Managing Risk: Opening up Saudi insurance industry

With the accession of Saudi Arabia to WTO in December the expectations had started soaring among the insurance industry that the long awaited licensing of companies would now commence forthwith.

There were even rumours going strong in the market that the first batch of licenses would be issued before the close of the year, but unfortunately, these remained as 'rumours' only.

It is now nearly two years since the Cooperative Insurance Companies Control Law and its implementing regulations were issued by Royal Decree advising all companies transacting insurance and re-insurance business in Saudi Arabia to comply with the requirements of the new law, but the only company licensed by Saudi Arabian Monetary Agency (SAMA) continues to be National Company for Cooperative Insurance (NCCI).

All other companies who transact insurance from the Kingdom are general agents for insurance companies registered in other jurisdictions.

Extension period

Major concessions were made by Saudi Arabia in the financial sector, especially in the insurance field, as part of their negotiations to get entry into WTO.

Included within such concessions was that Foreign insurance companies would be permitted to open and operate direct branches in Saudi Arabia.

Commercial presence would also be permitted for insurers that establish a locally incorporated cooperative insurance joint-stock company with foreign participation limited to 60 per cent.

The total premium recorded in the country, according to unofficial but reliable estimates, through the single licensed insurance company and numerous unlicensed ones, is in excess of 7 billion riyals, but as a percentage of GDP, it still constitutes less than 0.5 per cent, which is substantially lower than that available in developed countries.

Even the neighbouring UAE with a far smaller population and GDP recorded a premium income equivalent to about 5.5 billion riyals in 2005.

Saudi Arabia fortunately, boosted by the soaring fuel prices, is in the midst of an unprecedented economic boom.

According to IMF estimates, the real GDP growth for 2005 is projected to accelerate to more than 6 per cent, supported by strong growth in oil and non-oil private sectors.

Economic growth and terms-of-trade gains are expected to boost per capita GDP by 19 per cent to above48,750 riyals in 2005.

The insurance sector can contribute vigorously by inspiring stronger confidence amongst wider public, if it is 'opened up' in real sense by bringing all the players within the SAMA regulations sooner than later.

The regulations would ensure a level playing field for all companies transacting insurance and bring about quantitative and qualitative growth in the sector.

The expanded sector would also boost the much needed employment generation for Saudi Nationals.

The writer is Deputy General Manager with Al Rajhi Company For Cooperative Insurance, Riyadh. The views expressed here are his own and not necessarily subscribed to by his employers.