Analysis of the Impact of Reforms on Insurance Industry of Saudi Arabia

Transcription

1 Analysis of the Impact of Reforms on Insurance Industry of Saudi Arabia Dr. Zaid Ahmad Ansari Assistant Professor (Marketing), Head, department of marketing, College of Business (COB) Rabigh, King Abdulaziz University, Saudi Arabia ABSTRACT This paper attempts to find out the impact of reforms on insurance industry of Saudi Arabia. The study finds out the impact of reforms vis-à-vis premium growth, regulation of insurance industry and entry of new companies in the industry. The study is based on secondary data collected mainly from the annual reports of the Saudi Arabian Monetary Agency (SAMA) from 2005 through The study made a comparative study of the performance of insurance industry in pre and post reforms era. Further it analyzes the impact of reforms on standardization of insurance industry through regulatory framework and participation of new companies from Saudi Arabia and other foreign multinational companies in the industry. Since reform in 2004 Saudi Insurance is growing fast registering remarkably high growth rate in premium. Besides premium large numbers of indigenous companies have entered the insurance market. The government has established sound regulatory system to develop the insurance industry of Saudi Arabia to international standard. Keywords: Insurance, Reform, Saudi Arabia, Saudi Arabian Monetary Agency 1. INTRODUCTION The last two decades have seen accelerated growth in global insurance markets. Total written real premiums for all countries increased by 82 percent between 1997 and 2004 (104 percent in the life insurance business and 60 percent in the non life insurance one), from US$1.6 trillion to US$2.9 trillion. Emerging markets have recently experienced significantly faster real growth in their insurance sectors than industrialized countries have (52 percent versus 27 percent between 1997 and 2004) reflecting reform and financial integration after structural reforms were implemented. A number of studies show the importance of robust insurance system for economic growth and social security of the masses. Arena (2008) found that there exists a robust causal relationship between insurance market activity and economic growth. Both life and non life insurance premiums have a positive and significant effect on economic growth. Insurance activity may contribute to economic growth by improving the financial system functions, both as a provider of risk transfer and indemnification and as an institutional investor, in the following ways: i. Promoting financial stability, ii. Facilitating trade and commerce (the most ancient insurance activity), iii. Mobilizing domestic savings, iv. Allowing different risks to be managed more efficiently by encouraging the accumulation of new capital, v. Fostering a more efficient allocation of domestic capital, and vi. Helping to reduce or mitigate losses (Skipper, 1997, pp.2-7). In addition, there are likely to be different effects on economic growth from life and non life insurance (property-liability) given that these two types of insurance protect households and corporations from different kinds of risks that affect economic activity in diverse ways. Moreover, life insurance companies facilitate long term investments rather than short-term investments as is the case for non life insurance companies. The above literatures show the importance of a dynamic insurance system for an economy. The fact is further supported by Greenwood and Jovanovic (1990) and Pagano (1993) who modeled the effect of financial intermediaries on economic growth. They studied that financial intermediaries have an impact on economic growth by transforming savings into investment, i.e., funneling savings to firms by improving the allocation and productivity of capital and by altering the savings rate. With particular emphasis on insurance activity, Webb, Grace, and Skipper (2002) model the impact of financial intermediaries (banks, life and non life insurers) on economic growth in the context of a neoclassical Solow-Swan model predicting that insurance and banking spur capital stock productivity, which drives the level of output and investment. Soo (1996) developed a dynamic 28

