The impact of COVID-19 on the Saudi insurance industry is expected to be moderate given the high concentration of the market in non-life business and measures taken by the government to cover the healthcare costs of infected people, reveals The Financial Stability Report (FSR) for 2020 issued by the Saudi Arabian Monetary Agency (SAMA).
The effect of the coronavirus pandemic is expected to be moderate as 97% of the market’s GWP is concentrated in general and health insurance, according to the FSR.
Moreover, the report notes, insurers’ investments are concentrated in short-term highly liquid assets, in the form of cash and deposits (50% to 75%) and fixed-income securities (20% to 25%). In addition, investments are domestically focused, as international investments of insurance companies are subject to a regulatory limit of 20% of total invested assets; altogether, this would help shelter the sector from the harsh consequences the pandemic might cause.
The report adds that the government is covering healthcare costs related to COVID-19 for all citizens, residents and even those in violation of residency laws, as per Royal decree No. 46745 of 28 March 2020/ This will consequently reduce coronavirus-related claims experience. In addition, the fact that the insurance market is well-capitalised implies that insurers are starting from a strong position to absorb potential losses stemming from the pandemic.
Some positive developments are expected as well, says the FSR. Given the lockdown of businesses, curfew and confinement measures, some lines of insurance are expected to witness lower claims (including motor and non-virus-related medical claims), which will help alleviate the pressure on solvency.
Once economies start to recover from the pandemic, health and life insurance may witness an increase in demand, especially for coverage pf critical and communicable illnesses, similar to the trends seen after the previous SARS and MERS outbreaks.
Globally, the report expects that the overall COVID-19 experience may trigger structural changes in the market, as the world may witness public demand to improve healthcare infrastructure, make healthcare more affordable, and make more use of technology, in addition to changes to insurance and reinsurance products in terms of coverage, conditions, and exclusions, etc. (which have already started).