External Environment and Market Dynamics

Global economic uncertainty spurs insurance sector; Asia a key region of focus

The world economy faced several challenges in 2023. Growth slowed down, inflation stayed high, and central banks raised interest rates. The war in Ukraine and other events added uncertainty. The recovery from the pandemic was uneven, with some countries and sectors doing better than others.

Global GDP growth was revised down from initial projections, hovering around 3% in 2023, below the historical average. The global economy is expected to grow by 2.9% in 2024 and to 3.1% in 2025. However, elevated central bank rates aimed at combating inflation and reduced fiscal support due to high debt levels are putting pressure on economic growth. In most regions, inflation is declining more rapidly than anticipated, attributed to resolving supply-side challenges and the implementation of tighter monetary policies. Predictions suggest that global headline inflation will decrease to 5.8% percent in 2024, and further to 4.4% in 2025, with the 2025 forecast being revised downwards.

Economic policy uncertainty has pronounced impact on non-life insurance premiums than on life insurance premiums, emphasizing the sensitivity of economic risks covered by non-life insurance to uncertainty. This heightened global economic uncertainty has led to a downturn in the insurance industry at an overall.

Global insurers are increasingly turning their attention to Asia as a key growth engine, recognizing its pivotal role in the global economy. However, despite this focus, property & casualty (P&C) insurance in Asia only represents 20% of global premiums, with penetration remaining stagnant at 1–2%. The life insurance industry in Asia also faces growth deceleration, prompting insurers to recalibrate strategies amidst a growing divide between developed and emerging markets. Despite the challenges, the region’s expanding middle class, technological advancements, and evolving health and retirement sectors offer significant opportunities for growth and innovation.

The COVID-19 pandemic has brought lasting transformations to global healthcare, accelerating the adoption of new technologies and care delivery models, while also highlighting the importance of sustainability and resilience. The sudden surge in patients during the pandemic spurred the efficient deployment of technologies such as telemedicine and electronic health records to address healthcare challenges. Digital technologies are now seen as crucial in reducing costs, adapting to changing demand patterns, addressing workforce shortages, and preparing for future health crises.

Navigating transformation, resilience and challenges under Vision 2030

Amid the current economic landscape, Saudi Arabia is undergoing a notable transformation, strategically implementing reforms to reduce its dependency on oil, diversify its sources of income and enhance overall competitiveness. The past year marked a crucial juncture in the ambitious Vision 2030 initiative, symbolizing the midpoint of this transformative journey. This strategic undertaking reflects the nation’s commitment to long-term economic sustainability and resilience.

The enduring narrative of Saudi Arabia’s long-term economic growth continues to thrive, bolstered by a favorable policy environment, aligned with the Vision 2030 initiative’s central focus on economic diversification.

The data from the General Authority for Statistics (GASTAT) reveals a notable contraction in Saudi Arabia’s real gross domestic product (GDP) in 2023, registering a decline of 0.8% compared to the year 2022. Government activities exhibited growth of 2.1% year on year (YoY) growth. Conversely, oil-related activities faced a substantial contraction, declining by 9.2% YoY. These figures indicate the complexity of economic dynamics, with non-oil sectors showing resilience (with real GDP growth of 4.6%) while the oil sector faces challenges.

2024 economic outlook

For 2024, the Kingdom anticipates state expenditure to reach SR 1.25 trillion, while total public revenues are expected to remain robust at SR 1.17 trillion, resulting in a deficit of SR 79 billion, equivalent to -1.9% of its GDP. This outlook is supported by robust expansion in domestic non-oil sectors and the sustained high prices of international energy resources.

The Saudi economy is likely to grow by 2.7% in 2024, compared to its previous projection of 4%, a decline of 1.3%, according to the fund’s “Global Economic Outlook. This growth is largely driven by an upswing in non-oil activities, propelled by private sector investments, resulting in job creation within the labor market. Additionally, employment opportunities are expected to emerge through various initiatives outlined in the Vision 2030 program.

The primary risk in 2024 lies in the potential onset of a global recession, triggered by policy interest rate increases in major economies to counteract inflationary pressures. If combined with subsequent supply-demand imbalances in global oil markets and the Israel-Palestine war, it has the potential to negatively impact the Kingdom’s anticipated growth outlook.

Insurance market in Saudi Arabia

The insurance industry in the Kingdom remains on a growth path, registering total gross written premiums (GWP) of SR 50.53 billion in the first nine months of 2023, reflecting a 25% growth against the same period last year. Specifically, within the health insurance sector, where Bupa Arabia operates, GWP expanded by 26% during the first nine months of 2023, reaching SR 30.28 billion. Insurance industry growth in Saudi Arabia is driven due to many factors such as regulations, enforcement, technology, giga projects, participation of women workforce etc.

