RIYADH: Saudi insurance stocks surged on Wednesday after the traffic department said that it would enforce vehicle checks to ensure drivers had appropriate cover.
The move sent the share prices of several insurers soaring as investors bet they would benefit, as more people would subsequently be forced to buy policies.
Under the current rules, if a vehicle is involved in any traffic violation in the Kingdom, its record is automatically checked to see if there is an insurance policy linked to it.
The top five gainers on the Tadawul were all insurance firms, led by Axa, Walaa and Malath, all up by almost 10 percent on the day.
The insurance sector is one of the most represented on the Tadawul with 32 companies listed. It is also heavily exposed to the fallout from the coronavirus pandemic.
The pandemic has heaped pressure on regional insurers with S&P warning in April that a spike in claims and a decline in equity markets could hurt their balance sheets.
Walid bin Ghaith, a member of the Saudi Economic Association, told Al Arabiya that the new decision would be a major boost for the car insurance market in the Kingdom.
“As it is known, the insurance (of cars) is mandatory legally, but there is no mechanism to mandate all people to insure their cars,” he said. “This damaged the insurance companies, since a lot of cars are not insured, so disputes emerge when identifying the liable side in the incident. This will result in two things: First, improving the rate of claims on the insurance companies, and the second, and the more important, is opening a big market or doubling the market for the car insurance companies.”
The move will be welcome news for the auto insurance sector in Saudi Arabia, as car sales worldwide come under increased pressure as people, fearful for their job security, delay major purchasing decisions.