Voted the best insurance company 2016 by Arabian Business Magazine, the Company for Cooperative Insurance (Tawuniya) has been serving the Saudi market since 1986. Chief Executive Officer Raeed Al-Tamimi gives his insight into the Kingdom’s insurance industry.
KSA unveiled its new masterplan for economic diversification earlier this year. Under Vision 2030, the onus is on the private sector to take the lead in generating future growth and creating new economic opportunities. This is an all-encompassing vision that touches on many areas related to the insurance industry, such as healthcare and home ownership. What impact do you think Vision 2030 and the NTP will have on the insurance sector, and in which insurance segments do you see the most potential for growth?
If you analyze Vision 2030, there are a couple of initiatives that will indirectly benefit the insurance sector in terms of penetration. Simply, we can say that we are expecting huge growth in the private sector, which will impact us positively. A greater role for the private sector in the economy will mean more demand for insurance products. This is still a compulsory driven insurance market where, for example, the health insurance mandate only covers the private sector. Perhaps insurance will play a bigger role in the healthcare reforms under Vision 2030 going forward, but this is not clear at this stage. The private sector might also play a role in healthcare provision through privatization of government hospitals or outsourcing certain services. We have also noted that the economic contribution of SMEs is expected to increase. All these things will create new revenue streams for insurance companies.
In previous interviews, you have noted that the mentality amongst Saudi customers is different to the mentality in the UK and USA, and that property insurance in KSA, for example, is seen as a cost rather than a benefit. Currently the Kingdom is undergoing unprecedented austerity measures. Efforts to reduce the public-sector payroll have resulted in significant reductions to perks and bonuses. During times of austerity, households usually cut back on expenses deemed to be unnecessary. How do you envision the insurance industry will be impacted by this period of austerity, and how are you attempting to educate the public to counteract perceptions that insurance is an expense rather than a benefit?
Awareness is picking up but we have to understand that we are still a very young industry. Insurance is still very new to many people in Saudi Arabia. We cannot compare ourselves to Western markets where insurance has been present for, perhaps, hundreds of years. Despite this, the regulation framework has developed nicely in a short period. We are all trying to raise awareness, but it will take some time.
When certain products were mandated as compulsory they were initially viewed as an expense. However, within a short space of time people began to view them as necessary services.
Some products that are well known in Western markets are very small here in terms of penetration, especially life insurance and property insurance. You can observe our dependence on mandatory insurance through the fact that health insurance still represents more than 50% of the market due to the mandatory health insurance requirements in the private sector. Motor insurance, which is also mandatory, has the second biggest share of the market.
For property and casualty insurance, growth comes from major government projects because the risks are huge and they are looking to relieve the risk burden. However, from individual households, we see very little growth in property and casualty insurance.
For medical coverage, people are still comparing the free service from the governmental providers to out-of-pocket insurance. Supplementary medical insurance is still a relatively small market for us. We are closely watching developments in the healthcare sector and trying to predict what will happen in the market going forward.
At a time when many key economic sectors in the Kingdom are experiencing a slowdown due to low oil prices and austerity measures, analysts are forecasting a buoyant insurance market with annual growth variously estimated between 15 and 17%. We expect the Saudi insurance sector to be the least affected by weaker oil prices, budget cuts and the tightening liquidity as the enforcement of existing regulations will propel motor and medical premiums growth at a rate of 15-25 per cent and 14-16 per cent respectively,” wrote Jaap Meijer, the managing director and head of equity research at Arqaam Capital, in a report. We expect the Saudi insurance sector to be the least affected by weaker oil prices, budget cuts and the tightening liquidity as the enforcement of existing regulations will propel motor and medical premiums growth at a rate of 15-25 per cent and 14-16 per cent respectively,” wrote Jaap Meijer, the managing director and head of equity research at Arqaam Capital, in a report.Your company is Saudi Arabia's largest insurer, named by Arabian Business Magazine as the Best Insurance Company in 2016. You reported a net profit before zakat at SAR 588.7 million in the first nine months of 2016, an 8.4% year-on-year (YoY) rise. How are you maintaining your competitive edge and leading position in a market of some 34 competitors?
We cannot say we will grow regardless of the wider economy, because we are part of the economy. Growth in the insurance industry this year compared to last year is incomparable. In the first three quarters of this year, the industry has grown roughly 1%. Last year we had a growth rate of about 20%. Nevertheless, we are doing much better than other industries, which have reported negative growth. Vision 2030 will boost the economy and that will boost our industry.
