Fuelled by mandatory health insurance and strong economic growth, the Kingdom emerged as the largest insurance market in the Gulf in 2022, with sector-wide gross written premium (GWP) reaching SR53.4bn ($14.2bn). In addition to headline growth drivers, the country benefitted from heightened risk-management awareness, the emergence of new insurable assets and a more competitive marketplace.

Regulators have taken proactive measures to encourage industry consolidation in recent years, aiming to strengthen players across different lines of business while facilitating international investment and bridging gaps in commercial and personal coverage. These advancements are expected to offer policyholders a wider range of protection options and generate new business and employment opportunities.

Aligned with the 2017 Financial Sector Development Programme – a critical pillar of Vision 2030 that seeks to cultivate a robust financial sector – the Kingdom has set ambitious targets for GWP as a percentage of non-oil GDP. It aims to reach 2.4% by 2025 and 4.3% by 2030, compared to a baseline of 1.9% in 2019.

To attain these objectives, the industry has spearheaded regulatory reform and embraced digitalisation to enhance capabilities, improve cost-to-income ratios and streamline coverage placement. These measures, coupled with compulsory insurance schemes, are designed to expand GWP, combat fraud and drive penetration in the Saudi market.

Structure

The insurance sector in Saudi Arabia is segmented into three main lines of business: health, general, and protection and savings (P&S) insurance. The sector has undergone a series of mergers and acquisitions (M&A) in recent years, which has helped to strengthen the market and lower the level of systemic risk – a trend that could intensify in the future. As of early August 2023 there were 29 registered insurers, takaful (Islamic insurance) providers and reinsurers, along with 186 brokers and other service providers.

Despite the significant number of players operating in the market, many insurers face losses, with the majority of profit concentrated among the top players. This poses a risk, particularly for small and medium-sized insurers that may struggle financially with increasing claims and regulatory costs. In 2022 the General Authority for Competition warned of the monopolistic nature of the health insurance market, where the topthree companies capture around 83% of profit, arguing that heavy concentration can lead to higher prices and a lack of innovation in the sector.

According to the “Saudi Insurance Market Report 2022”, published by the Saudi Central Bank (SAMA), insurance penetration fell from 1.34% of GDP in 2021 to 1.28% of GDP in 2022. This is largely explained by the 8.7% increase in total GDP that year – the highest among G20 nations. Indeed, as a share of non-oil GDP, penetration was up that year, from 1.9% to 2.1%. Relative to the global average of 7% of GDP, the Saudi insurance market has further room for penetration growth in the years ahead. Health insurance has been the main driver of the sector’s expansion in recent years, accounting for more than 50% of GWP , followed by general insurance and, to a lesser extent, P&S insurance.

The sector’s relatively modest penetration growth can be partially explained by low levels of demand and awareness among Saudi consumers, a fragmented market structure and limited distribution channels. However, the authorities are actively taking steps to address these issues by enhancing financial literacy programmes, simplifying regulations and improving distribution channels on the supply side.

Regulation & Oversight

The Cooperative Insurance Companies Control Law of 2003 brought regulation and legal status to the previously unregulated Saudi insurance market. The law empowered SAMA to regulate insurance activities, license insurance companies and professionals, and oversee the market through its General Department of Insurance Control. Health insurance is also regulated by the Council of Cooperative Health Insurance (CCHI), while insurance companies’ investment funds adhere to the rules of the Capital Market Authority (CMA), which oversees the Saudi Exchange (see Capital Markets chapter). In September 2022, during the 6th Saudi Insurance Symposium, the Kingdom announced plans to establish a unified sector regulator to guide development. In August 2023 the Saudi Cabinet voted to establish an independent insurance authority. The new entity will commence operations 90 days after the Cabinet announces the resolution.

During the market’s transition phase, companies were initially licensed and supervised in a stricter regulatory environment. This was followed by a phase of reform, including measures related to money-laundering, reinsurance, actuarial work and outsourcing. SAMA is currently focused on establishing best practices in areas like underwriting and claims handling, and promoting consolidation for improved scale and competitiveness.

Under the law, insurers operate on a cooperative basis, similar to the concept of takaful, making the Kingdom one of the largest takaful markets globally. While this model involves surplus distribution and is deemed sharia compliant, it differs from traditional takaful since it does not require segregation of funds, investment conformity to sharia principles and a board of Islamic scholars. Insurers and reinsurers in Saudi Arabia are required to retain a minimum of 30% of their underwritten premium and reinsure at least 30% with a local provider, unless granted approval by the regulator.

On the international front, cross-border cooperation is rising. SAMA and the Central Bank of the UAE signed a preliminary agreement in September 2022, establishing a framework for mutual sector oversight, facilitating an exchange of supervisory and regulatory information related to solvency rules, investment policies and the monitoring of insurance companies. The cooperation extends to combatting suspicious activities such as fraud, money-laundering and terrorist financing with the aim of improving the supervision system and enhancing trade cooperation within the financial sector.

