Riyadh, January 28th, 2013
Saudis pay one of the lowest premiums in the world for key insurance policies, reveals a recent benchmarking by The Boston Consulting Group. The low insurance fees followed years of decline in prices due to high competition in the Saudi market.
Despite higher accident rates and the high standard of living in Saudi Arabia, the premiums for car insurance, for instance, have declined to a quarter of those in India, and to as little as 6% for the equivalent cover in the USA. Cars in Saudi are subject to mandatory third-party liability insurance. Similar trends prevail in health insurance for expats.
The insurance sector in Saudi has been subject to fierce price competition over recent years, giving rise to fears that companies may not be offering reasonable prices. In order to protect the policy holders, the Saudi Arabian Monetary Agency (SAMA) now requires that companies submit a report on the substance and propriety of the pricing, signed by an actuary.
This requirement is common practice internationally, both with Saudi's GCC neighbors, the United Arab Emirates, as well as jurisdictions such as the UK, USA and Singapore. The move was initially met with skepticism in the market, raising concerns of considerable price increases as a result of actuarial oversight.
"Saudi Arabia is a highly competitive insurance market, with strong players vying for clients and business. We see this reflected in the benchmarking study we carried out on the two most relevant sectors within the insurance market, motor and health. In both areas, Saudi Arabia has a very competitive landscape, both compared with the rest of the GCC as well as globally. This is reflected in the low prices that policy holders enjoy" said Markus Massi, Partner and Managing Director and BCG's regional leader for insurance.
In a worldwide context, health insurance is continuously subject to increasing in claims due to technological and medical advancement, and the increasing cost of treatment. Given Saudi Arabia's advanced health system, this trend is representative in the Kingdom also. Similarly in motor insurance, drivers across Europe are facing increases in the price of their policies for the first time in many years due to adverse claims experience in the industry.
"The trends seen internationally will materialize in Saudi in the short to medium term as well, which will be reflected in a slight increase in the price of insurance to consumers. Having additional checks and actuarial oversight in place will actually ensure that any such increases remain fair and reasonable, and that the price of the policy reflects the risk that is insured," elaborates Massi. "We expect the price competition to continue, however both the actuarial oversight and the developments in the industry and society will show impact and ultimately make for a healthy insurance industry - which in turn is in the core interest of the policy holder".
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