Introduction #

The insurance sector is proliferating in different parts of the world. Insurance has become so popular and is open to several sectors that affect the economy of any given country. It is important to note that the insurance market greatly contributes to a country’s gross domestic product. As it has been widely accepted in the world’s economies, insurance helps in the maintenance or, rather, the compensation of property in the event of loss through accidents or when an injury occurs. The insurance companies agree with the insured party who pays premiums per the terms, say monthly or yearly. In the event of loss, the insurance company will need actuaries to assess the damage or the cause of the accident before they pay for the same. For the insurer to compensate the insured, some terms must be met, including the real cause of the loss. The accident or injury should not be self-caused; if so, the insurance company will not pay for the losses incurred. The measures are implemented to maintain integrity and confidence between the insurer and the insured. Some individuals may try to take advantage of gaining from the insurance company by faking the losses incurred; this compromises the system, leading to inefficiency in the policy entered. With lost trust, the work will be inefficient, and one party or both will fail in the long run. For instance, if the insured plans a fire and burns down a manufacturing company, and the assessment determines that the cause of the fire was intentional, the company will be on the verge of collapse as they will not receive any compensation. 

There are several covers that the insurance companies offer to their clients: life insurance or personal insurance, fire insurance, property insurance, social insurance, marine insurance, and liability insurance to guarantee insurance. Not all these covers are commonly taken in the Gulf region, Saudi Arabia. Conventional insurance covers vehicle, health, and general insurance in Saudi Arabia. Vehicle insurance has been doing pretty well, thanks to the increase in the number of vehicles registered in this country. These companies have created job opportunities for several nationals in Saudi Arabia. From the 2018 survey, there was an increase in the number of employees by 0.5 percent. The workforce is indicated to have risen from the previous year, with the administrators shot up by fifty-five percent.

In comparison, the posts of the non-managers increased by seventy-six percent. The sector also appreciates and celebrates the increase in the retention ratio, which increased by 1.8 percent, down from 84 percent. The sector has registered diverse collections from the insurers in terms of premiums. The insurance sector in Saudi Arabia is on the rise, recording a growth rate of 15 percent. This paper highlights the various trends evident in the Saudi Insurance Market and the developments in this vital sector of the economy. It also documents the challenges that this Kingdom faces in the insurance sector and the benefits that this sector brings to the citizens of this part of the world. However, insurance companies are required to offer high-quality services to their insured clients to keep them relevant in the market.

Trends and Developments #

This sector has fought its way into existence in the twentieth century amid much opposition from religion. The insurance market was then concentrated only on the oil field before the introduction of cooperative insurance, which gave birth to the National Company for Cooperative Insurance (NCCI) in 1986. The religious groups were now open to the insurance market, and this went a long way to see the government allow foreign investors into the country and transact businesses in 2005. Oil is, therefore, seen as an entry point for the insurers in this country, allowing them to have a broad market. With time, the price of oil has greatly dropped, limiting the insurers in the market. This trend has made the insurers flee this line of the market, and now the insurers have crowded around the health and motor covers; such companies include Bupa Arabia, Medgulf, and Malath Insurance.

Till 2006, only one company, the National Company for Cooperative Insurance (NCCI), was licensed to cover health in Saudi Arabia. It took long due to the regulations of the government concerning registration of the companies and their certification to operate in the country, the government came up with a health insurance scheme called the cooperative health insurance scheme whose main aim was to increase the private sector participation in the market. Consequently, the reason for the coming up of the stated plan was to relieve the government of the finances it used in the health sector. The main insurance policies sold in Saudi Arabia are health, general, and motor insurance. The decrease in the cost of insurance policies in the vehicle industry was due to the reduction of gross written premiums (GWP) by 4.1 percent in 2018. In the same year, the general insurance part recorded a decrease of 14.1 percent, while the health insurance gross written premiums were the only ones registering an increase of 5.1 percent.

Benefits #

Improved Health #

A healthy body is the desire of every human being. Following the allowance of international investors in Saudi Arabia and the government’s law to have all citizens and expatriates take insurance coverage, many people can get proper health care. The health sector has improved with the various partners in the insurance sector, offering financial solutions to the hospitals (Pradhan, 2017). No more worry about the medical challenges at the point of sickness since the insurance companies take responsibility. There is an increased number of premiums in health insurance coverage. The hospitals are also well equipped with surgical, chemotherapy, radiotherapy, and ultrasound equipment, with the medical practitioners available twenty hours a day to attend to the patients.

Economic Growth #

The economy of the Kingdom of Saudi Arabia is growing fast. Saudi Arabia mostly deals with gas and oils as their exports from where they get income for their developments. The revenue obtained from these major exports funds several infrastructural projects to help the country develop. The projects that have been completed will need to be covered to secure them in the event of the many risks to which they are prone. The insurers are always available to pay for the costs that may be incurred when uncertainties come into being, hence assisting the management of these projects in reinstating the set projects for the service of society, and the economy remains strong (Samargandi, 2014). Without insurance, institutions of learning may find it difficult to pay for the losses that may come when a fire tragedy befalls it, which will mean a failure in the education sector.

Conducive Operating Environment #

The government is a key player in the gradual growth of the insurance sector in Saudi Arabia. It has helped come up with strategies that are going to see the insurance market revive and grow. The Mortgage Law of 2012 helped open another branch in the insurance market, mainly focused on health coverage and vehicle insurance (Akhtar, 2018). This law has made way for insurance companies to cover real estate to increase their zones of operation and get a wide range of businesses to carry out during their operations. The insurance sector is, therefore, not limited to the core of earlier insurance covers that every other company on Arabian soil focuses on. It has also led to the creation or registration of more insurance companies in this country because some companies like operating or dealing with a single policy.