Competition

In February 2023 Cigna Worldwide Insurance became the first foreign health insurer to receive a branch licence, reflecting the government’s drive to attract foreign insurers. This followed a wave of M&A in the local market, in line with SAMA’s objective to establish stronger entities that are better equipped to enhance policyholders’ protection, improve quality of service, foster product innovation and attract talent.

To facilitate consolidation, SAMA has raised the previous paid-up capital requirements of SR100m ($26.7m) for insurers and SR200m ($53.3m) for reinsurers. In 2021 the Insurance Law set a new minimum capital requirement of SR300m ($80m) for insurance and reinsurance licensees. As of early 2022, 10 companies could not meet the new standard, signalling that they may need to undergo rights issues or consider M&A to comply with the new minimum capital requirements.

The number of insurers in the Kingdom has decreased from 34 to 29 in recent years, with six completed and ongoing mergers taking place between 2020 and 2023. The first agreement, announced in 2020, involved general insurance specialist Walaa acquiring MetLife in a stock deal. MetLife shareholders received 1.52 Walaa shares for each MetLife share, and Walaa was allowed to move into the P&S segment, where it had no previous presence. Walaa saw its paid-up capital rise from SR646m ($172.2m) in 2021 to SR850.6m ($226.8m) in October 2022, when it merged with SABB Takaful. As part of the merger, the assets and liabilities of SABB Takaful were transferred to Walaa, and 20.4m ordinary shares were issued to SABB Takaful shareholders.

In another stock-based deal, Gulf Union Cooperative Insurance acquired Al Ahlia Cooperative Insurance in late 2020, increasing Gulf Union’s paid-up capital from SR150m ($40m) to SR229.5m ($61.1m). In December 2021 the new company, Gulf Union Al Ahlia Cooperative Insurance, announced ongoing merger discussions with Al Sagr Insurance, and in late July 2023 the deal was approved by the CMA. Under the share swap deal, the paid-up capital of Gulf Union Al Ahlia will increase from SR458.9m ($122.3m) to SR620.2m ($165.4m).

In 2021 Aljazira Takaful Taawuni completed a similar acquisition of Solidarity Saudi Takaful. This resulted in a boost in Aljazira Takaful Taawuni’s paid-up capital from SR350m ($93.3m) to SR470.7m ($125.5m). Additionally, its fully paid-up shares increased from 35m to 47.1m. Meanwhile, Arabian Shield Cooperative Insurance and Alahli Takaful, which agreed to merge in July 2021, finalised their deal in 2022. This increased Arabian Shield Insurance’s paid-up capital from SR400m ($106.6m) to SR638.5m ($170.2m), and its fully paid-up shares from 40m to 63.9m. At the end of 2022 the newly formed Arabian Shield announced plans to merge with Alinma Tokio Marine, and in late July 2023 expressed its firm intention to proceed with the share swap deal.

Performance

In 2022 the insurance sector witnessed premium growth of 26.9%, with total GWP reaching SR53.4bn ($14.2bn), up from SR42bn ($11.2bn) in 2021. This momentum was spearheaded by health insurance, which maintained its spot as the largest business line, growing by 26.8% and contributing 59.7% of total GWP. This was followed by general insurance, which grew by 29.3% for a contribution of 36.8%; and P&S, already the smallest line of business, which grew by 9.7% for a contribution of 3.5%. This positive industry-wide performance follows modest 8.4% growth in GWP in 2021, as the Kingdom reached full recovery post-Covid-19 pandemic and economic volatility stabilised by the first half of 2022 in terms of loss ratios and net profit after zakat (a payment under Islamic law that is used for charitable or religious purposes) and tax.

Crucially, two-thirds of insurers reported underwriting losses in 2022 due to higher medical and motor claims, as well as intense competition. Despite an improvement in profitability – the industry recorded net income of SR689m ($183.7m) compared to a net loss of SR47m ($12.5m) in 2021 – this was lower than the SR1.4bn ($373.2m) generated in 2020. Underwriting losses amounted to SR385m ($102.6m), a significant improvement on SR1.2bn ($319.9m) in losses in 2021, while net investment income fell slightly from SR1.16bn ($309.3m) to SR1.1bn ($293.3m). By the end of 2022 the industry’s total assets and shareholder equity amounted to SR80.5bn ($21.5bn) and SR19.9bn ($5.3bn), respectively, up 15.6% and 5.4% on 2021.

Despite the growth in GWP, Saudi insurance density remains below global benchmarks. In 2022 per capita GWP rose by 30.3% from SR1200 ($320) to SR1564 ($417), having grown by a compound annual growth rate (CAGR) of 6.9% in 2018-22. Direct sales by insurance companies accounted for 52.1% of GWP in 2022, with online sales through insurance company platforms or aggregators increasing their footprint from 7.5% to 9.9%. Sales through brokers rose from 28% to 43%, while agent sales fell from 5.2% to 4.6%.

