Can Saudi insurers protect profits without owning healthcare providers?

Rising claim costs continue to outpace premium growth.

Saudi Arabia's health insurance market is expanding steadily, but insurers continue to earn far less than healthcare providers, raising questions about whether controlling more of the care pathway is becoming essential to improving profitability.

"The profitability gap between providers and payers is structural, not cyclical," L.E.K. Consulting said in an April report. It added that repricing alone would not close the gap.

From 2016 to 2024, the country's five biggest private healthcare providers generated operating margins of 16% to 22%, above the 16% global average, according to L.E.K. By comparison, the five largest health insurers posted margins of 4% loss to 6% profit, ending at about 5% in 2024, below the 7% global benchmark.

The market continues to grow despite the profitability challenge. Mordor Intelligence projects Saudi Arabia's health and medical insurance market will grow 6% annually to $16.12b by 2031 from $11.41b in 2026.

Group policies sold mainly to employers account for more than 70% of premiums.
However, insurers face mounting cost pressures.

Mordor Intelligence identified GLP-1 obesity drugs as an emerging claim driver, adding an estimated $800m (SAR3b) in annual costs. It also said regulatory limits on premium increases continue to restrict insurers' ability to keep pace with medical inflation.

L.E.K. estimated that fraud, waste and abuse account for 10% to 12% of total claims, further weighing on insurer profitability.

Rather than relying solely on pricing, insurers are increasingly looking at owning healthcare assets. A 2019 amendment to Saudi Arabia's Private Health Institutions law lets insurers own clinics, diagnostic centres, and hospitals, with the country's two biggest insurers already moving into healthcare delivery.

L.E.K. said insurers should begin with consultation and diagnostic services rather than hospitals because they require less capital whilst influencing referrals and treatment decisions.

Mordor Intelligence also said insurers are increasingly combining insurance with telehealth services as they look for new ways to manage costs and compete.

Questions to ponder

1. Should Saudi insurers own healthcare providers to improve profitability?
2. How can insurers protect margins if medical costs keep rising faster than premiums?