The SAMA Directive to Expand Market #

The Central Bank of Arabia, commonly known as the Saudi Arabian Monetary Agency (SAMA), has made a move that is very important in the growth of the insurance sector (Akhtar, 2018). The insurance sector has greatly benefited from the central bank’s decision to have all the insurance companies follow the local cooperative insurance structure. The Arabian government also developed a policy that expanded the insurance market. A compulsory insurance regulation was implemented, targeting all immigrants to have medical coverage for themselves and their families. It may seem harsh, but it promotes the insurance sector in their home country.

Increased Demand for the Insurance #

The insurance sector smiles at the country’s increased demand for insurance covers. It has been made possible by the awareness created by the nationals. Most insurance companies have advertised themselves so well that public consumers are becoming interested in adopting one or two covers. The insurers have made people understand the importance of insurance without forgetting to explain the uncertainties that may arise when one person or his property is not covered. The (social) media has played a significant role in creating this awareness through adverts on television, conversations on the radio, and the self-branding of these insurance companies in their respective social media platforms. To avoid losses when unknown risks occur, people in this part of the world have found it favorable to adopt insurance for their lives and property.

Challenges #

Increasing consumer’s productivity #

Insurance companies have always found it hard to help improve the quality of the products available for consumption. Some of the products are not of high quality, and often, the insured are not ready to part with the old ways of production to be competent in the market. When this happens, the service providers may be outdone by hardworking competitors in the same line. The insurance companies may have then failed to inform the consumers about the products, the services, and their limitations; some of these companies fail to tell the consumers their expectations, which is either neglect of duty or lack of proper personnel in that given company.

Death Anxiety #

Some of these insurance covers may be very worrying and even cause mental illness as a result of many thoughts pumped into the mind of the insured concerning the insurance policy. Life insurance, as it is well known, is not beneficial to the insured but to the trustees. This policy may make an individual so much that he or she may find it challenging to take up the policy. Although one can argue that the policy is meant to help the insured avoid worries about what happens to him or her after death, there are worries about their death. Therefore, it is challenging to take this policy, but the fear of death is viewed as a possibility of one reviewing the life insurance policy. The point at which one finds it unnecessary to have a life insurance policy reduces the number of people going for it, affecting individuals who may not have families or have no heirs.

Competition among the Companies #

Due to the government acts governing the insurance policies, many people saw the insurance sector as a niche to venture into. It led to the flooding of the insurance market, hence increasing competition. While some companies deal with many policies, others deal with only one cover. An insurance company may deal with one policy but do it inefficiently, rendering it incompetent and collapsing. Also, another company may be covering many policies, but they do not do them properly; some of them die, or the whole company collapses. Some insurance companies dealing only with health coverage have long stood the test of collapse. Unfortunately, many companies have failed to perform their work effectively due to stiff competition in the market. Notably, it is not only the finances that make a company strong but also the personnel. Communication is very important in any production or service delivery sector, but in this platform, it is not well done among the companies (Alawni, 2015).

Government Regulations #

The government has had many regulations specified in the Ministry of Commerce that locked out private investors for a long time. The ministry has legal procedures that are sometimes long and cumbersome for interested individuals to take up. Sometimes, the department takes a long time to approve a given company.

Late entry into the Market #

Saudi Arabia entered the insurance market quite late compared to other countries in the developing world. The venture is so new that it made it difficult to thrive without opposition, mainly religious. Since it took time for the Kingdom of Saudi Arabia to allow foreign investors to enter the market, some investors moved to other countries. Only a few insurance covers are offered in the country because of such limitations, mainly vehicle and health insurance.

The insurance market has grown and is now widely accepted in the Kingdom of Saudi Arabia, and it is still destined for greatness. The government has made bold moves to help the insurance market grow, and this is highly recommendable. The benefits are to be enjoyed by the government, the insurance companies, and the whole society since, in the long run, it leads to the growth of the Kingdom’s economy and the gross domestic product (GDP). The insurance sector is also faced with challenges, ranging from competition to unfavorable working conditions brought about by the consumers of their services. The insured has failed to cooperate or honor the agreements signed in the insurance form by trying to cause false alarms about the companies and claiming compensation where unnecessary. At one point or another, the companies have lost to the insured, but it is a challenge the insurance sector has to cope with. Although the consumers may be problematic, the service providers, that is, the insurance companies, have also had their failures. With incompetent people working in this sector, many businesses have failed because of fraud. Also, some of these companies have been unable to educate their consumers about their policies. The lack of cooperation between the consumer and the service producer has greatly contributed to the inefficiency of this system.

References #

Akhtar, M. H. (2018). Performance analysis of Takaful and conventional insurance companies in Saudi Arabia. Benchmarking: An International Journal.https://doi.org/10.1108/BIJ-01-2017-0018

Alawni, M. S., Yusoff, R. Z., Al-Swidi, A. K., & Al-Matari, E. M. (2015). The relationship between communication, customer knowledge, and customer loyalty in Saudi Arabian insurance companies. Mediterranean Journal of Social Sciences, 6(1), 318.http://dx.doi.org/10.5901/mjss.2015.v6n1p318

Pradhan, R. P., Arvin, M. B., Nair, M., Hall, J. H., & Gupta, A. (2017). Is there a link between economic growth and insurance and banking sector activities in the G-20 countries? Review of Financial Economics, 33, 12-28.https://doi.org/10.1016/j.rfe.2017.02.002

Samargandi, N., Fidrmuc, J., & Ghosh, S. (2014). Financial development and economic growth in an oil-rich economy: The case of Saudi Arabia. Economic Modelling, 43, 267-278.https://doi.org/10.1016/j.econmod.2014.07.042