Government Policy Effect on the Insurance Market in Saudi


Government policy has contributed to the growth of the insurance policy in Saudi Arabia. This has mostly been through the creation of favorable conditions for the development of insurance firms and their ability to thrive. The paper has successfully looked at laws that were established in order to increase the number of individuals that hold insurance policies. The government set up a law that required the 7, million expatriates in the country to have health insurance (Torrey 1). This was a mandatory requirement that contributed to the increase in the number of people that are on insurance. The government also set up laws to ensure that all motor vehicle owners in the country have third-party insurance. The Saudi Arabian government joined the World Trade Organization (WTO). This organization requires its member to open up their countries to foreign trade in order to foster the growth of trade and economic growth.

The insurance market in Saudi

Globally, the insurance market has revolutionized. Saudi Arabia has not been left behind and has in fact incorporated some of the changes that have been proposed to the various aspects and sectors of the insurance industry. The Saudi insurance industry has in fact grown tremendously over the last ten years. The insurance agency had the Saudi Arabian Monetary Agency (SAMA) begin to control it in the year 2003. The regulatory bodies had many structural changes made to them. For example, it was made a statutory requirement that the insurance companies would have to ensure that majority of the shareholders of the insurance companies were home owned (Ahmed 32).

The shareholders would have to be from Saudi in contrast to foreigners. Research studies carried out in the various industries in Saudi show that the insurance industry is one of the fastest-growing in the country. Most other industries in the country experienced economic decline but the insurance agency was able to record a growth of 30-35% per annum. One of the major reasons why the rate of growth in the insurance industry was so high is because health insurance was changed and made a requirement for everyone to subscribe to by the government. In 2010, 53% of the income that was raked in from the insurance industry was from the health sector. This is in comparison to the 32% that was raked in from 2006. A requirement was also put forth whereby individuals visiting from foreign nations and individuals visiting Saudi on pilgrimage would have to purchase health insurance (Torrey 1).

This move was seen as highly favoring the insurance industry as it contributed to more individuals purchasing insurance. Many businesses which were expected to be part of contributors to the income of the insurance industry were highly affected by the economic crisis. This resulted in some of the businesses stopping their purchase of premiums from the insurance industry or reducing the number of premiums and insurance covers that they subscribed to.

Despite the economic crisis, the insurance industry is still expected to continue being profitable. The insurance industry is expected to record a growth of about 24% in the time period between 2010 and 2013. Some of the reasons that are expected to contribute to the high income are incurred in the motor vehicle and fuel expenses by individuals and businesses. The government has also made it mandatory for all companies to submit health insurance deductions for all their employees’ failure to which they might be charged in a court of law. The Saudi Arabian government has also been planning on some strategies on how they can improve the performance of the insurance industry and ensure that it continues to thrive in the long run. The Saudi Arabian government has been responsible for changing laws and regulations that are related to the insurance industry (Harrington, & Niehaus, 49)

The new laws have made a provision for the establishment and implementation of regulations that put the insurance industry in line. Some of the laws relating to financial soundness, rights of the insurance companies, the policies of the companies, the statutory reserve and the technical parameters will enable the business to conduct normal business operations. The established law can allow insurance companies to have foreign investments as long as it makes up to 49% and not more than that. The government also set up policies to ensure that the number of funds that corporate organizations paid to the government was reduced. Starting in 2000, corporate organizations only had to pay 20% of their profits (Venezian 482).

This is in contrast to the 45% corporate tax that organizations had to pay before the year 2000. The government also established laws that allowed foreigners to own land and get in business in the gas industry. Saudi also made another major leap which is bound to positively impact the insurance industry. The country became a member of the World Trade Organization (WTO). One of the requirements to being a member of this organization is that countries have to open up their nations to other nations to enable a trade to occur. Insurance companies were also allowed to get into the market as branches as long as they have the right paperwork and are inspected for the integrity of financial position to show that they have 60% equity share (Hsieh 82).

The government has introduced a law whereby all motor vehicles are required to get a third-party policy for their vehicles. The law did not exist due to various reasons such as the strong religious beliefs held by the Saudi people. Most of the individuals believed that Allah would protect them from any harm that might come to them. Some of the individuals were also ignorant or unaware of the insurance policies that might offer them protection from risks that they might come across in their day-to-day activities. The Saudi Arabian government also introduced a law that required the 7 million expatriates working in the country to have health insurance (Wood 1).

