KSA Insurance Regulatory 2023 Round-up
Transport & Insurance Focus
Anand SinghSenior Counsel,Transport & Insurance
Melody HuangAssociate,Transport & Insurance
Adoption of International Financial Reporting Standards – IFRS 17 and IFRS 9SAMA announced the formal adoption of IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments by the Saudi insurance sector, commencing on 1 January 2023 and in line with the implementation date set by the International Accounting Standards Board (“IASB”).The new standards included standardization of the accounting measurement models for insurance and/or reinsurance companies around the world; consistent comparison and analysis of results; and provision of accurate, transparent, and high-quality data for financial statements. It is worth noting that Saudi Arabia is one of the first countries to adopt these two standards.Implementation of gradual reinsurance cession to the local reinsurance marketSAMA announced in a circular dated 26 October 2022 the implementation of a new mechanism for reinsurance cession to the local reinsurance market. This new mechanism requires insurance companies to gradually cede a share of all their reinsurance treaties (proportional and non-proportional), either directly or through reinsurance brokers, to the local reinsurance market with effect from 1 January 2023. It sets out a course for gradual cession of at least 20% in 2023, 25% in 2024 and 30% in 2025.Issuance of amendments to the Unified Compulsory Motor Insurance PolicyIt is compulsory for all vehicles in the Kingdom to have at least third-party liability insurance. It helps to protect an insured person for damage or losses caused to third parties.SAMA introduced new amendments to the Unified Compulsory Motor Insurance Policy on 17 January 2023, with a goal to develop and facilitate traffic claim settlement procedures and to protect the rights of the parties of the insurance contract. The amendments included the policy definitions and appendixes in accordance with the ongoing developments of the insurance industry, as well as updating the exceptions and rights of recovery against an insured, driver or person responsible for the accident. The amendments also allowed for an option where the third party is entitled to choose between direct cash compensation, or getting the damaged vehicle repaired (article 7).
Licensing of the first foreign-owned health insurance branchOn 6 February 2023, SAMA announced the licensing of US-owned global health insurer Cigna Worldwide Insurance Company; the first health insurance company branch in Saudi Arabia. This was issued in accordance with the “Rules for Licensing and Supervision of Branches of Foreign Insurance and/ or Reinsurance Companies in Saudi Arabia” published in 2018, with the goal to encourage foreign direct investments and to increase competitiveness of the sector.
Issuance of InsurTech RulesSAMA approved the InsurTech Rules on 30 July 2023, with the goal to safeguard consumer rights and support innovation, while ensuring the sector remains compliant with the rules and regulations. The Rules aim to regulate insurtech activities, which have been defined very widely to cover any solutions or services fully provided or designed by the use of technology within the scope of the Insurance Activities.
Insurtech Rules intended to enable insurtechs to perform flexibly in an innovative based regulatory framework, which included requirements such as practitioners’ obligation, clients’ information accuracy and codes of conduct preserving clients’ rights, compliance and control. Any non-compliance shall be deemed a violation of the Cooperative Insurance Companies Control Law and attract regulatory penalties. Of importance, the Rules require the insurtech companies to obtain a license before practicing any insurtech activities, to have sufficient knowledge and experience in the insurance and technology business, to seek approval before marketing the insurtech activities, to provide a summary of the operations and risks monthly, as well as to immediately report any cyber incidents.
Licensing of two insurance aggregatorsOn 14 September 2023, SAMA announced the licensing of two insurance aggregation companies Al-tizam for electronic insurance brokerage and Altheqa Insurance Brokers to provide insurance aggregation services (soft launch). With Al-tizam and Altheqa, five authorized insurance aggregation companies were operating in the Kingdom as at September 2023.
Issuance of Marine Insurance Coverage InstructionsSAMA issued Marine Insurance Coverage Instructions on 4 October 2023. The Instructions are a step forward in developing a regulatory framework for compulsory and non-compulsory marine insurance in the Kingdom and setting the minimum limits for coverage and benefits.
Under the Instructions, Marine Insurance Contract is broadly defined to be “A contract whereby the insurer undertakes to compensate the insured for damage arising from a maritime risk in return for a premium.” The Instructions outline the requirements on compulsory marine insurance coverages, the general obligations placed on the insureds and insurers, together with provisions on the 2-year limitation period, dispute resolution, exceptions, compulsory insurance coverage limits, and so on. Importantly, the Instructions confirm the liabilities for which compulsory marine insurance coverages must be obtained in the Kingdom, including those of the operators of a vessel to the third party, to the vessel crew, for removing the wreck, and for risks arising from pollution caused by the vessel’s fuel oil.
Licensing of an online reinsurance brokerageOn 26 October 2023, SAMA announced the licensing of ReTech Reinsurance Brokers Co for a soft launch to provide online reinsurance brokerage services. This decision reflects the regulator’s support of the insurance and fintech sectors and innovative financial solutions in the Kingdom.
Issuance of amendments to the Comprehensive Motor Insurance RulesUnlike third-party insurance, buying comprehensive car insurance is optional in Saudi Arabia. In insurance terms, Comprehensive refers to the type of policy that covers damage to an insured car in certain situations and the damage that a car cause to other cars or people.
SAMA introduced new amendments to the Comprehensive Motor Insurance Rules on 7 November 2023, as part of the ongoing effort to strengthen the regulatory framework and protect the rights of beneficiaries. The updated rules aim to broaden insurance coverage by including relatives, domestic worker (e.g., private drivers/chauffeurs), and someone who works for an insured based on a labor law (e.g., sponsorees). Moreover, the amendments enable corporate clients increased flexibility to tailor insurance coverages and benefits based on their specific requirements.
Merger between Alinma Tokio Marine Company (“Alinma Tokio”) and Arabian Shield Cooperative Insurance Company (“Arabian Shield”)
In early November 2023, Alinma Tokio and Arabian Shield obtained their final regulatory approvals for their on-market merger, marking the sixth merger in the Kingdom’s insurance market. Given the large number of players in the market, it had been a focus of SAMA to encourage mergers and acquisitions to create fewer and stronger companies capable of meeting market expectations, and to improve operational and financial performance and efficiencies.
Localizations of insurance product sales jobsIA announced on 13 December 2023 to localize all sales positions in insurance products effective from 15 April 2024 to further support and empower national competencies and capabilities in the insurance sector and contribute to the total rates of Saudization in the Kingdom. IA will follow up on the implementation from the date of issuance of the decision until the target Saudization percentage is reached.
Setting up of the IA is the key highlight for the insurance sector in Kingdom, followed by the circular issued by SAMA mandating reinsurance cession to the local market in phase wise manner starting from 1 Jan 2023. By 1 January 2025 the minimum reinsurance cession that must be offered to the local KSA market will be 30%, and this will have wide ranging impact on the local insurance market in the medium to long term. The issuance of the Insuretech Rules and licenses to online reinsurance brokerage and to web aggregators, suggests the dedication of the Kingdom to stay at the forefront of change in the insurance sector.
With the IA officially being on board and given some of the monumental infrastructure projects and the economic strategies around diversification under Saudi Arabia’s Vision 2030, we are very excited to see what 2024 brings to the Kingdom’s insurance sector.
If you have any questions or require legal support, please don’t hesitate to contact our team of expert insurance lawyers. We’re here to assist you with tailored advice and solutions for your specific needs in this evolving sector.
For further information,please contact Omar Omar, Anand Singh and Melody Huang.
Published in March 2024
