Insurance of Arabia
By admin • Dec 30th, 2008In 2007, 42 insurance companies were operating in the Saudi market. Gone are the days of the fly-by-night operator. In accordance with the Cooperative Insurance Companies Law (2003), existing companies that have not applied for a license are required by SAMA to leave the market. Their grace period ended on April 9, 2008. Insurance companies and other insurance service providers that are going through the licensing process with SAMA have been granted an extension of between two and six months depending on how far along in the process they are.
Growth specifics. Voluntary insurance is not the norm in the kingdom. In 2007, about two-thirds of total GWP was generated by compulsory lines of business, motor and health insurance. The fastest growing sectors were energy insurance and protection and savings insurance, which achieved growth of 141 percent and 50 percent respectively. The slowest growing lines of business were marine insurance and motor insurance, which realized growth rates of 23 percent and 27 percent, respectively. Property, aviation and engineering premiums all fell.
Possibly reflecting the entry of new players into the market, in 2007, the top eight insurance companies generated around 61 percent of the insurance market’s GWP, compared with 65.6 percent in 2006. The SAMA report said overall retention ratio of insurance companies in the Saudi market was 65 percent. (Retention ratio is a rough measure of how much of the risk is being carried by an insurer.) The report added that total commissions paid by insurance companies totaled 576 million Saudi riyals ($153 million) in 2007, compared with 440 million Saudi riyals ($117 million).
Reflecting on the growth of insurance in Saudi Arabia and the Middle East, it would be easy to assume that insurance is a new concept to the area. But it’s not. For well over a century insurance in a structured form has been quietly providing services. The sudden boom in the business, you might argue, is a result of development rather than an innovation.
Mohammad Kanaan is Jeddah branch manager of Arabia Insurance International. Formerly Arabia Insurance, it was founded with the full partnership of the Arab Bank in 1944 in Jerusalem and is the oldest Arab insurance company. When the war started in 1948, Arab Bank moved to Jordan, and Arabia Insurance moved to Lebanon. The bank and insurance established head offices in their respective new homes and started to operate new branches overseas. Since then it has developed into an international player of considerable weight and is still very much “by Arabs for Arabs.”
Insurance is not new to Saudi Arabia, let alone the region. “The first Saudi branch of Arabian Insurance was established in Jeddah in 1960 and within two years or so had established many branches all over the Kingdom,” says Kanaan. “At that time, the only insurance company was the NCCI, a national insurance company. We were not authorized to underwrite any government business.”
Although there is a popular belief that Islamic insurance is a contradiction in terms, possible conflicts with Islamic ideals were sorted out a long time ago. “All insurance companies in the Kingdom work on the basis of cooperative insurance as required by the regulators,” Kanaan emphasises. “Cooperative, but not Islamic insurance.”
Over the last three years, the insurance landscape has changed dramatically. “People started believing in insurance,” said Kanaan. “Before that they were hesitant, thinking it might be against religious requirements. When the new rules and regulations were issued by the Saudi Arabian Monetary Authority, it gave credibility and the green light. People were convinced, and it went ahead from there.”
