With 13 insurance companies already licensed by the authorities and 18 more still waiting for approval, the insurance market in the Kingdom is poised for a big leap forward. It is estimated that the market will be worth SR20 billion to SR30 billion within 10 years. “That’s why so many insurance companies want to get into Saudi Arabia,” says financial consultant Basil M. Al-Ghalayini. “It’s an enormous market.”
As the range of insurance products becomes more sophisticated, so too do the opportunities in the financial markets for insurers to invest, protect and increase income. Interestingly, it is the Kingdom’s fast-growing pharmaceutical sector that is contributing to the good health of insurance company investments.
A report from the Gulf Organization for Industry Consulting notes that Saudi Arabia tops the list of GCC countries in the number of pharmaceutical factories (27) and the volume of investment in the industry ($619 million). The Kingdom’s nearest rival is the UAE which has eight factories valued at $64.2 million. The other GCC pharmaceutical players in descending order of importance are Kuwait, Qatar, Oman and Bahrain.
In health insurance products, the entry of the private sector has given a fillip to the setting up of hospitals and polyclinics as well as expansion of the existing facilities.
A major move in this direction was last month’s licensing by the Saudi Arabian Monetary Agency (SAMA) of 13 companies (See List 1)
in the health and general insurance sectors. Together, it is expected they will inject SR2.6 billion into the market, of which SR936 million will be channeled in initial public offerings (IPOs).
Applications from a further 18 insurance companies are in various stages of evaluation. Eleven have reached advanced stages of review, the remaining seven that have applied for licenses are further down the system (See List 2)
The launch of the IPOs will be coordinated by the Capital Market Authority (CMA) in a phased program. “It will definitely boost the market and promote stability as well as diversity in the number of listed companies,” observed SAMA Governor Hamad Al-Sayari.
The CEO of the hitherto only authorized insurance company, the National Company for Cooperative Insurance (NCCI), Ali Al-Subaihin, believes that as a result of the government’s initiative, the insurance market will double over the next five years from its current level of SR4.7 billion.
Asked if NCCI would be affected by the development, he said: “We don’t anticipate any negative impact on NCCI as a result of licensing of these companies. NCCI is used to working in a competitive environment. In the past, it was competing with over 70 companies. Now the number of companies has been reduced to only 13.” He added that the ministerial council decree would encourage the introduction of more new compulsory insurance laws, especially those related to specific professions, such as the law and medicine. Motor vehicle liability insurance is also an important growth area.
In response to the arrival of the 13 new competitors, NCCI has restructured the company into five strategic units to position it more strongly in the market. The new units are medical, motor, property and casualty, marketing and sales, and key accounts. Al-Subaihin stated: “The new structure will assist the strategic business units to swiftly react to customer needs and take advantage of market opportunities through an accurate information system that monitors performance and building a bonus and incentive program that depends mainly on profitability.”
The CEO of the newly licensed Saudi-Indian Insurance Company (SIIC), R.R. Nair, explained to Arab News that it would be launching new products on the insurance market at competitive rates. “The consumer will be the ultimate beneficiary,” he observed.
It is expected that the expansion of the market will promote greater professionalism in the business and speed up delivery of service. It is also anticipated that new and tougher regulations will eliminate market irregularities.
SIIC, which leverages the strength of three major players, the Life Insurance Corporation of India, New India Assurance and the Fawaz Al-Hokair Group, has already invested SR100 million, of which SR40 million will be allocated for an IPO probably before the end of this year, according to Nair.
“The capital injection of SR100 million is just for the start-up by the founders. More capital will be brought in as soon as we get the commercial registration. We are planning to set up three regional offices in Riyadh, Jeddah and the Eastern Province within the framework of our plan which calls for setting up 10 branches in due course,” he explained, adding that Saudi manpower will be trained to staff their operations. The company will launch a full range of insurance products as well as savings and Takaful insurance products and so extend into the field of Islamic insurance.
According to Abdullah Al-Sharif, secretary-general of the Council for Cooperative Health Insurance (CCHI) at the Ministry of Health, there is a huge potential for the growth of the health insurance sector, whose contribution to the Kingdom’s GDP is currently less than 0.5 percent.
He believes that the sector is poised for rapid growth with the implementation of the new labor law. Three years from now, Saudis will also come within the scope of the health insurance scheme. Some 16 million citizens will be covered under a phased program.
In addition, more than 50 percent of the expatriate population in the Kingdom has yet to be covered by the mandatory health insurance scheme. The CCHI has signed contracts with 26 hospitals and medical centers in Riyadh, Dhahran, Alkhobar and Jubail, Khamis Mushayt, Taif, Jeddah, Tabuk and other places.
The CCHI has already directed companies to provide health insurance cover to employees. Firms are also required to furnish details of health insurance policies and the iqama numbers of beneficiaries and their dependents to insurance companies. The Ministry of Health is working on a project with the General Directorate of Passports to link iqamas electronically with health insurance.
The growing demand for health insurance cover has prompted the Shifa Al-Bahrain Medical Group (SBMG) to enter a joint venture with Muhammad Al-Rabbih Est. of Riyadh to open relief clinics in Riyadh, Jeddah and Alkhobar. These facilities will offer a discount of up to 80 percent on consultation fees to expatriates earning SR400 or less, says K.T. Rabiullah, the chairman of Muhammad Al-Rabbih Est. He points out that SBMG, which runs a chain of clinics in the Gulf states, has recruited 40 specialists from India to provide consultancy services in various disciplines.
The first relief clinic was set up in Jeddah in September followed by a second one in Riyadh in November and a third in Alkhobar by the end of this year.
Rabiullah explained that the decision to offer substantial discounts was taken in view of the difficulties that low-income earners face when they need advanced medical attention. “The consultation charge is beyond their means,” he observes. The coverage includes outpatient and in-patient health services, as well as natal and dental care. The scheme is seen as a good beginning for medical cooperative insurance and it is hoped that it will encourage other companies to follow suit.
Health care specialists point out that with the Kingdom’s population growing at 3.2 percent annually, privatization in the sector will gain momentum. Investment opportunities will also open up in the pharmaceutical sector given that Saudi Arabia has a high incidence of cardiovascular diseases, including diabetes and strokes.
As the statistics released by the Arab Organization for Industrial Development and Mining indicate, the production of pharmaceuticals covers 45 percent of demand in the Arab world involving an estimated cost of $5.5 billion annually, while the value of the capital investment in pharmaceutical production reached $4 billion last year. The report indicated that per capita consumption of pharmaceuticals in the Gulf states stood at $52 as against $20.3 in other Arab countries.
The overall consumption in the Arab world, including the GCC states, stands at 1.5 percent of annual global consumption.