INSURANCE has not been excluded from the kingdom's ambitious economic reform programme. A new co-operative health insurance law requiring expatriates to have private medical insurance has hit the statute books and Health Minister Osama Shobokshi is pushing for the scheme to be in place by November of this year. The government is also promoting better regulation by raising minimum capital requirements, so helping to reduce the annual outflow of premiums.

The medical insurance reforms have already had a stormy passage. Targeted at the more than 5 million-6 million non-Saudi workers resident in the country, the measures aim to shift a significant part of the burden of healthcare from the state to the private sector, transforming hospitals into revenue earners in the process. The reforms will make it mandatory for employers to take out private medical insurance for expatriate staff and their employees, as well as requiring insurers providing cover to be Saudi-registered, co-operative insurance companies.

So far, so uncontroversial. Yet, private insurers have raised strong objections to the plans.

The Health Ministry has made it clear that it intends to regulate the market itself, dictating the forms of cover to be provided, as well as setting the level of premiums insurers will charge. 'The whole way this is being introduced is shambolic, ' says a representative of an international insurance company in Saudi Arabia. What we are being asked to sell is far broader than anything we do elsewhere.'

The ministry wants insurers to provide comprehensive cover, including items which are normally excluded from private health cover. Given the labour-intensive nature of medical health insurance, heavy up-front investment will be required to set up the infrastructure for covering more than 5 million expatriates. With premiums expected to be set at SR 800 ($218) per person, few insurers expect to be able to get a return on their capital. 'We don't have a problem covering items like dental work and chronic illness, but without sensible prices we aren't going to be able to do it, ' says the representative.

Shifting costs The nub of the problem is a conflict between the policy goal to get the private sector to take a greater role in areas formerly undertaken by the state, and a residual tendency in government to view its role as a distributor of largesse to the wider population. Though it sees an opportunity for the private sector to shoulder a greater burden of healthcare costs, the government appears unwilling to allow it to operate in a truly free market.

According to a manager at a Saudi-based European insurer, the market needs riskrelated premiums if it is to be viable. 'If the private sector is going to play a role, it has to risk capital and therefore be in a position to manage that risk and risk-related factors, ' he says.

The trend towards private health programmes was underlined in a report from the National Company for Co-operative Insurance (NCCI) last year, which showed a growing number of Saudi firms providing health insurance coverage for staff. Health premiums grew by 30 per cent in 1998, making it second only to motor insurance as the most heavily insured class.

A major gripe has been the lack of consultation from the ministry. To this end, the appointment of a Council for Co-operative Medical Insurance to implement the reforms is a welcome, if belated, step. Headed by Shobokshi, the 11-member body contains just one private sector member and a single representative from the insurance sector. It faces a tough task winning over the doubters ahead of the new scheme.

The scale of the task in setting up the private health insurance scheme has prompted the government to consider restructuring the entire insurance market. More than 80 firms are active locally, but with only the stateowned NCCI licensed to operate, the market is largely unregulated. Most firms are little more than brokerages, companies competing by quoting unrealistically low premiums.

External dependence The sector is highly dependent on external reinsurance, with around 80 per cent of premiums transferred abroad. If the industry was able to repatriate even a portion of the $570 million in premiums estimated to leave the country every year, it could secure a significant new source of liquidity.

In response, the Finance Ministry has put forward draft proposals to raise the paid-in capital requirement for insurance firms to SR 100 million ($26.7 million). The impact of this will be to rationalise the sector, taking an axe to the large number of cowboy operators.

Eventually, the market is expected to be dominated by between eight-12 big players.

International insurance companies are significantly more receptive to these reforms.

'We like what we see, ' says the representative of a European insurance company. 'This will bring stability to the market and reduce the external transfer of funds.'

The regulation process will be handled by the Saudi Arabian Monetary Agency (SAMA - central bank), which has the strong backing of insurers. SAMA has already indicated that if the SR 100 million minimum capitalisation requirement doesn't do the trick, it will consider raising the figure to SR 250 million ($66 million). 'SAMA is looking for a fairly light regulatory system and there will be a lot of self-regulation, ' says the representative.

'But there will be strong pressure to Saudiise.'

SAMA is also understood to be keen to take control of the medical insurance regulations.

Some small operators are likely to remain after the rationalisation, though most of the larger trading houses which survive on the commission on reinsurance will depart. Time will tell whether the big international insurance companies will seek to raise their profile in the kingdom. Some big names are already represented, including Norwich Union, AIG, Axa, Royal Sun Alliance and health specialist BUPA. Much will depend on the wider reform of foreign investment regulations.

International companies will also be watching closely to see the extent to which they will be required to act as co-operative enterprises.

Insurers expect the new system to operate on a mix of shareholder dividends and pay-backs as part of the surplus generated, rather than a fully mutual scheme. 'There will have to be a nod in the direction of Mecca, ' says one industry source.

The timeframe for the restructuring of the industry remains unclear and the new private health insurance scheme is likely to be delayed. In the meantime, Saudi insurers will face increasing pressure on the bottom line.

NCCI's premium income fell 8 per cent to SR 628.7 million ($168 million) in 1999, suggesting margins are already becoming tighter.

If, as SAMA envisages, stronger, better capitalised firms start to dominate the market, competition will become even more intense.