Insurance and Finance in Saudi Arabia

Insurance and Finance in Saudi Arabia

The growth of the insurance industry in Saudi Arabia decelerated for the first time during the last decade. This trend was due to a decrease in the profitability of automobile and healthcare business lines.

The results of this study suggest that there is room for improvement in the relative technical efficiency of takaful and cooperative insurance companies in Saudi Arabia. This finding is supported by the low returns-to-scale found in this sample.


Takaful is an Islamic alternative to conventional insurance that operates on the principles of cooperation and sharing. It involves participants contributing a lump sum to the common fund. In the event of a loss, they can be reimbursed from this fund. The takaful is managed by a takaful operator, which receives a fixed fee each year in return for managing the common pool. In addition, it also earns a share of investment profits from the takaful fund.

A takaful company is established and operated according to Islamic law and is supervised by a committee of Sharia scholars. These scholars provide direct guidance and advice at all stages of takaful operations. This is necessary to ensure that the business activities of a takaful company comply with Islamic rules. This includes determining the premium to be paid, the distribution of benefits and investing the takaful funds.

The takaful concept is based on the principles of Islamic law, which prohibit excessive uncertainty and speculation in dealings. It also forbids exploitation in the form of usury (interest). The takaful model does not allow for such elements, so it is a more ethical financial product. This makes takaful insurance more popular than traditional insurance in the Muslim world.

Conventional insurance is a risk reduction mechanism that transfers risks from individuals to a single company. This is different from takaful, which offers protection to an entire group of people through a shared risk-pooling scheme. Takaful can be applied to all types of business and personal finance, including life insurance.


Until recently, the insurance industry in Saudi Arabia was highly fragmented and unregulated. However, the Insurance Companies Control Law of 2022 brought regulation and legal status to the sector. The new law empowered SAMA to license insurers and professionals and oversee the market through its General Department of Insurance Control. Moreover, insurance companies’ investment funds adhere to the rules of the Capital Market Authority (CMA).

The market remains in a transition phase, and there are many challenges ahead. SAMA has been focusing on strengthening best practices and encouraging consolidation for improved scale and competitiveness. Moreover, it has been promoting financial literacy programmes and developing distribution channels to drive demand.

As a result of these efforts, the insurance penetration in Saudi Arabia is expected to reach 2.4% by 2025 and 4.3% by 2030, which will contribute to the country’s Vision 2030 goals. This growth will be driven by an increase in GWP, penetration, profitability ratios and coverage placement.

In addition, the market is bolstered by a strong economic performance and low interest rates. This trend will continue to support the insurance industry in Saudi Arabia for years to come. The industry is also undergoing significant regulatory reform to enhance efficiency and compliance with Vision 2030 requirements.


In order to provide insurance services in Saudi Arabia, a company must be licensed by SAMA. This can be done through a formal application process. Applicants must submit detailed plans for their business and demonstrate a sufficient level of capital. They must also have a professional liability insurance policy in place. The insurance market in Saudi Arabia is growing rapidly. However, there are still some restrictions on the type of insurance that can be provided. Currently, only companies that are incorporated by royal decree and have a minimum paid-up capital of SAR 100 million can operate as an insurer or reinsurer in the kingdom. Additionally, insurance and reinsurance brokerage companies may not hold shares in direct insurance companies.

The insurance industry in the Saudi Arabia is relatively sophisticated, especially in motor and health, Fitch Ratings says. It is a significant contributor to the country’s economic development, but its growth is constrained by generous social security arrangements for local populations and non-Saudi employees.

Moreover, the Kingdom has not yet established a fully functional reinsurance market and there is a need to expand local reinsurance capacity. This will allow the Kingdom to take advantage of reinsurance opportunities abroad and improve its competitive position within the regional and global markets. The Kingdom’s insurance sector is expected to grow further, fueled by strong demand for health and motor coverage. Its per capita spending on insurance should increase to 750 SAR ($200) by 2020, and the contribution of the sector to GDP will rise to 5%.


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