Car insurance rates in Saudi Arabia rise on higher number of accidents, prices reviewed quarterly: Experts

High motor insurance rates in Saudi Arabia were driven by many factors, mainly the increased number of accidents and higher spare parts costs, insurance market experts told Argaam.

Insurance prices are monitored and updated by the Saudi Central Bank (SAMA) and actuarial experts. These rates vary from one company to another, based on client data and previous claims.

Sulaiman Binmayouf, CEO of United Co. for Actuarial Services

CEO of United Co. for Actuarial Services CAIS, Sulaiman Binmayouf, said motor insurance rates will be updated in the first quarter of 2023.

Based on SAMA’s requirements, insurance firms abide by reviewing prices on a quarterly basis. A price increase or decrease is related to market conditions, causes and premium data every quarter.

Binmayouf elaborated that care insurance price hikes also vary among companies, based on client claims.

In a phone call with Argaam, he added that insurance prices were pushed higher by the increased number of accidents and claims. Loss rates for insurance companies reached 83% in 2021, including net incurred and paid claims, in addition to claims under settlement.

Najm for Insurance Services Co., which operates in accident review and damage assessment, said the total number of traffic accidents exceeded 2.2 million in 26 governorates.

Adel Al-Eisa, the official spokesperson for saudi insurance companies

Adel Al-Eisa, the official spokesperson for insurance companies, said car insurance prices vary, due to many reasons mainly the higher number of accidents, the sharp rise in spare parts costs and the related increase in repair and maintenance workshop costs, in addition to the fraud cases in traffic accidents.

Al-Eisa told Argaam that motor insurance prices are set by actuarial experts at insurance firms, who are well qualified for this job.

He added that SAMA monitors these prices, given that it is the insurance market regulator, to ensure fair prices for insurance services providers and the insured.

Waleed Al-Humaid, insurance market expert

Elsewhere, expert Waleed Al-Humaid told Argaam that car insurance prices are soaring above 200%, adding this rise was incurred by all policyholders, even those that reported zero accidents. He reiterated that this factor is highly alarming on the levels of insured clients, insurance firms or lawmakers.

Prices are based on car models, lifespan, and driver age. Insurance assessment also depends on the geographical range of cities, as some face high risks due to heavy traffic, such as Riyadh, Jeddah and the Eastern Province.

The Saudi insurance market is valued at over SAR 40 billion and contributed 1.48% to the Kingdom’s gross domestic product (GDP). Al-Humaid added that he aspires to see a 5% contribution to total GDP, pointing to the big ambitions of the Saudi market and insurance sector.

Actuarial experts at insurance firms are tasked with reviewing these prices on a sequential basis.

Loyalty discounts of up to 50% are attained by policyholders that renew their insurance policies for three years, Al-Humaid explained.

Citing the number of car accidents, he said an unofficial source reported that Najm Insurance handled more than 1.8 million accidents in 2022, a huge number now. Earlier, the highest number of accidents did not surpass 1.5 million.

Who is affected?

Al-Eisa said that policyholders with many accidents in their records are the most affected, as they must pay higher premiums, noting that insurance is priced according to the type of insured risks (vehicles) and the related factors, such as the vehicle model, year of manufacture, driver experience, etc.

Meanwhile, Binmayouf said all classes reported higher prices due to insurance portfolios, which include both zero claims and client claims. Insurance firms should separate those who report no claims from others to ensure fairness.

Al-Humaid also pointed to Taqdeer, which provides technical reports that protect the rights of insurance companies and the insured. He added that inflation also impacted coverage rates.

Suggested fix to cut prices

Binmayouf said one of the most important solutions is drivers’ commitment to traffic safety rules, as well as activation of the insurance companies' role in offering discounts to those who do not have claims. This also includes programming traffic signals for smooth traffic flow, as well as coordinating with other agencies such as the Ministry of Transport and Logistics Services and municipalities to redesign and engineer roads, especially exits and entrances. This aims to reduce and prevent accidents, which will reflect positively on decreasing vehicle insurance rates.

The merger of insurance companies is a catalyst for the formation of large portfolios that include homogeneous risks, which are used to compensate the small categories, as per the Law of Large Numbers.

On the other hand, Al-Eisa said it is possible to control the current rise in several ways, including the activation of mandatory insurance, as the number of insured vehicles still represents nearly 50% of the total vehicles in the market, due to the discrepancy between the 12-month insurance policy and the three-year driving license.

He added that it is necessary to interact quickly by activating the mandatory insurance, as the increased number of insured vehicles necessarily leads to a decline in the current prices. This is because insurance is based on large and homogeneous numbers of risks. Traffic regulations and penalties should also be activated to reduce the number of accidents, which has witnessed a significant increase recently.

Meanwhile, Al-Hamid said insurance companies bear the responsibility of rearranging vehicle claims and compensations. He stressed that insurance companies should reduce the cost of claims, as when the price reached SAR 400 before 2015, they incurred losses, noting that the price reached SAR 2,000 and they still have losses. This indicates a malfunction in their operations.

The insurers should work with the legislator and the central bank in rearranging the operational cost of claims to reduce costs so that it would not become the main reason for price increase, the expert said. He indicated that insurance companies have a greater role in rearranging reinsurance agreements with international companies to cut prices.

Al-Hamid pointed out that it is possible to control price hikes through the continued insurance coverage of customers, cautious driving, re-management of portfolios by insurers, as well as arrangement of operations, cost of claims, and increased control by the central bank. This will contribute to stronger market performance.

The legislator should obligate the insurers to educate individuals about how to protect themselves from any damage, Al-Hamid said, adding that this is not limited to the renewal of the forms, as the state stipulated the availability of insurance policy for the implementation of any traffic transaction.