The Saudi Insurance Market is Young, says Largest Insurance Company

Interview with Raeed A. Al-Tamimi, CEO of Tawuniya

Saudi Arabia has one of the fastest growing insurance industries across the world. How does the insurance market here compare with the global markets for example in the USA, Europe or the Middle East?

The Saudi insurance market is still very young; it has only been regulated for about 10 to 15 years. This means it is hard to compare this market with mature markets. It is hard to find another market that has the same regulations, sophistication and development as this one.

I would say that we have seen very interesting growth in this market over the years. Compulsory insurance picked up very quickly and this has really boosted our growth.
Going forward, our growth depends on whether any new compulsory products are introduced to the market. If no more compulsory products are introduced we will reach a level of saturation that is consistent with other mature markets in terms of our growth being under the rate of inflation.

What type of insurance do you think will be the future driver of growth?

As I mentioned, currently the market is still driven by compulsory insurance. This began with compulsory vehicle insurance, i.e. third party liability. Motor insurance picked up enormously when it was made compulsory. Subsequently, medical insurance was enforced by law, which created even more growth in this market.
Right now, we don’t see great potential for the non-compulsory segments. I think we need to encourage more awareness to pick up these areas because our penetration today is not comparable to that of other markets. We still have lots of potential to grow but it takes time.

The insurance market is a relatively new development for Saudi Arabia, how do the Saudi nationals perceive insurance?

Most people do appreciate the need for insurance. Once people start using these insurance services they tend to see the benefits and are happy to continue purchasing insurance. At the same time, we need the enforcement to kick in properly. To give you an example: motor insurance is related to the car´s registration period, which lasts 3 years, however sometimes people insure their car for the first year but skip the second and third year.
We do have large numbers of people here who are strong believers in insurance and this is increasing over time. Once people see the benefits of insurance, they do appreciate the service. Nevertheless, you cannot compare the market here with western countries that have had insurance for a long time. People here are just beginning to look for new insurance products that we don’t have yet here in the Kingdom.

What growth figures do you expect for 2014 and 2015 for the industry as a whole and for particular segments?

This depends on whether we have any new compulsory products entering the market. If there are no new compulsory lines of insurance introduced then we should expect growth of around 10%. This varies from one segment to another, for example in the heath sector the main drivers of inflation are the lack of supply for demand between insurance companies and the medical providers. If we have more medical providers, particularly increased hospital beds then inflation could go down. If on the other hand, we continue with the same supply chain then the inflation could be higher than in previous years and growth shall reflect that. In the motor insurance segment, we are going to have some initiatives regarding the enforcement of third party liability. If this enforcement is done electronically, we could experience huge growth in this segment because currently we are only capturing approximately one third of the insurance potential of this segment.

If we do not see any new segments, increased enforcement or new compulsory segments then I think growth shall be in the range of 10 to 15%. 

Regarding the regulatory framework and legislation, what sort of initiatives would you welcome?

The collaboration between all parties in order to have better quality and standards in this market. Regulation can be applied in various ways, for example standardising and enforcing some laws which will help the consumer and also protect the rights of all parties, both consumers and providers. This regulation has started to come in to force and it is picking up momentum; we have had more regulations introduced in the past few years than ever before. The market is moving in the right direction with this regulation but there is still more we can do, as I said we are still a young market.

Can you tell us a bit more about the main challenges you face?

We have different types of challenges. We have challenges arising from competitors, due to a lack of new segments, which is pushing the margins a bit lower. Everybody is looking for a market share where there are no new segments and consequently the margins are going down. This is a real challenge for us.

Inflation is another important challenge for us. The issue of supply and demand is really hurting us. If this matter doesn’t improve, it will represent an enormous challenge for us. Consumers will be affected because the insurance companies will suffer the first or second year of high inflation and so the premiums will have to go up but it is the consumer who have bear the costs.

The best thing would be to have more investment in the providers, to have more encouragement from the regulators and to increase and facilitate investment in hospitals. I also believe that in terms of motor insurance if we have more big players on the ground we can improve quality of service and can control inflation.
Another challenge that we face is compliance. Many market players are new and compliance requires experience and learning curves. We also have to be aware of international best practices in order to be prepared for what will surely be introduced here at a later date.

We also face a challenge with regard to talent. As we are the leader on the market, we tend to be targeted by other companies who wish to take our staff. We are trying to manage this by introducing different programs and providing a good working environment and culture. We do maintain excellent talent but we also need to be proactive to avoid having attrition issues in the future.

You mentioned the saturation of the market; with more than 35 insurance companies and the market has too many players which in turn might result in consolidation. What is your opinion is the outlook for the market?