Regulation-Driven Growth

Regulatory requirements have played a key role in insurance adoption, contributing to the 6.1% CAGR forecast for the insurance sector in 2022-28, according to market researcher Report Ocean. The 2017 mandatory unified health insurance scheme compelled private sector employers to offer coverage to employees, including nationals, expatriates and their dependents. The National Health Insurance Centre began providing free insurance coverage to all Saudi citizens, including the unemployed and social security recipients. To expand the sector’s reach and mitigate risk, the Ministry of Human Resources and Social Development plans to link insurance provision to labour contracts for hiring domestic workers.

In 2020 mandatory health insurance was expanded to include visitors, who are required to purchase insurance from approved local insurers during their stay. The Council of Health Insurance announced in November 2022 that health coverage from licensed insurance companies would also be necessary to renew visitor visas, delivering a boost to travel insurance. Similarly, to enhance the experience of Umrah pilgrims, Saudi Arabia reduced insurance costs for overseas pilgrims by 63% in January 2023. This reduction is part of the unified insurance policy for Umrah, which covers emergency cases, flight delays and repatriation of remains.

Motor insurance has also benefitted significantly from updated and expanded mandatory unified motor insurance regulations first introduced in 2002. In September 2019 SAMA revised the Unified Compulsory Motor Insurance Policy, incorporating changes to claims recourse and third-party liability regulations. This aimed to encourage greater adoption of motor insurance – particularly among new drivers, after women were granted the right to drive in July 2018.

In 2023 SAMA introduced additional updates, including the option for vehicle repair instead of cash compensation. In March of that year SAMA mandated that insurers upload vehicle insurance policies to their computer systems at the time of purchase and promptly correct any rejected data. These measures seek to enhance the effectiveness, efficiency, compliance and transparency of the motor insurance segment.

Lastly, in 2023 SAMA officially adopted the International Financial Reporting Standards (IFRS) 17, an accounting standard issued by the International Accounting Standards Board that governs the accounting treatment of insurance contracts. This compliance permits greater consistency and transparency in insurance contracts and data quality for financial statements. SAMA has emphasised the importance of a smooth adoption process and is implementing a phased transition plan. Companies must enhance their internal accounting processes including technology and personnel, and promote interdepartmental collaboration. Those facing challenges in meeting the requirements may consider engaging in M&A discussions.

Digitalization

The insurance sector is undergoing a significant digitalisation process, with its adoption being observed across the insurance value chain. “Digitalisation is necessary for companies to stay competitive,” Abdulrahman Al Dokheel, General Manager of Buruj Cooperative Insurance, told OBG. “The growing need for online sales portals is evident, and investing in digitalisation is an investment in a company’s future.”

In line with Vision 2030, SAMA is encouraging insurers and intermediaries to digitise processes. The pandemic has helped accelerate corporate digital transformation plans, leading to improved operational efficiency and customer interaction. In 2023 SAMA approved new insurance technology (insurtech) rules to promote innovation, protect consumers and ensure fair competition for aspects such as practitioner engagement, licensing, data protection and customer due diligence.

Meanwhile, in the health segment, the National Platform for Health and Insurance Exchange Services (NPHIES) was launched in 2022 by the Council of Cooperative Health Insurance (CCHI) and the National Health Information Centre to act as a centralised platform for managing health insurance information and services, facilitating transparency, accessibility and efficiency for individuals, employers, insurers and health care providers. NPHIES users can manage policies, submit claims and interact with relevant stakeholders.

To further enhance digital capabilities in the sector, the CCHI has approved Data Management Systems, an Egyptian health software company, to act as an intermediary between insurers and medical facilities to simplify patient eligibility processes, reduce rejections and manage financial claims. Integrating health providers with insurance companies through the NPHIES portal ensures the availability of accurate and unified data.

At the same time, the CCHI has collaborated with Silicon Valley’s Plug and Play to launch iHub, an open innovation platform focused on health insurance in Saudi Arabia. It aims to bring together global stakeholders to address industry challenges, develop services, and discuss digital policies and regulations. It also supports the growth of insurtech start-ups, leveraging technologies like artificial intelligence, blockchain and the internet of things to drive innovation. Indeed, insurtech has significant growth potential, with $8bn of investment globally through 470 deals in 2022, according to NTT Data’s “Insurtech Global Outlook 2023”.

Private insurers are also embracing digital partnerships to enhance their tech infrastructure and offerings. Walaa, for example, has partnered with Germany’s Software AG, which specialises in transformative technology, to enable it to launch new products, services and channels in the Saudi market, with a focus on improving the customer experience.

Outlook

While compulsory health and motor insurance continue to dominate the market, a growing economy and ongoing diversification efforts have created new opportunities for insurers to increase penetration and expand coverage. The country’s commitment to transition away from carbon-intensive industries and promote diverse sectors and mega-projects is opening the door to new coverage and risk-management strategies. Building on mandatory insurance regulations, digital innovation and reforms, the sector is poised to extend its reach, serve untapped markets and contribute to the development of the wider financial sector.