Claim abuses fuel insurance rate hikes

Insurance companies in Saudi Arabia will begin raising the prices of insurance policies by about 10 percent starting early next year. The move comes in spite of the high volume of insurance premiums, which are estimated to be valued about SR4 billion more this year, compared to 2012.
Specialists said that the insurance sector, which is expected to witness growth of up to 70 percent in the next five years, still suffers from misuse by both service recipients and providers who abuse the system by filing fake claims. Such falsified claims have resulted in losses of about 20 percent.
According to Khaldoun Barakat, the former chairman of the Insurance Committee at the Jeddah Chamber of Commerce and member of the National Committee of Insurance, the insurance sector in Saudi Arabia is still in the process of correction and is moving toward a more regulated system. During the past few years, insurance companies underwent amortization and have seen losses for failing to materialize profits as desired, he said.
Barakat said that the period following the stage of amortization of company losses was represented in the process of expanding investment portfolios in the sector of compulsory insurance, which is one of the most vulnerable sectors. In the effort to adjust the misuse of insurance documents by regulators, the sector began to restructure insurance procedures and prices.
Barakat said the sector is expected during the next year to witness a trend by some insurance companies of raising prices of insurance policies for individuals by about 10 percent. Such increases in prices aim to push the sector toward achieving fair and equitable profits.
“Despite the increase in prices of insurance policies during previous years, it is expected that the end of the current fiscal year will be met with a decline in earnings and a simultaneous increase in the volume of insurance premiums — about SR22 billion compared to SR18 billion in 2012,” said Barakat.
Profits are estimated to record a decline at the end of this year of about SR300 to SR700 million, compared to last year.
Salah Aljabr, chairman of the Insurance Committee at the Chamber of Commerce in the Eastern Province said: “Misuse of the insurance policy has caused significant losses to companies during the last period.”
The estimated sizes of losses to providers of insurance are between 10 and 20 percent for medical insurance premiums and compulsory insurance for automobiles due to the occurrences of falsified claims.
Aljabr said that companies have realized the occurrence of misuse, which has caused a wave of heavy losses during the past years.
He prompted providers to work on a new control mechanism to monitor and adjust the financial claims and ensure the validity of information requested in the claim.
Aljabr said that companies have also experienced losses due to individuals manipulating documents and due to hospitals carrying out unnecessary medical tests of patients. Others problems include automobile insurance service providers inflating the prices for repairs, and individuals obtaining insurance policies without accurately reporting health conditions.
Aljabr said that the increase of prices for individual policy holders will begin next year and will vary from one company to another. In order to reduce losses, some firms will be required to double the price of insurance policies.
Aljabr attributed the reason behind expectations of a 70 percent growth to the size of the governmental subsidies and support to projects, in particularly developmental, industrial and infrastructure projects.
The increase in these projects will ultimately demand insurance, and accordingly ​​insurance for facilities, health, and vehicles will increase.