2 optimization model that includes the availability of life insurance as a tax loaded premium for individuals to maximize their life time utility. Besides with the rapid emergence and continuing evolution of a global economy, any country that intends to play an important role in world trade must ultimately remove the protection and restrictions on its insurance market. Specifically, under the rules of the World Trade Organization (WTO) agreements regarding reforms in the financial service industries, these developing countries have to balance dual goals of survival and free trade. On the one hand, the local governments are persuaded that deregulation and liberalization (D&L) will improve the efficiency of existing domestic companies and that the degree of competitiveness of the entire industry could be raised by the new technologies brought by new entrants. On the other hand, local governments always fear that the D&L will undermine the development of domestic industries and ultimately result in the failure of domestic firms. Which argument prevails is an empirical question. Reforms in the financial service industries also increase the incentive of global insurers to enter new markets because reforms have lessened the entry barrier for local markets. If global insurers decide to enter a new market, then their very next question is to decide what the best method is to enter the market. In other words, is it better to enter a new insurance market by establishing a new insurer or to go through mergers and acquisitions with an existing domestic insurer, either of the methods are analyzed vis-à-vis cost and benefits. Cummins and Vernard (2008) analyzed the radical changes in the Insurance Markets in the past twenty years. Deregulation, globalization of insurance institutions, intensified competition, electronic commerce, bancassurance, and the emergence of new risks among the challenges faced by insurance markets. These developing trends pose both global and local challenges for insurance firms. He attempts to review the global developments and local factors affecting insurance markets and evaluates the advantages and disadvantages of globalization. The study further presents the global trends in insurance like the increasing sophistication of insurance products, the globalization of risk diversification through reinsurance, the emergence of mega financial intermediaries, and growing importance of supranational agencies such as the World Bank and the World Trade Organization. The researchers conclude that inspite of these global developments there remains significant heterogeneity among countries and regions that has a profound impact on insurance markets. Among the important local differences are political, legal, and cultural components as well as differences in financial markets, taxation, regulatory systems, insurer investment strategies, and insurance distribution systems. Though these are important points and issues to be dealt, in this paper the author investigates the impact that reforms of insurance industry in Saudi Arabia has caused on its performance in terms of premium, entry of indigenous as well as foreign insurance companies and standardization through regulations. Though the world economies developed as well as developing was benefiting from the insurance system but country like Saudi Arabia was not. Empirical research on insurance markets by Browne et al. (2000), Ward and Zurbruegg (2002), Beck and Webb (2003), and Esho et. al. (2004) has shown that the level of insurance demand within an economy can be influenced by a number of particular variables, including economic, legal, political, and social factors. In Saudi Arabia the Legal factor and Social factor were working against the development of insurance industry. Zelizer (1979) analyzed the effect of religion on insurance demand. He noted that historically religion has provided a strong source of cultural opposition to life insurance with some religious groups believing that a reliance on insurance represents a distrust of God s protective care. Until recently the insurance industry in Saudi Arabia was an unorganized, unstructured, underperforming and ignored sector. With the growing economic activity in the kingdom, this important industry became no more avoidable for any reasons and thus the government gave due attention this sector deserved. In 2004 Saudi Arabian Monetary Agency (SAMA), was given the control and responsibility of guiding Saudi insurance industry on international standards. Insurance in Saudi Arabia : The insurance industry in Saudi Arabia was reformed in the year This newly reformed industry has been growing fast, the growth rate was 27% in 2008, and 33.8% in 2009 (The Saudi Insurance Market Report, 2009). This high growth was mainly driven by compulsory lines of business i.e., Motor Insurance and Health Insurance for expatriates and Saudi employees. Health insurance gross written premiums represented 50% of the insurance market with remarkable growth rate of 51.8% in General insurance represented 43% of the total insurance market with an average growth rate of 14.4% and Protection and Savings insurance market was 7% percent establishing a remarkable high growth rate of 68.9% in It is noteworthy that motor insurance within the category of general insurance represents 21% of the total insurance market of Saudi Arabia. Thus the motor insurance and health insurance business in Saudi Arabia together made more than 70% of the total insurance market (The Saudi Insurance Market Report, 2009). 29

