1. Claims Experience Requirements
1.1 Medical and Motor Underwriting
SAMA has included updated quotation instructions within the claims experience developed at the request of the industry.
These have been further clarified following feedback from the industry, and the current versions are shown in Appendix Four and Appendix Five of this Circular.
1.2 Nature of the Claims Experience to be Required for Medical and Motor
At the request of the industry SAMA developed standard forms to be used by all insurers. These were issued in December 2014, and came into effect from 1 January 2015.
SAMA notes that sometimes the completion of these forms may not be as required, and would clarify that:
a) The company providing the claims experience must always provide data that is as up-to-date as possible.
b) The monthly data provided for the most recent underwriting year is for claims paid in each month, and claims outstanding at the end of each month. All data must be shown.
c) The Policy Year is the year from the last renewal data of the policy. If, for instance, a policy renews on 1 July, then the 2015 Policy Year is the period from 1 July 201 5 to 30 June 2016.
d) Full benefit information must be provided as stated in the experience form instructions.
1.3 Responsibility for Providing Claims Experience
The key relationship is between the policyholder and the insurance company. SAMA requires that the insurance company provides the policyholder, upon his written request or his representative’s written request (i.e. broker), within 15 working days of making the request with sufficient and accurate information of his claims experience, including up-to-date incurred claims. It is the responsibility of the policyholder to provide the insurance company with sufficient and accurate information for it to price and underwrite the risk it is taking on.
Where the insurance company outsources its claims administration to a TPA, then the TPA is required to provide the data requested to the insurance company within 10 working days of its request.
The claims experience report issued by either the insurance company or its TPA must be stamped & signed by the authorised person and the report must be printed on the issuer heading letters (insurance company or its TPA).
After receiving the claims experience, the policyholder should review the report and confirm in writing that he reviewed it and that all information included within the report is accurate to the best of his knowledge.
If the insurance company fails to obtain the policyholder’s confirmation that the claims experience is accurate then it should note that if may not be able to lake any action if it subsequently discovers it has charged an inadequate premium rate based on the data provided.
With respect to the personal lines of the business, the insurance company is not required to obtain the policyholder’s claims experience in a report format from the policyholder or the existing insurance company; instead the insurance company should ensure that its proposal form asks about all material facts including the policyholder’s claims experience.
If it is found that inaccurate claims experience was provided then the insurance company shall have the right to review the premium rate charged, and take appropriate actions. These include adjusting the premium, or requiring that any commission paid to the broker be refunded if due to broker misrepresentation or non-disclosure.
In extreme circumstances where evidence has been obtained that claims data provided to the insurance company in order to quote was misstated with fraudulent intent, then the insurance company may cancel the policy and take the proper actions against the parties who are responsible.
1.4 Role of Brokers
A broker may collect the claims experience and provide it to the insurance company. It should be noted that brokers must act on behalf of the policyholder and conduct their business according to professional and ethical standards and as per the applicable laws and regulation, including the provisions of the Implementing Regulations of the Law on Supervision of Co-operative Insurance Companies, Insurance Intermediaries Regulation, Market Code of Conduct Regulation and Regulation of Reinsurance Activities Regulation.
Using a broker to collect this data does not in any way reduce the responsibility of the policyholder to ensure that accurate information is provided to the insurance company.
1.5 Pricing of Group Medical or Motor Fleet/Leasing Risks
Insurance companies must comply with the following instructions when applying the claims experience:
1. Apply an experience rating approach for group or fleet/leasing risks, and must supply a fully justified credibility formula recommended, and signed off, by the company’s Actuary. 2. A form or Excel spreadsheet shall be produced which ensures that the pricing mechanism adopted complies with the credibility formula that is recommended by the company’s Actuary. A copy of the form or Excel spreadsheet must be provided to SAMA. 3. The Actuary shall determine the annual increase in the burning costs allowing for claims trends, inflation to be built in the credibility formula calculation mechanism. 4. The Actuary’s pricing report shall specify the size of schemes for which this blended pricing approach must be adopted. It must define the size of smaller schemes where book rates shall be used. 5. The insurance company may request that its Actuary assists with individual quotations for a particular scheme if it considers that there are reasons why the scheme falls outside the standard pricing process. All such individual quotations must be fully documented, auditable, and made available to SAMA on request. The Actuary should ensure that these individual quotations fall outside the standard pricing process before providing his/her recommendation.
It should be noted that SAMA imposes no restrictions on the form of the credibility formula to be adopted by each company, provided that it has been recommended by the Actuary. For instance, the Actuary may choose to vary the credibility formula by class of insurance, own or other insurer’s experience, good or poor experience. SAMA may challenge the credibility formula adopted if it considers that it has not been fully justified technically.
1.6 Pricing of Individual Medical Risks
SAMA notes that many of these products are issued solely in order for expatriates to obtain, or renew, their residence permit (Iqama) to live in Saudi Arabia.
This situation is not sustainable indefinitely, with claims rates at their currently low levels.
SAMA will seek to work with the Insurance Industry, and other Government agencies, to ensure that all insurance products sold provide genuine benefits to the consumer, and are not just put in place to comply with other regulatory requirements.
1.7 Pricing of Individual Motor Risks
This class of business has been unprofitable for many in the market, partially due to limited data collection and the use of insufficient rating factors.
SAMA will seek to work with the Industry to agree minimum data collection and rating factors to be used, by each individual company.
It should be noted that an industry database would primarily be used for fraud detection, and not for setting prices.
It may be possible to use some rating factors from industry data, but these would need to be used within the pricing framework set out in the actuary’s pricing report.
Under no circumstances may companies use premium rates derived entirely from industry data.
1.8 Underwriting of Property Insurance
SAMA intends to issue quotation instructions for Property Insurance in 2015.
These should be considered to be part of this Circular, and in particular Section 6 on Compliance fully applies to these Instructions.
1.9 Underwriting of Engineering Insurance
SAMA intends to issue quotation instructions for Engineering Insurance in 2015.
These should be considered to be part of this Circular, and in particular Section 6 on Compliance fully applies to these Instructions.
1.10 Underwriting of Other Insurance Risks
SAMA will continue to review the state of the market for all insurance classes, together with the effectiveness of the measures undertaken for Medical, Motor. Property and Engineering risks.
Measures on other classes may be taken following detailed consultation with the industry.