In terms of Tawuniya’s competitive advantages, we closely monitor client satisfaction levels and place an emphasis on innovation services and advanced technology. Online Services and E-Commerce are key drivers for our company. We are the market leader in this regard.
Human talent is also very important and we ensure that we continue to upgrade our knowledge and capabilities on a continuous basis through required skills and technical training.
Our brand is very strong, which reflects our commitment to our clients and the industry. We always try to support the market as much as we can and lead by example in compliance, quality, services and corporate governance, which helps the industry to mature.
You mentioned e-commerce, something which is being encouraged by Vision 2030 and the NTP. Recently, Tawuniya launched its ‘smart insurance’ concept. How can this help you to broaden your consumer base, in a country where insurance penetration is still relatively low at around 1.4% of GDP?
We started online sales a long time ago and we are upgrading and raising the bar every year to get as close to our clients as possible and apply international best practices. We are investing heavily in E-commerce and getting ready for future expansion in this direction. We are also trying to put further products online to make them more accessible to our clients. In 2016, Tawuniya; as the pioneering insurance company in Saudi Arabia, has set out its vision for providing “smart insurance” for the first time in Saudi Arabia, as one of the progressive steps in transforming the provision of insurance services and its various operations through Electronic means and using the latest technologies. This concept is in line with the company’s continuous efforts to meet its customers’ insurance needs in a comprehensive digital platform, which saves the consumer time and effort and enables customers to benefit from these services anywhere, at any time.
Vision 2030 is aiming to increase the economic contribution of SMEs from 20% of GDP to 35%. How is Tawuniya engaging with Saudi SMEs to enhance their competitiveness and resilience through targeted insurance products?
We are looking at SMEs’ needs because they are very different to the needs of large companies. One of our strategic objectives is to be very strong in the SME market and help to enhance their competitiveness. Executing the multiple objectives of the NTP 2020 and Saudi 2030 Vision, especially the areas related to the support and expansion of the SME segment in the market, leads us to create new tailor-made products for the SME (i.e. 360 SME Package).
The Tadawul was tentatively opened to foreign investment in 2015 but foreign ownership has remained low, currently accounting for only 4.29% of Saudi market capitalization. Further reforms were announced earlier this year to ease restrictions on foreign investors further in the hope that this could boost liquidity in the market. As a listed company, what are your expectations for this new wave of reforms?
The Kingdom is very serious about attracting foreign investment. As a company, we believe that foreign investment can bring in the best international practices and improve research mechanisms and reporting. We have more potential to grow and we always look at our shareholders’ expectations and try to meet them.
Vision 2030 is an all-encompassing vision that involves, amongst many other things, the building of local skillsets so that Saudis are willing and able to take private sector jobs in the new, diversified economy. This is an issue of critical importance, given that two thirds of the Saudi population are aged under 30. On your website you boast of having the “highest” Saudization rate in 2015 of 79%. Can you elaborate on what you are doing at Tawuniya to ensure that you not only meet your Saudization requirements, but you are actively recruiting and nurturing local talent in the insurance sector to make a positive contribution to the Kingdom’s future?
We are focused on quality. It is not a matter of simply fulfilling our quotas, we are investing heavily in talent. We invest in our staff more than any other insurance company. When our company was founded, there were a few Saudi insurance professionals and we relied heavily upon expats to provide us with the knowhow and experience. Gradually we have been able to shift more towards Saudi nationals. One of our internal training programs is called ‘FIT’ (Fast-track Insurance Technical), which enables outstanding performers to acquire the highest qualifications in insurance and receive training from Tier 1 international insurance companies.
All the people working with us are highly qualified. For graduates, we do a lot of background research into applicants before hiring them. Creating a deep talent pool is a very strategic target for us and something we have been working on for many years. Most of our executives are now Saudis. The average experience of our executive team is around 15 years. They have all worked their way up the ladder and have been nurtured and coached for leadership positions. In addition to this, 20% of our staff are females and we are investing heavily on this side as well.
This year is the 30th anniversary for Tawuniya and it also marks 20-year anniversary since you joined the company. Can I invite you to close with your own personal reflections on Tawuniya’s potential to make a positive contribution to KSA’s development and economic diversification under Vision 2030?
Tawuniya has to continue providing a good model for the insurance industry and be aligned with any strategic vision for the country and what people are working for. We have to be proactive and try to reflect international standards. We have to be closely aligned with Vision 2030 and the NTP. We must raise the bar every year and continue to upgrade our capabilities.