THE change in weather patterns in the Kingdom has led to torrential rains in recent years. While there has mercifully been little loss of life, there has been considerable destruction or damage to property and vehicles. Yet the National Insurance Committee at the Council of Saudi Chambers reported this month, that there has been no discernible uptake of insurance policies that would guard householders from potentially catastrophic losses.
While there are religious grounds for doubting the appropriateness of insurance, the fact remains that many who suffered financial results in the recent storms, simply cannot afford it. Therefore insurance products, which are often carefully crafted to be Shariah-compliant, are an obvious and relatively inexpensive solution. The insurance industry says that a house can be covered for premiums that average SR 5,000 a year. Premiums for businesses that could face serious loss from freak weather events are more variable, depending on the type of cover required. A firm could merely insure its premises and stock, or choose more complex cover, which will protect them against loss of trade and earnings in the event of a disaster.
Part of the problem seems to be that, outside of motor insurance, the public is simply unaware of the benefits that proper cover against any risk, can have. There is also the feeling that there seems little point in paying out annual premiums for no obvious benefit, if year after year, there is no need to make a claim. To the uninitiated, it looks like money flying out the door, to no good purpose. Many people, it seems, are more inclined to carry on with life uninsured, in the view that as and when something does in fact go wrong, they will be able to sort out the financial damage themselves, one way or another. Indeed, one Riyadh entrepreneur said publicly last year that he believed that the amount of money he would have had to pay out in premiums, would be sufficient to cover his business if it did in fact incur a loss through fire or weather damage.
To a degree, the fault here lies with the insurance industry itself. It could be argued that it has so far done a poor job of marketing its products, in a way, which makes clear the advantages that they can offer. It is no good promoting a fire or weather protection policy, if consumers do not really appreciate what either could do for them. Therefore perhaps the insurers should go back to basics and start explaining their industry and its products in clear, understandable terms.
The limited take-up of insurance also has a wider effect than placing householders and businessmen at greater risk. Around the world, insurance companies, along with pension providers, play an important role in the capital markets. They have to take their premium income and invest it to earn sufficient returns, in order to meet their obligations when claims are made against policies that they have written.
Since part of their investment portfolio will traditionally need to be liquid, those who manage the funds of insurers and pension providers, tend to place a significant proportion of their money into equity markets. Though the Tadawul is not short of increasingly sophisticated investors, the arrival of greater pots of insurance company and pension fund money will further broaden our domestic equity and bond market. It will provide fresh capital for a job-creating private sector, which is projected to grow this year by around seven percent. The non-oil, non-state businesses are seen as economic engine for diversification and the creation of opportunities for the fast-growing number of well-educated new arrivals on the Kingdom’s jobs market.
There will be another advantage when Saudis get “the insurance habit.” A broader market will attract new players, which in turn will produce more competition, which in its turn is likely to drive down the cost of insurance, which some economists say is currently too high for certain housing risks. This criticism may be based on the fact that the cost of cover for buildings demonstrated in flood-prone areas has rocketed. This however is unfair. At least it seems insurers in the Kingdom are still writing cover for these structures. In parts of Europe, which have been hit repeatedly by floods on an almost yearly basis, some property owners have discovered that they cannot obtain insurance, at any price. Indeed in the UK, the government is currently underwriting the risks to head off a backlash from angry homeowners. However a question that is all to rarely asked, is why the authorities permitted housing construction on land that was, at some point, clearly liable to be badly flooded.
EDITORIAL: Guarding against disasters