Challenges faced in the insurance industry

Most of the insurance industry clients are in motor, medical or business. These kinds of fields are highly risky and the insurance companies offering them are also very competitive. The high competition among insurance companies in the past has resulted in the creation of low-interest rates. Such terms have contributed to poor returns for insurance companies. Businesses also have to pay for zakat which comprises a large amount of money that the insurance companies would have used as their earnings and hence increase their profit margin. Although the insurance industry in Saudi Arabia has shown high improvement and growth, the size and growth rate are minimal in comparison to other countries. This lowers the competitiveness of the insurance industry in Saudi Arabia when compared to that of other industries. The competitiveness is also lower than it has the potential to grow into (USA International Business Publications 54).

The size and the main players of the Insurance industry in Saudi Arabia

The insurance industry in the Middle East has a diverse number of players. Tawuniya is one of the largest industry players in the Middle East and the largest in Saudi Arabia. A look into Tadawul showed that the prices of the insurance premiums that were being offered by Tawuniya had in some cases gone higher up to two times. This change in price was also seen as being incredible because it took place over the period of just one year. The insurance market players are followed by Medgulf and Bupa Arabia in the size of the market share that each company has. Medgulf is an insurance company that is owned by some of the elite Saudi Arabian businessmen, politicians and other individuals in the Saudi Arabian country. Bupa Arabia is partly owned by a company that is part of a UK health insurance company. The insurance industry in the Saudi Arabian country is dominated by health products in comparison to other types of necessary insurance such as motor vehicle insurance (Wood 1).

How did the market have grown when the government forced health and car insurance?

As of March 2010, the insurance premiums had contributed to the economy to the amount of SAR 17, 480 million. The premiums were comprised of life insurance premiums and non-life premiums. Life premiums had a small share of only SAR 696 million whereas the non-life premiums were composed of SAR 16, 784 million (USA International Business Publications 6). Estimates by analysts in the financial market made forecasts of the insurance industry. The estimates included; SAR 42, 968 for the year 2014. Forecasts made had the expectation that the life insurance premiums would have increased up to an amount of SAR 1,323 million, while non-life insurance premiums would amount to SAR 41, 645 (Saaty 5051).

The increase in non-life insurance premiums is expected to make up to 1.71%; rising from 1.07 %. The non-life density has been forecast to rise to $12.97 which would be up from $ 7.61. With the introduction of compulsory health coverage for its nationals, it is expected that some of the bigger companies might invest their funds in the insurance industry and even start-up branches in Saudi Arabia. Such companies include Medgulf and ARIG. These reinsurer companies are based in the Middle East region but they do not have any outlets in Saudi Arabia. Since the insurance companies that exist in the country are small, they are not able to pool available resources and take advantage of economies of scale (Saaty 5049).

If the insurance companies were larger, they would be able to take advantage of economies of scale and probably make higher profits. The government has made changes in its laws to ensure that they favor health insurance. More laws are expected to be made to favor the insurance industry even further. This creates opportunities for the operation of insurance businesses in the country. Furthermore, the Saudi Arabian economy has not encountered a downturn even with the economic crisis that was encountered in 2008 as a result of the global economic crisis (Harrington and Niehaus 55). The Saudi Arabian government would also most likely welcome foreign investors who would want to operate their businesses in the Gulf Co-operation Council (GCC) countries. According to a World Bank report, Saudi Arabia has been listed as number 11 in the whole world in terms of the creation and fostering of a competitive business environment.

Saudi Arabia has grown in leaps and bounds, and it is expected that the growth will go even further, given the necessary resources and application of know-how. There has been a vast expansion of available infrastructure in Saudi Arabia such as education, health and electricity provision (USA International Business Publications 8). It is expected that the availability of the needed social amenities will in turn result in the coming up of many businesses in the region. Insurance companies provide an opportunity for businesses to be able to get back on their feet in case they encounter some problems in their business. Such problems might include fire, pilferage and many other kinds of risks common to the business industry. The presence of registered companies in an area provides businesses with the opportunity of getting back on their feet and continue with normal business operations. Therefore, a greater number of businesses would be established because the risk has been reduced or secured by insurance companies; with the payment of premiums. The size of the contribution of the insurance industry to the GDP of Saudi Arabia has increased over time. In 2010 alone, the contribution rose to 1% (Ahmed 35).

Cooperative insurance and the meaning of its size

Cooperative insurance is an organization that issues general policies, life policies and manages funds for individuals. Such an organization is set to make huge profits which are usually are shared among shareholders and the other money that remains should be shared according to out to life insurance policyholders. Cooperative insurance usually has the role of offering health insurance to individuals, and usually at a lower cost. In addition to offering life insurance, such organizations also usually offer other roles that are linked to private insurance companies (Venezian 22).