There was sustained robust demand for digital solutions, supported by an expanded range of products and industry-wide digitization efforts, and backed by the Saudi Central Bank (SAMA). As a leader in digitization initiatives, Bupa Arabia is well-placed to capitalize on this and increase its market penetration.

Below is the year to date (YTD)-third quarter (Q3) 2023 overview of the insurance industry in Saudi Arabia.

Market share overview 2023

Note: Overall results from Q4 2023 have not been published yet.

As of YTD Q3 2023, Bupa Arabia held a 27.5% share in the overall insurance sector of Saudi Arabia. This is primarily due to its market leadership in the health insurance sub-sector, where Bupa dominates the market with a 46% market share. The comparative performance of the Company in relation to its peers in the industry is illustrated below:

Health insurance industry 2024 outlook

In Saudi Arabia, the health insurance industry is thriving due to a growing population and strategic government funding. Forecasts predict a double-digit growth rate from 2024-2028, influenced by various factors such as regulatory measures, medical cost trends, population growth, economic diversification, and an increase in expatriate population. Despite the challenges posed by COVID-19, the sector has shown remarkable resilience, with the private sector actively bridging infrastructure gaps and improving service availability.

Below are key factors that will propel the health insurance industry forward:

Macro and microeconomic factors

• The Saudi government’s allocation of a SR 1.251 trillion budget for 2024 projects. Notably, there is an anticipated increase in budget spending for the health and social development sector, set at SR 214 billion in 2024, reflecting a 13.2% YoY rise.
• The number of insured lives has seen slight increase in 2023 from 11.5 million in Y2022 to at 11.8 million in Q3 2023.
• An increase in travel and Hajj/Umrah visitors will also have a positive impact on insurance GWP growth in 2023.

Government initiatives and regulations

• Saudi Arabia is committed to making substantial investments in the health technology industry, which is evident in the allocated budget of SR 189 billion (USD 50.4 billion) for healthcare and social development in 2023. A significant portion of these funds will be directed toward digital health initiatives, aimed at enhancing the accessibility, effectiveness, and transparency of the healthcare system.
• A vital component of Vision 2030’s strategic policies is public-private partnership (PPP). As an integral part of the Saudi government’s vision for economic transformation and growth, PPP plays a key role in developing the comprehensive healthcare system, encompassing long-term care (LTC), rehabilitation services and healthcare infrastructure.
• In October 2023, Saudi Arabia announced a state-funded insurance plan for all citizens by 2026, providing lifelong coverage without renewals. By 2024, health cluster governance will shift to the Health Holding Company, signalling a major industry overhaul. The Health Minister anticipates a substantial SR 330 billion healthcare investment by 2030, with the sector’s GDP reaching SR 318 billion and the private sector contributing SR 145 billion (~46%).
• The Insurance Authority (IA) commenced operations as the authorized regulator of the insurance industry in Saudi Arabia in November 2023.
• The Saudi Central Bank (SAMA) updated the compulsory motor insurance policy in early January 2023, aligning definitions, appendices, and exceptions with industry changes. The amendments transfer some recovery rights and introduce flexibility for third parties, allowing them to choose between direct cash compensation or vehicle repair.
• Implementation of the NPHIES system progressed significantly in 2023, impacting the cost structure of health insurance providers. Additionally, Saudi Arabia’s health insurance industry has introduced new benefits to insurance coverage, enhanced claims processing standards, and data privacy laws.

Market factors

• Saudi Arabia’s healthcare sector has evolved with technology and research and development (R&D) advancements, magnified during the COVID-19 period. The focus on long-term care, rehab and home care (HC) aligns with demographic shifts, as the population above 60 is set to rise. As a result, the population above 60 years is expected to increase to 10.4% by 2030, from 4.5% in 2020. This shift will have a significant impact on disease patterns and the type of healthcare services required, thereby amplifying demand for specialized services.
• Medical inflation in 2023 averaged 15% but is anticipated to slightly lower down in 2024.
• A transformative shift is unfolding in Saudi Arabia, as artificial intelligence (AI) intersects with healthcare, revolutionizing medical diagnosis, treatment, and patient care. Locally driven AI start-ups are pioneering ground-breaking healthcare solutions, poised not only to serve Saudi Arabia but also to impact the global stage.
• Saudi Arabia’s insurance sector grew by 25% YoY in the first nine months of 2023. However, it is expected to be significantly impacted by the rise in global inflation, leading to higher operational costs.