A new regulator for the Saudi insurance sector

Last week, the Council of Ministers approved the establishment of the Insurance Authority. The main objective of the new regulator is to boost the efficiency of the insurance sector and increase its contribution to the Kingdom’s non-oil gross domestic product.

The new independent entity will also help develop the insurance industry and create well-established institutions capable of growth and competition to enhance the industry and the Kingdom’s economy.

The new entity, which will commence operations in less than 90 days, will take over insurance-related responsibilities previously held by the Central Bank and the Saudi Council of Health Insurance.

Upon taking over its obligations, the new entity will consolidate all the insurance regulatory measures into a single regulator and transfer all communication channels related to regulation and compliance in the insurance sector to the new Insurance Authority.

The Central Bank confirmed that policyholders and beneficiaries are still subject to the relevant regulations, and this will not impact the contractual relationship between policyholders and the insurance companies. Existing policies, claims, or fully effective complaints will remain intact. The insurance disputes and infractions adjudication committees will continue with no change.

To attract international players and make Saudi Arabia a regional insurance hub, sufficient and attractive incentives are needed.

The Saudi insurance market is unique compared to other regional or international insurance markets. It is highly fragmented, with the top five companies accounting for 71 percent of the total gross written premium.

We at BMG Financial Group have been involved in the Saudi insurance sector almost 15 years, taking half of the insurance companies public back then and now moving to the mergers and acquisitions arena.

The consolidation spree in the insurance sector started back in 2020 with the first merger transaction of Walaa Cooperative Insurance Co. with three companies, namely MetLife, American International Group, and Arab National Bank for Cooperative Insurance. Later, Gulf Union Cooperative Insurance Co. merged with Al-Ahlia Cooperative Insurance Co., followed by the merger of Aljazira Takaful Cooperative and Solidarity Saudi Takaful. Last year, Walaa Cooperative Insurance merged with SABB Takaful, and Arabian Shield Cooperative Insurance merged with Al-Ahli Takaful. The consolidation process is still in operation as we speak.

In my opinion, during the next five years, the Saudi insurance market will still be ripe for consolidation, and the total number of listed companies will shrink from 26 to 15. The new authority will face a few challenges once it takes over. These include how to handle the monopoly of the top three companies. Also, creating value for all stakeholders, not only the end customers, especially since many major shareholders have suffered significant losses for years. Furthermore, to attract international players and make Saudi Arabia a regional insurance hub, sufficient and attractive incentives are needed.

Basil M.K. Al-Ghalayini is the chairman and CEO of BMG Financial Group.