Cooperative insurance companies’ shares are usually owned by the same people that hold insurance policies with the companies. Co-operative insurance companies provide services to the same people that hold insurance policies with the companies. The numbers of people that usually comprise the cooperative insurance companies are usually large and therefore they create a pool of money to be used by the company. Such companies make use of the concept that not everyone that has insured themselves, their property, health or business with the insurance company will actually incur the risk that they have insured against. Therefore, when any of the individuals claim for the money that they had insured for, there is a pool of money that can be used to pay such individuals. The cooperative insurances also use part of the members’ contributions to acquire assets for the organization. This is meant to improve the financial position of the company. The advantage of insurance cooperatives is that they can be initiated by any kind of organization or any kind of industry.

For example, a large organization such as a large hospital can decide to form an insurance cooperative that would cater to its employees (Gardner 1).

The advantage of the cooperative insurance companies is that they are not usually formed with profit maximization as the sole purpose. Instead, such organizations are usually formed with the sole purpose of assisting the members of the insurance company. Most of the cooperative insurance companies that exist hold a lot of power because of the higher number of members that are subscribed to such organizations. Therefore, the management of such a company holds a high bargaining power when it applies to the negotiation of friendly prices such as prices that are charged by hospitals to the members (Vaughan 45).

Forecast of the effects if life policy started and non-cooperative insurance was allowed.

Life policy and non-cooperative insurance would probably lead to an increase in the number of subscribers to the insurance services. However, non-cooperative insurance would most likely reduce the number of insurance subscribers to the insurance industry. Non-cooperative insurance might not offer as many opportunities as those that might be found under cooperative insurance. For example; under non-cooperative insurers, health insurers might not hold bargaining power with the health provision charges (Hsieh 52). On the other hand, a cooperative insurance company holds a lot of bargaining power because they have many members that are subscribed to them.

Cooperative insurance companies also charge lower prices to their subscribers because there are a large number of people that are subscribed to their services. The company already has a large pool of resources that can be used to service the members that incur risks that had been insured on.

An increase in the number of life policyholders would increase with increased awareness to the people by the government. The government would also be expected to act as a “guardian” of the insurance companies to ensure that the companies are legitimate. The government should also use its regulatory body to check the financial soundness of the insurance companies (Gardner 1).


Tawuniya, Tadawul, Medgulf and Bupa are some of the largest insurance companies in Saudi Arabia. Since the intervention of the government in establishing and implementing laws in the insurance industry, there has been an increase in the amount of income that has been recorded by companies in the insurance industry. Cooperative insurance companies are usually formed by large organizations and the members of the insurance company also form the shareholders of the company. The cooperative insurance companies have an advantage in the conducting of their business activities.

Since most of the cooperative insurance companies have many members subscribed to them, most of them have a high negotiating power with health care-providing institutions. Such companies also have low charges for their members since they are not-for-profit organizations. The reason that such companies are formed is to ensure that the needed services are provided to their members. Introduction of life insurance and non-cooperative insurance companies might not have highly positive or economically viable advantages. This is because such non-cooperative insurance companies might not have an advantage in a high number of members. Therefore, such a company would not be able to take advantage of available economies of scale in the business (Torrey 1).

Works Cited

Ahmed, Zaid. “Analysis of the impact of reforms on insurance industry of Saudi Arabia”. Interdisciplinary journal of research in business. 1.8 (2011): 28 – 37. Print.

Gardner, Brian. “Saudi Arabia insurance industry progress”. International insurance news. (2011). Web.

Harrington, Scott and Niehaus, Greg. Risk Management and Insurance, New York: McGraw Hill. 2003. Print.

Hsieh, David. “Implications of Non Linear Dynamics for Financial Risk Management”. Journal of Financial and Quantitative Analysis. 28 (1): 41-64. 1993. Print.

Saaty, Abdalelah. “Empirical analysis of the problems and challenges confronting insurance companies in Saudi Arabia”. African journal of business management. 6.14 (2012): 5047 – 5056. Print.

Torrey, Trisha. “Health Insurance Cooperative”. Patient empowerment. (2010). Web.

USA International Business Publications.” Saudi Arabia Central Bank & Financial Policy handbook”. Washington D.C.: International Business Publications. 2005. Print.

Vauhgan, Ernesto. Fundamentals of Risk and Insurance. 6th edition. New York: John Wiley & Sons, 1992. Print.

Venezian, Ezekiel. “Ratemaking Methods and Profit Cycles in Property and Liability Insurance”. Journal of Risk and Insurance. 52.6 (1999): 477-500. Print.

Wood, Laura. “Research and markets: Saudi Arabia’s Insurance Sector differs from others in the Middle East in that it includes at least one Indigenous Insurer Tawuniya”. Research and markets. (2010). Web.

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