Introduction
As part of the Kingdom’s efforts to develop an advanced legislative framework that enhances financial stability and aligns with international best practices, the Insurance Authority has released the draft Insurance Law for public consultation until 22 July 2025. This initiative stems from the Authority’s mandate under Cabinet Resolution No. (85) dated 28/01/1444H, and is fully consistent with the objectives of Saudi Vision 2030.
The draft law is both comprehensive and forward-looking, establishing a modern legal framework that enshrines principles of justice and transparency, strengthens market confidence, and protects the rights of policyholders and beneficiaries.
Strategic Context and Timing
The issuance of this draft law comes at a critical juncture, as the Saudi financial sector is witnessing rapid growth and an expansion in complex financial products and services. The law not only addresses existing regulatory gaps, but also anticipates the future by emphasizing innovation and digital transformation, thereby creating a flexible legislative framework capable of accommodating developments such as InsurTech and insurance products linked to digital assets.
- Strategic Objectives of the Law
Article 2 of the draft identifies the principal objectives of the law, including:
*Achieving stability and growth in the insurance sector and stimulating investment therein.
*Protecting the rights of policyholders, insured persons, and beneficiaries.
*Promoting and regulating fair competition.
*Consolidating the principles of the contractual insurance relationship.
*Implementing effective supervision and oversight to ensure fairness and transparency (ex-ante regulation).
*Supporting innovation and digital transformation in the sector.
*Developing national human capital through training and localization.
- Scope of Application and Types of Insurance
Article 3 provides that the provisions of the law shall apply to all insurance, reinsurance, and insurance-related services carried out in the Kingdom. Article 4 further classifies such business into two categories:
*General Insurance (e.g., property, motor, liability).
*Protection and Savings Insurance (long-term).
The same article prohibits combining both types of business within a single entity — a regulatory practice known as Legal Separation, designed to prevent conflicts of interest, insulate risks between short- and long-term activities, and enhance transparency in assessing corporate performance.
III. Licensing and Regulation of Business Activities
Pursuant to Article 5, no person may engage in insurance or reinsurance activities without first obtaining a license from the Authority, and all insurance in the Kingdom must be based on the cooperative insurance model, in line with Sharia principles.
In addition, Article 7 explicitly provides: “No person may use the term insurance, reinsurance, or any of its derivatives in any language in their name, trademark, or promotional advertisements unless duly licensed in accordance with the law.” This prohibition extends to protecting the market against the growth of the informal economy, which might otherwise emerge through unlicensed platforms or digital applications.
- Institutional Protection – The Policyholders’ Protection Fund
Article 19 introduces the establishment of a dedicated fund to protect policyholders in the event of the insolvency or failure of any insurance or reinsurance company. The article states:
“The Authority shall establish a fund to protect policyholders for the purpose of safeguarding them in the event of the insolvency or bankruptcy of an insurance or reinsurance company.”
The Authority is empowered to issue regulations governing:
The objectives and legal form of the Fund.
Funding mechanisms, including financial contributions levied on companies.
The scope of risks to be covered.
The benefits to be provided to policyholders.
This Fund represents a protective legal mechanism akin to Safety Net Mechanisms in advanced financial systems, thereby reinforcing investor and consumer confidence alike.
- Representative Offices of Foreign Companies
Article 20 obliges foreign insurance and reinsurance companies not operating in the Kingdom, should they wish to maintain a presence, to establish a representative office registered with the Authority.
Such offices may only carry out coordinative and research-related functions, such as market studies and stakeholder engagement, and are strictly prohibited from conducting operational insurance activities without prior approval. This ensures the transfer of global expertise while safeguarding regulatory sovereignty and protecting the domestic market.
- Comparative Dimension and International Standards
In drafting the law, the Authority conducted a comparative study of five jurisdictions:
*The United Kingdom (one of the oldest insurance markets).
*Singapore (a leading Asian financial hub).
*The United Arab Emirates (a regional peer with similar market dynamics).
*Poland (an emerging European market).
*Malaysia (a pioneer in Islamic insurance).
This reflects the Kingdom’s intention to design a hybrid model, combining leading international practices with the requirements of Sharia-compliant insurance.
VII. Stakeholders and Public Consultation
The Authority has invited the following stakeholders to provide input during the 30-day consultation period:
Licensed insurance and reinsurance companies.
Relevant government entities.
Financial institutions.
Experts and practitioners in the sector.
This inclusive approach embodies the principle of transparency and participatory governance in policy-making, thereby strengthening the legitimacy and enforceability of the law.
Critical Evaluation and Outlook
While the draft law is both comprehensive and ambitious, its success will depend on:
The efficiency and flexibility of its executive regulations in adapting to technological and financial developments.
The Authority’s ability to exercise effective supervision to curb anti-competitive or misleading practices.
The operational strength of the Policyholders’ Protection Fund in addressing real market risks.
The full compliance of both domestic and foreign companies with the new framework.
From a macroeconomic perspective, the law is expected to contribute to improving the Kingdom’s standing in global insurance benchmarks, including ratings by agencies such as AM Best and S&P, thereby enhancing Saudi Arabia’s attractiveness as a regional hub for insurance investment.
Conclusion
The draft Insurance Law constitutes a pivotal milestone in the modernization of the Saudi insurance sector’s legislative framework. It establishes a comprehensive legal structure that combines preventive regulation (ex-ante regulation), protective mechanisms (Safety Nets), and *institutional oversight.
If implemented with rigor and transparency, the law will serve as a strategic lever to secure financial stability, attract investment, and position the Kingdom as a regional leader in the insurance industry, fully aligned with the aspirations of Vision 2030.
In essence, the proposed law is not merely a regulatory amendment, but a strategic legislative transformation poised to reshape the Saudi insurance landscape for decades to come.