3 Insurance penetration defined as Gross Written Premiums (GWP) divided by the total Gross Domestic Product (GDP) in 2009 increased to 1.06% up from 0.62% in 2008, representing a 69.9% increase. Insurance density defined as Gross Written Premiums per capita increased from SR440 per capita in 2008 to SR 576 per Capita representing 30.8% increase (The Saudi Insurance Market Report, 2009). Despite the high growth in insurance penetration, the total penetration level is incomparably low to the developed countries such as US and Japan. One of the most unpopular lines of business for Insurance in Saudi Arabia is Protection and Savings (P&S). Interestingly this segment has shown high growth rate of 81% in 2008 and approximately 69% in 2009 (The Saudi Insurance Market Report, 2009). However, the researchers hypothesize that this remarkable growth in Protection and Savings may have happened due to the customers change in perception about the insurance by using compulsory insurance such as motor and health insurance. Thus realizing the benefits of insurance they stepped out of these compulsory insurance to purchase Protection and Savings, which may further extend to other personal lines of insurance in future. Since 2004 the Saudi insurance industry has been growing on an average of more than 30% annually (The Saudi Insurance Market Report, 2009). But 71% of the total GWP is contributed by compulsory lines of insurance only. However after six years of reforms it is considered appropriate to find out changes and developments witnessed by the insurance industry as a result of reforms that started in The industry is also ready for second generation reforms, prior to it, this study is important to identify the areas that need further improvement and attention to bring the insurance industry of the Saudi Arabia at par to global insurance industry Forecast for insurance industry Business Monitor International (BMI) Business Monitor International presented very optimistic situation for insurance industry of Saudi Arabia with high growth rate of 21% from 2005 through Table-1 shows the forecast made by BMI, which presents an optimistic future for insurance industry in Saudi Arabia. According to BMI report Non life premiums will grow on an average of 20% through these years whereas Protection and Savings are forecasted to grow at 26% annually. Interestingly the actual performances in both these sectors in the previous years have been more than the BMI estimates. Highlights of the Saudi Arabian Insurance Market The Saudi Insurance Market has been developing rapidly. In 2008, the insurance market in Saudi Arabia witnessed a strong growth, with gross written premiums reaching SR 10.9 billion, up from SR 8.6 billion in 2007, an increase of 27%, compared to 24% in 2007 (The Saudi Insurance Market Survey Report, 2008). General insurance gross written premiums, which represent 51% of the insurance market, increased by 6.3% to SR 5.5 billion in 2008 compared to SR 5.2 billion in In the general insurance sector, the motor account constitutes 46% of the total general insurance business with total premium underwritten SR 2.5 billion in 2008 (The Saudi Insurance Market Survey Report, 2008). Health insurance gross written premiums, which represent 44% of the insurance market, increased by 57% to SR 4.8 billion in 2008 compared to SR 3.1 billion in 2007 (SAMA, The Saudi Insurance Market Survey Report, 2008). Protection and Savings insurance gross written premiums, which represent 5% of the insurance market, increased by 82% to SR 0.59 billion in 2008 compared to SR 0.33 billion in 2007 (SAMA, The Saudi Insurance Market Survey Report, 2008). The market now comprises only those companies duly licensed under the Cooperative Insurance Companies Control Law (SAMA Insurance Supervision Department 2008), presently there are 34 insurance companies operating in Saudi Arabia (some of which are licensed to write both direct insurance and reinsurance) and one pure reinsurance company. (SAMA, Insurance Supervision Department, 2010). The market still lacks sufficient indigenous reinsurance capacity to enable companies to comply fully with Article 40 of the implementing rules to the Cooperative Insurance Companies Control Law promulgated by Royal Decree No M/32, (Implementing Rules), which stipulates that reinsurance equivalent to 30% of the gross account must be placed locally. There is only one Reinsurance company (Saudi Re) solely dealing in reinsurance, few others deal in both insurance and reinsurance (SAMA, Insurance Supervision Department, 2008). Tawuniya no longer has a monopoly on government insurance business. This may now be transacted by all 34 locally licensed companies, which has had a significant effect on increasing competition in the market. 30

