Experts are stressing the need to take effective steps to regulate the medical and vehicle insurance market as several insurance companies in the Kingdom struggle for survival.
Struggling insurance companies, in a bid to keep their companies afloat, were waging a price war by slashing policy prices to SR 350 in the hopes of attracting customers, reported Al-Eqtisadiah business daily quoting Shoura Council Member Fahd Al-Anazi on Sunday.
“A number of insurance companies have had their capital diminish because they failed to get high enough returns to compensate for their losses,” he said.
“There were 30 established companies investing SR 100 million, and high establishment and operating costs have caused the erosion of their capital,” said Al-Anazi.
He suggested a merger as a solution to rescue these companies.
“A merger is the ideal solution for such companies, because the other option is pumping in more investments, which will only lead to gradual accumulation of their loss,” he said. He also urged the Saudi Arabian Monetary Agency to take urgent steps to rectifying the insurance market issues and encourage companies to merge in a systematic and studied manner.
He attributed the failure of these companies to their unhealthy practice of lowering premium prices as a means to collect more liquid cash, which in the long term is harmful to a company.
He also feared that the accumulating losses would drive some companies to commit such violations as not fulfilling their commitment to their customers. Furthermore, the general popularity of insurance companies’ shares in the Saudi stock market will pose a threat to investors who may not be aware of the real financial situation of such companies.
“The price war between insurance companies is clear before us, as some companies are lowering the premium price as a means to attract customers,” said Abdul Aziz Abu Saeed, member of the National Committee for Insurance at the Council of Saudi Chamber of Commerce (CSCC).
Another member of the CSCC, Abdul Aziz Al-Khereiji, said insurance companies were making programs and competitions without first taking time to make proper viability studies.
“Competition should be present in an open market because it gives customers the freedom to choose which company’s policies they would like to have,” he said.
He warned that competition would lead to good and bad results, though it offers more choices to customers. Depletion in the capital of some companies was one of the negative results of competition, he said.
Insurance firms suffer losses due to stiff competition
