Millions of Saudi citizens, residents not yet provided medical insurance

The Saudi insurance industry – which saw strong growth in net income in 2016 – is poised for further growth this year, a new report issued by S&P Global Ratings has found.

However, the enforcement of compulsory covers holds the key to growth, the report stressed.

Saudi has approximately 20 million Saudi nationals and a further 10 million foreign workers and dependents, with its population of insurance buyers still growing.

But authorities estimate that about 2.5 million citizens are working in the private sector without being provided with medical cover by their employers, in breach of regulations.

Media reports also suggest that some 870,000 foreign workers and their dependents may also lack the medical cover that their employers are supposed to provide.

This figure excludes the 1.9 million foreign domestic staff employed by Saudi families, who are not yet required to have medical insurance.

“Some 55 per cent of the vehicles currently on Saudi Arabia’s roads are also not insured, which is illegal. A crackdown by the traffic police could therefore contribute to considerable growth in motor insurance premiums,” the report stated.

“Although these reports suggest that considerable potential for market growth in 2017 exists, the actual level of growth will depend upon the speed and effectiveness with which the authorities clamp down on uninsured drivers and on employers who fail to provide their staff with proper medical insurance,” it added.

In 2016, the insurance sector witnessed slow growth in the top line, with year-end domestic gross premium written (GPW) across all lines rising by 0.5 per cent to SAR35.8bn.

However, in terms of the bottom line, the sector’s net income for 2016 rose 139.2 per cent to SAR2.5bn.

“Pricing on medical improved, despite falling volumes, and motor tariffs nearly doubled during 2015 and 2016. Until the end of 2015, the effect of improved pricing was depressed by residual losses and unexpired risk reserving from the 2013 and 2014 underwriting years. In effect, it was only high expense and tax ratios that prevented many companies from reporting strong results last year, as loss ratios were generally satisfactory,” S&P said.

The report also found that Saudi’s insurance industry has “too many” players.

Currently, 34 licensed insurance companies operate in the country. Of these, two (Weqaya and Sanad) are currently closed to new business, with trading in their shares suspended.

“We remain concerned that Saudi Arabia has too many insurance companies, notably too many that are too small to compete effectively with their larger peers,” the report said.

“If insurers were to consolidate, their greater size would help dilute the impact of high fixed costs, and would likely help promote greater competition across the whole market.

“However, the complexity and occasional ambiguity of local law and regulation mean that economic logic alone may not be sufficient to support the case for consolidation. We therefore anticipate that the government will agree to act as a facilitator.

“The Saudi Arabian Monetary Agency (SAMA), as a regulator, has taken this role in the past, successfully promoting the consolidation of the domestic banking sector to just 12 banks,” it added.

In the last decade, the kingdom’s overall insurance market has changed from an unregulated industry into the largest non-life and health insurance market in the GCC, the report found.

It is also the most actively regulated insurance market in the Middle East.

“The sector’s remarkable progress owes much to its principal regulator, SAMA, which has regularly introduced new initiatives over the past decade. For example, since 2013, “actuarial pricing” has been strictly enforced (that is, tariffs must be approved by actuaries based on loss and expense expectations, so as to deliver an underwriting profit in normal circumstances) across all compulsory lines, notably motor, group medical, and liability,” S&P said.

Unlike most neighboring markets, Saudi has also largely avoided excessive price competition in recent years, it added.