4 Medical malpractice insurance has been developing rapidly since the introduction of the Health Professions Practicing Law of Article 41 of this law requires all medical practitioners and dentists to purchase cover. SAMA has introduced a strict and comprehensive market code of conduct, dealing with competence standards, advertising, sales procedures, documentation, transparency, claims settlement, dispute settlement and after sales services (SAMA, Market Code of Conduct, 2008). The competition in the market is expected to be unremitting in the short term due to the restructuring caused by the cessation of Tawuniya s monopoly on government business (AXCO 2009). The rapid growth in health business caused by the introduction of compulsory insurance for expatriates is expected to moderate, as the phased implementation of the law is now completed (AXCO 2009). The prospect of compulsory health insurance for Saudi citizens and their dependants suggests there may be huge increase in premium income from this source between 2009 and 2011 (AXCO 2009). The Council completed the implementation of health insurance for Non Saudi residents working in private sector and their families. As the second step the act will be applied for Saudis employed in the private sector according to His Royal Highness the King decision (The First Annual Report CCHI, 2007). The personal lines and Takaful sectors are expected to grow as the concept of insurance and the products available become more familiar. The protection and savings insurance increased by 82% in 2008 (SAMA, The Saudi Insurance Market Survey Report, 2008). 2. INSURANCE INDUSTRY IN SAUDI ARABIA BEFORE REFORMS Table 2 presents product wise contribution to the total premium for the period from 1991 to 2001 in Saudi insurance market. The classification has been done in three major product groups viz., motor insurance, health insurance and others. The table shows that motor insurance has been dominating the total premium from the beginning. However towards the end of the decade the medical insurance share increased fast. The overall growth had been fluctuating. The growth was as high as 18% in 1993 and as low as -3.61% in However since 2000 the growth had been steady. In 2000 the growth rate was approximately 11% which increased to 27% in INSURANCE INDUSTRY IN SAUDI ARABIA AFTER REFORMS The insurance industry in Saudi Arabia was reformed to benefit the growing economy of Saudi Arabia by encouraging the private indigenous companies to enter the insurance industry. Besides the native companies the multinationals from world over got attracted to enter the Saudi insurance industry. In the following sections the author presents the impact of reforms on insurance industry vis-à-vis the following three areas: Standardization of insurance industry regulatory reforms. Growth in Gross Written premium, Insurance Premium. Entry of new insurance companies i.e., domestic as well as foreign companies Standardization of Saudi insurance industry - regulations Before reforms insurance industry in Saudi Arabia was scattered, unstructured, uncontrolled, unguided and unmonitored. The customers were at the mercy of the insurers who very often tend to fail in payment of insured claims. Many times in case of big claims the insurance companies declared themselves insolvent and closed. The government of Saudi Arabia realizing the importance of the existence of a dynamic insurance industry for economic growth decided to standardize the insurance activities in Saudi Arabia. As a result following regulation was passed The core legislation pertaining to insurance market regulation and control is the Cooperative Insurance Companies Control Law promulgated by Royal Decree No. M/32 dated H (Cooperative Insurance Companies Control Law). The first step in this direction was assigning the Saudi Arabian Monetary Agency (SAMA) the authority as regulator of insurance activities in Saudi Arabia. This legislation is supported by and amplified by Implementing Rules to the Cooperative Insurance Companies Control Law promulgated by Royal Decree No M/32, (Implementing Rules) published by SAMA. To better focus on the market activities the regulatory responsibilities of health insurance was assigned to Council of Cooperative Health Insurance (CCHI). Regulations regarding compulsory health insurance are contained in the Cooperative Health Insurance Law promulgated by Royal Decree No M/10 dated H (Cooperative Health Insurance Law). The following section presents a brief about the functioning of both the regulatory bodies. 31

