News Middle East30 Sep 2020

Saudi Arabia:Insurance demand driven by regulations & consumer penetration strategies

| 30 Sep 2020

The Saudi insurance market is pursuing regulatory and accounting change, product innovation, enhanced distribution channels and efficiencies in the conduct of business, notes the international professional services firm KPMG in the inaugural edition of its publication Insurance Pulse.

The demand for the insurance in Saudi Arabia is still primarily driven by government legislation and consumer penetration strategies of major insurance players, says the report.

Digital sales

Recently, the digital platforms through which products and services are provided are on the rise. Many more motor insurance policies are sold online. However, so far, this is seen more with the larger insurance players. Digital platforms, when adequately designed and when taking into account target market’s needs, are certainly beneficial; they allow insurers to easily access large pools of new customers, whose demands and needs are aligned with the relevant product offer. They can also lower the costs of distribution. From a consumer perspective, digital platforms allow consumers to access more targeted and tailored products. However, competition is still limited and there are possibilities of over and under insurance risks coverage.

IFRS 17

IFRS 17’s implementation is at the core of harmonising the accounting rules. IFRS 17's effective date has recently been pushed out by a year to 1 January 2023. This delay has been largely welcomed by market players as it gives an opportunity to clarify and implement the rules without a haste and business interruption. It also allows insurance companies to refine their systems and educate investors on the expected changes in the financial results.

1H2020 performance

In a review of the financial results of the Saudi insurance sector in 1H2020, the report says that while most of the industries have shown slowdown in growth and declining profits amid COVID-19 pandemic, the insurance industry in Saudi Arabia sustained its performance, and in fact reported a marginal growth. This was possible for a healthcare and motor heavy insurance sector, where the government stepped in at the very early stage of the pandemic to relieve insurers of their obligations.

The government paid for the treatment of all COVID-19 patients including citizens, residents and even violators of residency laws. Moreover, an extended lockdown in major cities had restricted the mobility of most citizens and residents, resulting in a sharp decline in the motor claims during the second quarter of the financial period. Consequently, insurers have seen an overall growth of 5.9% in gross premiums in first six months of 2020 compared to the same period in 2019 with a drop (improvement) of 12.4% in loss ratios being reflected in the net income, despite a regulatory extension of two months in motor policies endowed by SAMA.

Considering the overall performance in 1H 2020; the industry’s net profit after zakat and tax of SAR1.03bn ($275m) and return on equity of 3.58% were higher during the first six months of 2020 compared to same period last year. This was due to better than expected underwriting results from the motor and medical lines which represent major share of the insurance business in Saudi Arabia. Within the underwriting results, insurers reported increases in gross earned premium in most classes of business during the six month period.

• Gross incurred claims costs were lower due to limited number of motor claims originating during the COVID-19 lockdown and potential postponement of the elective medical procedures in the fist six months.

• Investment income fell during the six month period up to end of June compared to same period in 2019 due to reduced interest rate environment and lower returns in equities.

| Print | Share

Note that your comment may be edited or removed in the future, and that your comment may appear alongside the original article on websites other than this one.

 

Recent Comments

There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.