JEDDAH – In the light of ongoing and sustained megaprojects in the region, a property insurance expert said that traditional insurance method is not appropriate for insuring these projects. In an interview with the Saudi Gazette, Sultan S. Al-Khomashi, Property and Casualty General Manager, Tawuniya, cited the disadvantages of the traditional method, among them, “the contractors and sub-contractors obtain(ing) different insurance policies for the same project, handling insurance business with different providers, insurance premiums are built into the contractors cost structure, premiums became part of the bids and may affect the competition among contractors, project owner is indirectly paying for administrative overhead at dozens of separate insurance brokers and insurance companies, cover duplication as well as the project stability is out of the owner control.” In this regard, he said Tawuniya has addressed these issues. “We relaunched the Owner Controlled Insurance Program (OCIP) that is tailor-made policy providing coverage to the megaproject owners during the construction or renovation of the project. OCIP is wrapping up different policies into a single program. It can be provided not only for the owners but also for the contractors, consultants, subcontractors of all tiers, architects/engineers and anyone who is ‘enrolled'. Further, he said the “OCIP is provided as one program controlling all insurance covers and providing consistent coverage, dedicated limits, consistent services, and high liability limits for small contracts. OCIP also decreases the markups and avoid the cross litigation and coverage duplications. It also decreases the insurance cost by 30 percent compared to the traditional insurance method.” Asked about the best solutions to change the direction of megaproject owners to insure such projects in the local insurance market, Al-Khomashi said to solve the problem of the flight of megaprojects insurance premiums to the international markets, “I recommend the regulator to oblige the owners/brokers to place certain minimum level of business with local insurance/reinsurance markets. Also, the local insurance and reinsurance companies should enhance their financial capabilities and know-how to attract more megaprojects to the local market.” He explained that should the megaprojects be insured through the local market, the local insurers can keep long- term business relations with the renown international reinsurers. “This long business relationship provides more trust and confidence between the two parties. Based on these business relations the international reinsurers provide their local partners good price, good conditions and many other added values. So, the megaproject will be more stable and will be achieved within the planned timeframe. Also, increasing the share of megaprojects in the volume of Saudi insurance market will support the market development and growth, extend the investment income, provide more employment opportunities for Saudi workforce. Also, over a period of time, the buildup of capacities and know-how in the local markets accompanied an adequate risk distribution.” As to the role of megaprojects in the growth of Saudi insurance market, the Tadawul executive said the “megaprojects in Saudi Arabia are mainly concentrated on the fields of energy, air, maritime and land transport sectors. They also include infrastructure projects, electricity, water desalination and petrochemicals projects. These projects are characterized by the magnitude of their size, their high cost, lengthy period of implementation and complexity of the classes of insurance required. Therefore, insurance protection for these projects is carried out through specific classes of insurance such as energy, marine, aviation, engineering and property insurance. (Yet) in spite of the enormous size of government expenditure of the Kingdom, the volume of insurance classes providing covers to megaprojects - taken together - did not exceed 17 percent of the portfolio of the Saudi insurance market, and the retention ratio of their premiums is the least in the portfolio.” The Saudi insurance market witnessed many developments in the last 10 years specially after issuing the Cooperative Insurance Law in 2003 and its implementing rules in 2004, which led to dramatic change in the Kingdom's insurance industry. After the application of such regulation and its implementing rules, the Saudi insurance market witnessed many developments that can be enumerated as follows: • The numbers of insurance companies increased from one licensed company (Tawuniya) to 35 companies in 2014. • The Saudi insurance market volume (gross written premiums) increased from SR5.2 billion in 2005 to SR25.2 billion in 2013 with growth rate of 385 percent. • The gross claims paid by insurance companies amounted to SR17 billion in 2013 against SR2.6 billion in 2005 with increase rate of 554 percent. • The insurance density in Saudi Arabia (expenditure per capita on insurance) was raised from SR223 in 2005 to SR865 in 2013. • The insurance companies raised its combined retention ratio to 76 percent in 2013 against 61 percent in 2005 percent. • The total number of insurance companies' employees in Saudi Arabia reached 9,261 in 2013 up from 3,321 in 2006. So, Saudization rate increased to 56 percent in 2013 against 43 percent in 2006. On the historical relationship between the infrastructure projects and Saudi insurance market, Al-Khomashi said the Saudi insurance sector is currently known for its medical and motor insurances.
“However, the relationship between such sector and infrastructure projects is longer. It had started during the 1970's and 1980's and supported by the Saudi Cabinet Resolution passed on March 14, 1983 – considered as the first decision-regulating insurance practice in Saudi Arabia. Based on this resolution, the contractors were mandated to purchase insurance policy to cover the governmental-related projects they are executing if the value exceed SR5 million. Despite this long-relations between the two parties, we believe that the megaprojects insurance in Saudi Arabia is still out of our ambition.” Tawuniya sponsors the ongoing MEED Saudi Mega Transport & Infrastructure Projects conference in Riyadh. Al-Khomashi said the event is an opportunity to reach the key stakeholders and Tawuniya's actual and potential megaprojects clients. Through the meetings, conference, exhibition and other activities held within the MEED event, Tawuniya associates itself as the leading insurance company in Saudi market and the key contributor of such event, he noted. Notwithstanding, “our main message to the attendees is that Tawuniya has long experience, strong financial position, high financial rating and long business relationship with international reinsurers that are positive factors enabling Tawuniya to provide Saudi megaproject owners with the appropriate insurance covers along with technical capabilities and related experience that can meet their actual needs,” he noted. — SG