5 Saudi Arabian Monetary Agency Saudi Arabian Monetary Agency under the provisions of the Cooperative Insurance Companies Control Law promulgated by Royal Decree no. M/32 dated H (Cooperative Insurance Companies Control Law), is responsible for establishing the necessary conditions and standards for the granting of insurance and reinsurance company licenses, and for regulating and supervising the insurance industry as a whole. All companies licensed under the Cooperative Insurance Companies Control Law must provide SAMA with complete copies of all their insurance policies, underwriting guides and rates, as an integral part of the licensing process. SAMA is entitled to query and discuss any aspect of these submissions; however it does not interfere in the insurance pricing / premium rates. Besides, SAMA has powers which include receiving applications for establishing cooperative insurance and reinsurance companies, to supervise technically the operations of the insurance and reinsurance companies in accordance with the principles specified by the Implementing Regulations of Law. Insurance market code of conduct: SAMA insurance supervision department to maintain transparency in the industry has laid down clear rules and guidelines to be followed by insurance companies and other insurance providers such as insurance broking firms, insurance agencies etc. SAMA has defined a separate guideline in important areas such as Insurance market code of conduct, Investment regulations, Regulation of reinsurance activities. Market code of conduct aims at ensuring high standard of business conduct within the insurance industry and specifies the guidelines to be followed by insurance companies and insurance related service providers in their dealings with their existing and potential customers. The code makes it compulsory for the insurance company and service providers to establish appropriate internal controls and procedures to ensure and monitor compliance with this code. Companies must maintain adequate records to demonstrate compliance with this code. Through this code SAMA ensures integrity in the activities of insurance companies and service providers such as companies must act in honest, transparent and fair manner, and fulfill all of their obligations to customers, which they have under the laws, regulations, and SAMA guidelines. The companies must act within the area of their competence in dealing with customers and acquire necessary skill, care and diligence. The companies should not unfairly discriminate between customers, a company must take reasonable care in maintaining adequate managerial, financial, operational, and human resource to carry out their business and save their customers. The Code further says that Companies must communicate all relevant information accurately and clearly to the customers in a timely manner to enable them to make informed decision. The code advices the company in areas such as protection of customers personal data, security of customer s assets, addressing conflict of interest, contracting service providers, policy wording and packaging, policy amendments, policy cancellation, and pricing. The code guides the companies in relation to advertising and promotion ensuring that the companies must not communicate any statements or advertising, directly or indirectly, that are inaccurate, misleading, exaggerated, or deceptive. The code further covers the areas such as presale customer contact, customer needs assessment, advice to customers as to how the proposed advice meets their needs, avoidance of churning, quotation to be obtained from more than one insurance company by the brokers. The code in section D presents the sale of insurance products and services, specifying the disclosures to be made to customers concerning important aspects of insurance policy such as terms and conditions etc. Investment regulation: SAMA has laid down investment regulation to be implemented by insurance companies and reinsurance companies in Saudi