Insuring the future of Saudi Arabia

Saudi Arabia’s Vision 2030 strategy for diversifying its economy involves multiple projects that will create huge opportunities for insurers, while driving rapid development of its insurance sector.

Since the inception of the Kingdom of Saudi Arabia’s (KSA’s) Vision 2030 plan in 2016/2017, the economic focus of the country has been on diversification – reducing reliance on carbon-intensive industries in favour of a wider selection of sectors including green technology, entertainment, sport and tourism, as well as major infrastructure development.

The number and diversity of projects that have emerged from this economic strategy are creating a wealth of opportunities for insurance business and are driving rapid development of Saudi Arabia’s currently relatively modest insurance sector.

In addition to the immediate opportunities for insuring property and casualty risks for construction business and renewable energy assets, Vision 2030 is also expected to drive market demand for event cancellation and contingency coverage, a range of general and professional liability risks, and increasing take-up of consumer insurance products as well as greater appetite for life and health policies.

Building for the future

Given some of the monumental infrastructure projects already underway in KSA, construction insurance is expected to be the first real boom market for the developing sector. Giga-projects like the NEOM Red Sea megalopolis, and the massive wind and solar energy projects required to power the smart cities and industrial and leisure complexes planned under the scheme, will require significant capacity from specialist property and energy insurers.

Alongside this, the expected involvement of international companies across a range of industry sectors from entertainment to healthcare, coupled with regulatory requirements for foreign companies to have regional headquarters in the country, will drive the need for professional liability cover for directors and officers based in Saudi Arabia.

The Saudi financial regulator is already playing a key role in driving the development of the insurance sector in KSA. The Saudi Central Bank (formerly the Saudi Arabian Monetary Authority and still referred to with the acronym SAMA) is creating a separate insurance regulation authority in response to the government’s plan to develop the insurance sector as part of its wider economic reforms.

The authorities in KSA are also developing a national strategy for insurance which will transform the way insurance is viewed in the country and will involve widespread reform of existing insurance laws and regulations.

The ultimate aim is to make the Saudi insurance sector not just a leading regional market but an international insurance hub, with a regulatory framework that is closely aligned with global standards.

Regional developments

While there are no official plans currently to harmonise insurance regulations across the wider GCC region, SAMA signed a memorandum of understanding with the Central Bank of the United Arab Emirates (CBUAE) in September last year, which lays the foundations for a consolidated approach to insurance supervision across the two regions.

Under the agreement, the two financial regulators will seek to increase the exchange of insurance supervisory and regulatory information, such as solvency rules, investment policy and supervision of insurance companies (including enforcement activity).

SAMA and CBUAE are also pursuing greater cooperation on the implementation of international standards in their respective markets, particularly the International Financial Reporting Standard that relates to insurance and on the exchange of information related to suspicious activities, insurance fraud, money laundering and terrorist financing.

International involvement

In the domestic market SAMA has increased capital requirements for local insurers, to encourage greater consolidation in the sector. This regulatory push is intended to not only increase the financial strength of the resulting merged entities, but also to increase competition in the market between large, multiline carriers.

To aid further development of the local insurance market, KSA has been actively inviting and enabling international involvement in the sector, so that it can meet the expected rapid growth in demand across insurance classes with a combination of global and regional capacity.

This approach has also included opening up the market to international carriers to establish branch offices in the country. The first licence for a foreign-owned branch office was issued in February this year to US-owned global health insurer Cigna.

As part of the drive to create employment for local nationals, the authorities are seeking to ensure that foreign branches have Saudi leadership and meet quota requirements in respect of their Saudi workforce. There is also an expectation that emerging local talent will be trained up as part of the market’s development and will form part of the succession planning for international firms investing in the domestic market.

The Saudi regulator is also keen to encourage more inward investment on the distribution front, with global insurance intermediaries and non-risk-carrying entities invited to take a greater ownership stake in domestic entities, subject to regulatory approval of their business plans.

SAMA is willing to increase the percentage of ownership available to global entities wishing to establish subsidiaries in the Kingdom, providing they can demonstrate how they can add value to the market, help increase competition, and take part in developing insurance sector talent in Saudi Arabia.

Growing the personal lines market

In parallel with the development of commercial insurance business, the Saudi government and insurance regulator are keen to increase appetite for personal lines coverage and improve access for consumers to insurance products.

The Ministry of Health and the Council of Health Insurance, which regulate private healthcare in KSA, are in the process of developing mandatory health cover for Saudi citizens. The introduction of a significant new local provider to the market, following the licensing of Cigna, is therefore expected to raise the profile of health insurance in the country and to further increase demand for coverage.

Meanwhile, a push for greater digitisation of the health insurance sector is expected to make placement of coverage more straightforward. Distribution will most likely continue to be handled predominantly by the bancassurance and insurance aggregator markets, but the number and variety of health insurance products is expected to increase as more providers enter the market.

This expansion in health insurance is expected to lead the charge for a rapidly developing insurance sector that could provide substantial growth opportunities for international players prepared to invest in the domestic market.

For more information please contact Peter Hodgins or Saud Alsaab. 

This article was published by Commercial Risk Europe on 19 June 2023. Click here for the full version.