InsurTech Market Size in Saudi Arabia

Over the past few years, a handful of US companies have made headlines in various areas of the InsurTech space, such as in price aggregation, health, motor, home, protection & saving, and claims management, among others. Some of these startups have been floated in the stock market and others are at various stages of maturity. 

However, the Middle East market, specifically in Saudi Arabia, has only seen success stories in startups specialized in price aggregation and motor insurance, so far. Regulators see price aggregation as a priority for transparency, which is what helped aggregators penetrate the sector. 

As of 2021, online brokers captured 5.6% of all Gross Written Premiums (GWPs)—around SR2.5 billion—mostly in personal motor insurance. This means that online brokers or price aggregators channeled around 30% of all motor insurance policies. This breakthrough impact has not trickled to other verticals within the insurance realm, such as health insurance, due to structural challenges that will be detailed further.

Understanding the components of the sector:

The insurance sector has been growing at a compound annual growth rate (CAGR) of 8.6% over the past 10 years and is forecasted to continue growing at similar or higher rates due to the inflation in the cost of healthcare. Health represents around 60% of the sector’s Gross Written Premiums (GWP). To break it down further, health and motor sub-sectors together represent around 80% of the industry and are driven by regulatory enforcement. For example, employers are obliged to provide health insurance to their employees along with their dependents. 

Around 50% of the motor premiums are B2B, mainly the corporate lease books, such as mandatory insurance for vehicles leased by banks, and the remaining is B2C—with higher dominance of Third Party Liability insurance compared to comprehensive insurance, which has the potential to double because currently, the enforcement captures only around 50% of the market due to the decoupling of insurance validity and driving & car licenses validity.

Motor insurance, however, is a more straightforward product since it is purely transactional with no need for engagement or servicing between the policyholder and insurance company—except in the case of a claim made due to an accident. This results in price-driven insurance, which explains the success of price aggregators. Insurance companies, due to price competition, do not actually profit much from such policies, leading to unwavering tension between them and price aggregators, which drives the need for solutions that can mitigate the relationship beyond just selling the cheapest policy. 

On the other hand, health insurance is more complex. Servicing plays a big part in the pre-authorization of certain medical services, such as chronic case management, medication reminders, dispensing, and delivery. Even the underwriting process requires a collection of historical claims data on a group level. Additionally, SMEs still require medical declaration forms to be filled by individuals, which makes the process lengthy due to the need for manual work to fill them in. And, for example, in the case of a declared medical condition, underwriters are required to examine the risk in more detail. This can be seen as a challenge and an opportunity for tech growth at the same time.

Insurance regulation enforcement is why health and motor combined account for around 80% of the sector, as illustrated in the graph above. The current retail (B2C) market size for health insurance of SR213 million in 2021 is over-stated as it includes a significant regulated segment, which contains inbound travelers, such as those traveling for business, tourism, and Umrah. 

However, voluntary insurance remains limited and almost nonexistent in health due to risk, from an insurance point of view, and price, from a member's point of view. Furthermore, health insurance witnessed a low gross profit margin of around 9.7-17.4%. Once acquisition cost, commission, and overheads are factored in, it should come as no surprise to already be entering a negative margin territory.  

Opportunities for digital development

Fronting insurance companies is one vertical with digital growth opportunities. The InsurTech startup would be allowed to borrow the underwriting license of an existing insurance company and then demonstrate lower customer acquisition costs and better reach. This acts as a learning path toward obtaining an independent insurance license—due to high capital requirements today—and decreases the cost of risks while benefiting from the reduced set-up costs and capital contribution. Through digital innovation, companies will allow users to access their information at any time without the need to meet personally with a representative.

Also, Insurance as a Service (IaaS) can help existing insurance companies move digitally faster and at a more efficient cost. A move to the provider side can also prove to be productive by offering better claims processing and revenue cycle management. Likewise, e-invoice factoring and financing solutions can be used to enhance the transparency and efficiency of invoice processing. E-invoice eliminates manual invoice processing costs, shortens the time in sending and receiving the transaction information, and reduces the exposure to risks such as fraud.

Lastly, incorporating AI and machine learning technologies into sub-sectors of health and motor will help analyze historical insurance contracts and weed out risky customer profiles. Across the industry, AI will become a major player in facilitating loss prediction & prevention and simplifying claims processing. Through this integration, there will be more lucrative opportunities for enhancing the InsureTech market growth in the coming years.

Digitizing additional non-enforced insurance sub-sectors requires heavy investments to build the market, which will call for changes in the behaviors and intellect of targeted segments. As essential as it is, it can without a doubt prove to be a lengthy and costly process. InsureTech not only comes in handy in terms of efficiency but on some level, is even crucial for smooth and transparent transactions.