Arabia. This code presents the general principles and standards that should be met by insurance companies, including branches of foreign insurance companies, and reinsurance companies licensed by SAMA to manage their investments. The objective of this code is to promote high standards of investment practices within the insurance industry in accordance with the best international practices. The code requires the companies to submit to SAMA for approval of an investment policy. Regulation of reinsurance activities: This code presents the general principles and standards that should be met by insurance and reinsurance companies with regard to their reinsurance practices. The objective of the code is to promote high standards of reinsurance practices within the reinsurance industry in accordance with the best international practices Council for Cooperative Health Insurance (CCHI) Cooperative Health Insurance Act was issued by the Royal Decree No (10/M) dated 1/5/1420H. The council of ministers passed resolution No. (71) dated 27/4/1420H aiming at the provision of health care and its organization to cover all the non Saudi residents working in the private sector and their families. The Council of Cooperative Health Insurance had been formed and the council s general secretariat has prepared the necessary working plans to start the implementation of the act. The working actually started on 19/6/1427H (15/7/2006) for Non Saudi residents under the sponsorship of corporations and company employers (more than 32

6 500 employees) as the first stage according to the unified cooperative health insurance policy (Annual report CCHI, 2007). The Council completed the implementation of health insurance for Non Saudi residents working in private sector and their families. As the second step the act applied for Saudis employed in the private sector according to His Royal Highness The king decision (The First Annual Report CCHI, 2007). The CCHI has been given the responsibility of monitoring the acts of health insurance industry in Saudi Arabia. Thus, the Saudi Insurance Industry has been characterized by high standard of clear, transparent, and customer focused regulatory framework, with clear objectives of developing the Insurance Industry, promoting healthy competition, and protecting the interests of the policyholders Insurance companies and insurance service providers in Saudi Arabia after reforms SAMA has granted license to 34 Insurance Companies. Table 3 presents the lists of the insurance companies with their capital. Tawuniya is the oldest insurance company established as government undertaking in Tawuniya presently is the largest company in terms of market share where as Medgulf is the largest company in terms of paid up capital SR 800 millions. The related service providers include 53 insurance broking firms, 27 insurance agency, 1 actuary, 9 Loss assessors and loss adjusters, 8 Insurance claims settlement specialists third party administratators and 6 insurance advisors (Table 4). It is notable that many of these service providers were non-existent before reforms. The insurance industry has been continuously attracting investors from within the country as well as from outside Saudi Arabia Market performance of insurance after reform Table 5 presents the growth trend in insurance industry after SAMA took over the control of insurance industry in Saudi Arabia. The products have been grouped according to the SAMA classification i.e., General insurance, health insurance, and protection and savings insurance. The fastest growing class of insurance business in 2008 was Protection and Savings, and health insurance. The final phases of implementation of the Cooperative Health Insurance Law promulgated by Royal Decree No M/10 dated H (Cooperative Health Insurance Law) were completed, making healthcare insurance compulsory for all resident expatriates (SAMA 2008) which boosted the growth in health insurance. In 2006, Insurance market witnessed a significant growth of 34%, with gross written premiums reaching SR6.9 billion compared to SR 5.2 billion in The growth rate remained as high as 24% in 2007 and 27% in The growth was primarily driven by favorable economic conditions, as well as by the introduction of compulsory motor insurance and health insurance. General insurance growth has been declining. Over the period from 2006 through 2008 it has gone down from 25.26% to 6.34%. This decline has been due to fierce competition and high growth in Health insurance gross written premiums which stood at a high rate in 2006 at 62%. This was mainly due to the fact that health insurance was made