(MENAFN - Arab News) It has been made mandatory for Saudi insurance companies to display their insurance policy premiums for vehicles from March. This follows a decision taken by Saudi Arabian Monetary Agency (SAMA) urging vehicle insurance companies to display their list of policies with the premiums. This has been done after Saudi vehicle insurance companies said in a communication to SAMA that their losses for 2012 were estimated at 80 percent.
Saudi insurance companies urged SAMA to intervene and organize the insurance market with strict regulations. They also asked SAMA to allow them to increase vehicle insurance policies by more than 30 percent to avoid losses.
In the previous two years, vehicles and medical insurance companies were involved in a fierce competition in the Saudi market where most of these companies reduced the prices. As a result, some companies didn't survive. In this regard, SAMA has promised to regulate the Saudi insurance market and set new appropriate prices to avoid losses.
Arab News spoke to Aadana Khoja, an insurance consultant at Al-Mamoon Insurance Brokers and a former member of the insurance committee at Jeddah Chamber of Commerce and Industry (JCCI), who confirmed that the insurance market needed an urgent regulatory system to survive.
"The war that started recently among medical and vehicle insurance companies led to huge losses, especially among small and medium insurance companies. Vehicle insurance policies had been reduced to the minimum, which is unhealthy for the market," he said.
He added: "SAMA has asked actuarial experts to study the losses and profits of the insurance sector, and depending on the results the prices will be determined."
According to Khoja, this strategy will change the Saudi insurance market and drive it upside down, especially when the insurance market has been unorganized for a long time.
"Since the introduction of both medical and vehicle insurance, the companies were working randomly. When SAMA started regulating the market in 2005, the number of companies reduced. In the past there were about 130 insurance companies, after 2005 their number dropped considerably," he said.
He added: "I believe that when SAMA focuses more on regulating the insurance company market, 50 percent of the current companies will shut down. Otherwise, small companies have to merge in order to face the market challenges."
Khoja confirmed that small and medium companies were urged to reduce the prices by 50 percent in order to face the challenges.
"If we talk about the third-party insurance, the prices become very low compared to the old prices. For example, the cost of third-party insurance is between SR 200 and SR 350. In the past, the prices were estimated at SR 600, SR 500 or SR 400," he said.
In case of full insurance the rate of policies on the vehicle is currently estimated at 30 percent of the car's original price, which is too risky and low, said Khoja.
According to Khoja, one of the main reasons that led vehicle insurance companies to suffer big losses is the recent decision announced by Custodian of the Two Holy Mosques King Abdullah to adjust new (Diya) blood money where it rose from SR 100,000 to SR 300,000. "After issuing the decision to increase the amount of blood money, insurance
companies should have increased the prices, but they didn't, which is why they suffered huge losses in 2012," he said.
One of the most important reasons influencing the performance of the insurance portfolio and thus prices of insurance policies are the prices of spare parts. The prices of vehicles continue to rise and are accompanied by a rise in the prices of spare parts, said Muhammed Awad, an insurance consultant at a private company in Jeddah.
He pointed out that the rates of increase in the prices of policies vary from one company to another according to the company's strategy and the size of the company's portfolio.
"There are some companies that do not change their prices at all, while other small companies prefer to drop their prices in order to compete with small companies," he said.
Essam Khalifa, an economist, told Arab News that unorganized insurance market is affecting the Saudi economy negatively.
The only solution to protect all parties - insurance companies, the economy, and customers - is to regulate the market and allow only big companies to continue.
"Small and medium companies should merge into one holding company, so the shares of the companies will increase and they will be able to compete in the market. Otherwise, these small companies wouldn't be able to survive," he said.