If some insurance companies continue to suffer bad performance then they have no other option than to go for consolidation. However, consolidation is not currently an attractive option for the larger players because the smaller companies are looking to get their market share price for the sale of their portfolio or company. This is not attractive at all because many companies´ market share price is ten times the value of their books and so it is not attractive to merge or consolidate. In order to consolidate you have to see the benefit of doing so, for example, if you are missing a segment or if another company is serving a certain segment in a better way, it represents a good reason to consolidate. However if there is no added value and the cost is very high then there is nothing in it for the larger companies.

I believe companies need to look at profitability going forward rather than trying to increase capital from time to time. I think there is plenty of work needed to improve profitability. I also think that we should introduce more insurance segments and have better enforcement to avoid lowering the margins of insurance companies, which particularly hurt the smaller companies that don’t have the advantage of large client bases.

A quote from the recent report by CSR “Despite the growth in Saudi Arabia’s insurance penetration, CSR considers the industry’s insurance penetration to be low compared to world insurance penetration, which was 6.60% in 2011 as per the Swiss Re. Saudi Arabia’s insurance penetration is also lower than UAE and Bahrain, which had insurance penetration of 1.8% and 2.4% as of 2011, respectively. CSR believes that the Saudi Arabia’s sound economic outlook coupled with extensive oil reserves and supportive policies will lead to insurance premium growth in the long run.”

We talked about consolidation but perhaps in a market that is growing by 10% a year, consolidation might not happen after all?

It depends on the reasons for that growth; if it is just due to inflation then these figures do not really reflect the performance of the companies. I think that penetration will pick up once awareness is increased and new products are seen in the market due to initiatives from the government or demand from clients. That is what is happening in other markets. We are expecting that a couple of new segments will become compulsory which will greatly improve penetration. There are discussions going ahead regarding mortgage law, which might improve penetration in the property segment. Equally, we are seeing increased demand for insurance but we need more time to reach global figures.

You have emerged as the largest and the leading insurance company in Saudi Arabia. You are among the three largest players. How would you characterise your competitive strategy? Why do you think you are the leading player in the market?

We need to make sure we continue to provide the best services and we have to raise the bar in terms of quality. These are the initiatives that we work on every year to ensure that we remain not only the largest but also the leading Saudi insurance provider. We also have to develop further analysis of the market to establish which segments we are not penetrating sufficiently to be able to add services for our clients in order to keep us ahead of our competition. I think we are the leading provider because of the services we offer.

Can you describe us your new online services?

We are the leader in online services. We sell a couple of products online at the moment and we are investing a lot in developing the online part of our business. This should be reflected soon in many products and services. We do face some challenges regarding the online demand particularly in terms of how much we can invest in this area for the future. However, we certainly wish to develop this further.
We were the first company to introduce online apps. Our clients can access a large number of services through these apps. We were the pioneer in terms of providing sales features through our website. We were also the first company to have third party insurance fully available online and we were the first to offer online travel insurance where we have linked the service with the embassies in order to verify the insurance certificates. We have another couple of online products in the pipeline now, which will ensure that we are ahead of the market in e-sales and e-services.

Can you tell us a bit about the key financial figures for this year?

Currently I can´t disclose the figures because they have not been published yet.

Would you say that you project the same sort of development as the year before?

Well, I would definitely say that we are expecting a better year in terms of profitability and growth, two areas that we have worked hard to improve. We are optimistic in 2014 that performance could be better than 2013 in alignment with the initiatives and projects that we are running.
Anything can happen to the market; there are many external factors that could affect our strategy for the future. We are doing our best to have a good year.

Do you intend on increasing your market share?

I think that profitability is our main target in 2014. We need to make sure that we are growing on a profitable segment, maintaining high retention levels of clients and providing new services. With these initiatives we hope to have a good year in 2014.

What is your vision for the company?

Maintaining leadership of the sector is a real challenge in a market where there are different losing segments. With the new regulations and laws that will protect all parties, this will improve. Our goal is therefore to maintain our leadership in a profitable manner. For the time being we are only looking at the Saudi market, because we see that there is lots of potential here. There are even foreign companies trying to invest in Saudi Arabia now. We need to utilise all of our capabilities in order to grow in Saudi Arabia and to continue providing the best service to our clients.

Can you tell us a bit about your Saudization ratio?

We are happy that we have a very high Saudization rate; currently we are enjoying something like 75%, which is very high for such an industry. This was not easy to achieve. It was a result of many HR initiatives, career plans, training, work culture etc. The process of selecting people and maintaining them is part of what we do. It is not easy to have this kind of Saudization rate without a continual series of initiatives and projects in order to maintain your position. We are proud of our top quality staff. We hope to maintain these levels or even raise the bar in the future.

Is there anything else that you would like to add?

Everyone needs to work towards increasing public awareness of insurance policies in Saudi Arabia. I believe that the services provided to the clients are the best way of convincing them of the benefits.