compulsory. In the year 2007 and 2008, the growth rate for health insurance stood at 37.93% and 56.76%. Protection & Savings insurance has been continuously growing. In 2006 the growth for Protection and Savings was 12.95%, in 2007 which remarkably increased to 50% and in 2008 it grew at as high rate as 82%. The growth in Protection and Savings is an encouragement to the insurers. The growth in Protection and Savings is mainly due to the increasing awareness among the Saudi people about the insurance. The growth rate is high on small base, still huge potential remains untapped. This market segment is increasing very fast with the fast growing population of Saudi Arabia. Market share of different insurance policies : Table 6 shows the market share of major classes of insurance viz., Protection and Savings, Health Insurance and General Insurance over four years through Protection and savings and health insurance have been continuously increasing their share in the total premium however general insurance still remains the largest contributor to the premium. Product wise performance : Table 7 presents product wise performance of the Insurance for the period 2005 through This is the period when SAMA took over the responsibility of developing insurance industry with the objective of bringing it to international standards. In 2006 around 60% of total GWP were generated by compulsory lines of business, namely motor and health insurance. In 2006, health insurance became the largest line of business accounting for 32% of total GWP compared to 27% in Motor insurance dropped from first place in 2005 to second place in 2006, accounting for 28% of GWP. The fastest growing lines of business were engineering insurance and health insurance, which realized a growth rate of 84% and 62% respectively. The slowest growing lines of business were Protection and Savings insurance and Marine insurance, both realized a growth rate of 13%, whilst Aviation premiums fell by 7%. 33

7 In 2008 around 67% of the total GWP was generated by compulsory lines of business, namely Motor, and Health Insurance. Health Insurance remained the largest line of business accounting for 44% of total GWP compared to 36% in Motor insurance stood second in 2008, accounting for 23% of GWP. The fastest growing lines of business were Protection and Savings, and Health insurance, which realized a growth rate of 82% and 57%, respectively. The slowest growing lines of business were motor and property insurance, which realized a growth rate of 4% and 8% respectively, Whilst Accidents and Liabilities and Energy premiums fell by 8% and 32%. 4. CONCLUSIONS From the above studies it can safely be concluded that insurance industry in Saudi Arabia is doing well in terms of growing insurance premium, rules and regulations of insurance, and new insurance companies indigenous as well as the foreign entering the market. In a period of 7 years down the line from 2004 to 2011, the industry has witnessed tremendous growth in premiums more and above the world average though the growth was enhanced mainly by the compulsory health insurance. Still the major part of the total premium is contributed by health insurance and motor insurance. SAMA s job is worth appreciating in laying down the clear and transparent rules and guidelines to be followed by the companies. SAMA has laid clear rules to protect the interests of the customer. The government has further enhanced the effectiveness of the regulatory system by establishing two separate regulatory bodies for health insurance (CCHI) and other insurance i.e., general and protections and Savings i.e., SAMA. Since reforms large numbers of companies have joined the insurance industry. REFERENCES 1. Arena M., 2008, Does insurance market activity promote economic growth? A cross country study for industrialized and developing countries, The journal of risk management, Vol. 75, No.4, Beck,T., and I. Webb, 2003, Determinants of Life Insurance Consumption Across Countries, World Bank Economic Review, 17: Browne, M.J., J.Chung, and E.W. Frees, 2000, International Property-Liability Insurance Consumption, Journal of Risk and Insurance, 67(1): Business Monitor International Ltd. (2008), Saudi Arabia Insurance Report Q4., Business Monitor International Ltd., London UK. 5. Esho, N., A.Kirievsky, D. Ward, and R.Zurbruegg, 2004, Law and the Determinants of Property- Casualty Insurance, Journal of Risk and Insurance, 71(2): Greenwood, J., and B. Jovanovic, 1990, Financial Development, Growth and the Distribution of Income, Journal of Political Economy, 98: Insurance Regulatory and Development Authority (2008) Annual report [online] Available at: (Accessed 25 August 2009) 8. Pagano, M., 1993, Financial Markets and Growth: An overview, European Economic Overview, 37: Saudi Arabian Monetary Agency Insurance Supervision Division (2007) The Saudi Insurance Market Report [online] Available at: n_2008_06_04_v1.pdf (Accessed 20 August 2009). 