has been witnessing. GWP jumped to around SAR36bn ($9.6bn) in 2018 from SAR5bn in 2005, at the start of reform of the market.
“Following regulation of the market, professionalism started to emerge. Previously, the insurance industry lacked confidence, leading in particular to some players pulling out of the marketplace,” he said.
Dr Alkholifey imputed the slower growth of the insurance market in the past two years to lack of awareness, stressing that it is the insurance companies’ responsibility to educate the public about the benefits and importance of insurance. He also urged insurance companies to roll out new products in underpenetrated lines, especially life and savings which account for only 3% of the total market GWP, instead of focusing merely on the compulsory lines of motor and medical which together command 85% of total business.
Saudisation in the insurance sector has reached 70% currently compared to less than 60% two years ago. The localisation drive has been growing progressively in various professions in the insurance industry, said Dr Alkholifey.
He added that SAMA realises the sophistication of the insurance business and that localisation of jobs cannot be achieved overnight. There is a need to import experience from outside the country. Still, some tasks have been completely localised, such as clients’ protection departments at insurance companies.
Dr Fahad Al-Shathri, deputy governor for supervision at SAMA, speaking also at the symposium, said that SAMA is open to local and foreign investments in the insurance sector. He said, “We welcome them either in the form of strategic partners with existing insurance companies or branches of foreign companies.”
Foreign investment has an effective role in supporting Vision 2030 and the insurance industry as well, he added. “A main benefit (from foreign investments in the insurance sector) is introducing innovative products that would promote the economic transformation the Kingdom is undergoing. Another advantage is leveraging the level of professionalism and confidence in the insurance sector (particularly) through the entrance of new players who have long experience in the industry.”
Consolidating the marketplace
There are currently 32 providers in the Saudi insurance market, including a local reinsurer. Around six insurers control a combined 75% of the market business while 13 other insurance companies have less than 1% market share.
“With the entry of new players, competition would heat up and local insurers might need to consider mergers in order to create greater capacity and larger entities to be able to compete effectively,” said Mr Hussam Al Kannas, CEO of Al-Etihad Insurance.
Insurance is one of the pillars of Saudi Arabia's development programme for its financial sector, which is the main part of a massive economic reform plan known as Saudi Vision 2030, that aims to diversify the economy away from oil.
In line with the development programme, more efforts are required in the coming years to increase the current 1.5% insurance penetration rate, Mr Alkholifey said.
Mr Al Kannas said that the Saudi insurance penetration rate does not exceed 2.1% when the oil sector's contribution is excluded. Insurance density hovers around SAR1,150 for all lines of business and only SAR35 for protection and savings. “These indicators remain completely far from the regional, let alone, international market levels.”
Mr Basem Odeh, chairman of the Insurance Executive Committee, said that the sector has made great strides with the continual support and cooperation of SAMA. He noted that there remains a lot to be done and that insurance companies are willing to go the extra mile to achieve the ambitious goals and aspirations of the Saudi insurance industry.
Organised by the Insurance General Committee with the support of SAMA, the 5th SIS was held with the theme “Protection and Sustainability”. Around 1,000 participants, from the local market and abroad attended the biennial event.