10. Skipper, H, jr., 1997, Foreign insurers in Emerging Markets: Issues and Concerns, Center for Risk Management and Insurance, Occasional Paper, Soo, H.H., 1996, Life Insurance and Economic Growth: Theoretical and Empirical Investigation, Doctoral Dissertation, University of Nebraska. 12. Ward, D., and R.Zurbruegg, 2000, Does Insurance Promote Economic Growth? Evidence from OECD Countries, Journal of Risk and Insurance, 67(4): Webb, I., M.F.Grace, and H.D. Skipper, 2002, The Effect of Banking and Insurance on the Growth of Capital and Output, Center for Risk Management and Insurance, Working Paper Zelizer, V.R., 1979, Morals and Markets: The Development of Life Insurance in the United States (New York: Columbia University Press). 34

8 ANNEXURE Table(s) Table 1 Forecast of insurance in Saudi Arabia SAR mn CAGR % Non Life premiums % Change 35% 23% 25% 17% 19% 20% 21% 20% Life Premiums % Change 13% 50% 38% 29% 24% 22% 19% 26% Total Premiums % Change 35% 24% 25% 17% 19% 20% 21% 21% (Source: Saudi Arabia Insurance Report Q4 2008, BMI) Table 2 Insurance industry before liberalization Year Motor Medical Other Total In million SR Growth Rate % % % % % % % % Source : a) Middle East Insurance Forum, presentation of Mr., Ali Al Subaihin, Assistant General Manager, NCCI , figures are in Million US$. b) The Saudi Insurance Premium Report 1994, NCCI , pg 3, figures are in million Saudi Riyals. 35

9 Table 3 Insurance Companies in Saudi Arabia Amount in million SR S. No. Name of the Company Capital 1. The Mediterranean & Gulf Cooperative Insurance & Reinsurance (Med Gulf) The Company for Cooperative Insurance (Tawuniya) Saudi Arabian Cooperative Insurance Company (SAICO) Malath Cooperative Insurance & Reinsurance Company SABB Takaful Al Ahli Takaful Saudi IAIC for Cooperative Insurance (SALAMA) Arabian Shield Cooperative Insurance Saudi Fransi Cooperative Insurance Company Gulf Union Cooperative Insurance Company Sanad for Cooperative Insurance and Reinsurance Trade Union Cooperative Insurance Company Al Ahlia Cooperative Insurance Allied Cooperative Insurance Group (ACIG) Saudi United Cooperative Insurance (Wala'a) Al Sagr Company for Cooperative Insurance Saudi Indian Company for Cooperative Insurance Arabia Insurance Cooperative Company Saudi Re For Cooperative Reinsurance Company BUPA Arabia for Cooperative Insurance United Cooperative Assurance (UCA) Al Rajhi Company for Cooperative Insurance Alalamya for Cooperative Insurance Ace Arabia Cooperative Insurance Company Gulf General Insurance Company AXA Cooperative Insurance Company Weqaya Takaful Insurance & Reinsurance Company Buruj Cooperative Insurance Company Wataniya Cooperative Insurance Company Amana for Cooperative Insurance Amana Solidarity Saudi Takaful Company 555 Following companies have been approved by the council to operate in Saudi Arabia 32. Tokio Marine Saudi Arabian 33. ANB AIG for cooperative insurance 34. AlJazira Takaful Taawuni 35. Saudi Enaya Cooperative Insurance Company Source: SAMA (2010) Table-4 Insurance companies and insurance service providers in Saudi Arabia Insurance companies 34 Insurance Broking firms 53 Insurance Agency 27 Actuaries 1 Loss Assessors & Loss Adjusters 9 Insurance claims settlement specialists Third Party Administrators 8 Insurance Advisors 6 Source: Saudi Arabia Monetary Agency,

10 Table-5 Growth Trends for Insurance in Saudi Arabia Figures in Million SAR Year Protection Health General Total & Savings % Insurance % Insurance % % NA 1,370 NA 3,590 NA NA % 2, % 4, % % % % % % % % % % Source: Saudi Insurance Market Survey Report, , 2007, 2008, Table-6 Market share of different insurance Year Protection and Savings Health Insurance General Insurance % 26% 70% % 32% 65% % 26% 70% % 44% 51% Table-7 Product wise Performance of Insurance Industry after liberalization Growth IN SR Million SR (M) % Total SR (M) %Total SR (M) % Total SR (M) %Total % for Health 1,370 27% 2,222 32% % % 57% Motor 1,587 31% 1,920 28% % % 4% Property % % 742 9% 798 8% 8% A&L 424 8% 580 8% 577 7% 531 5% -8% Engineering 296 6% 544 8% 480 6% 682 6% 42% Marine 382 7% 431 6% 532 6% 620 6% 17% Protection & 193 4% 218 3% 327 4% 594 5% 82% Savings Energy 122 2% 127 2% 305 4% 208 2% 32% Aviation 135 3% 126 2% 114 1% % 21% Total 5, % 6, % % % 27% Source: The Saudi Arabian Market Survey Report , , &