An Analysis of the Insurance Industry Regulator in Saudi Arabia and Jordan through the Comparison with Insurance Industry Regulator in the UK

Article excerpt

Abstract

Since the Saudi Arabian Monetary Agency (SAMA) supervise and legalize the Saudi insurance sector, and as the Jordanian Insurance Commission (IC), which is an administratively and financially independent organization, regulates the local insurance sector; the purpose of this research is to critically examine the structure and functioning of insurance regulator in Saudi Arabia and Jordan through comparisons with the regulatory structure in UK. This is as an attempt to fill the lack of research in this vital area in order to arrive at constructive suggestions that could enhance the quality of insurance regulation in both countries. Indeed, this paper found that the insurance sector in Saudi Arabia and Jordan lags behind most of the other developing economies in Asia and Europe. Also, full implementation of the insurance regulatory Information System (IS) and publication of a clear regulatory ladder could support the taking of early and consistent intervention action on insurance companies.

Keywords: insurance industry regulator, KSA, Jordan, UK

1. Introduction

One of the most important and integral parts of the growth of insurance industry in any market is the regulatory control and development (Pearson, 2010). The role of a regulator in insurance industry is to ensure that the players in the industry adhere to the required standards of service and practice as well as to encourage the growth of the industry as a whole. Klein (1995) argued that the primary role of a regulator is not just to restrict but also to facilitate growth of the sector in an organized and controlled manner. The developments in regulatory aspect are typically in line with the broader market environments in the industry (OECD, 2001). Since it is seen that the regulators play a very important role in promoting a strong and scalable insurance industry it may be helpful to focus on structure of insurance regulator in the insurance sector of Saudi Arabia and Jordan. Saudi Arabia and Jordan have been chosen as case studies for this research on the basis of the fact that the countries are in unique positions to not only consolidate their leadership roles in Takaful but also to create a greater share for Takaful in the global insurance market. Also, they have already commenced the process of modernization of their financial institutions and regulatory frameworks. Hence, a comparison with the regulatory structure in a developed insurance market such as the UK could help to derive some important lessons for both countries.

It is seen that Saudi Arabian and Jordanian insurance industry and the role of regulator in the industry have been already studied by a number of researchers (Al-Rimawi, 1999; Al-Elg et al., 2006; Wahab et al., 2007; Ahmad et al., 2010; Kwon, 2013). Most of these researchers have focused on the concept of Takaful and have analyzed the growth of Takaful as well as the role of regulator in this context in Saudi Arabia (Takaful is a form of Islamic insurance in compliance with the principles of Shar?'ah). This research attempts to find answers to the following review questions.

- What is present state and structure of insurance industry and the regulation of insurance industry in Saudi Arabia and Jordan?

- What are the issues with the present regulatory system in Saudi Arabia and Jordan?

- What are the noteworthy points about UK's insurance regulation structure that could be of help in improving the quality of insurance regulation in Saudi Arabia and Jordan?

This research attempts to critically review some of the research papers and draw observations that could directly answer the questions stated above. This research is divided into a number of sections. The first section studies the state of insurance industry in Saudi Arabia and Jordan, and then examines the development and progress made until now. The second section focuses on the present structure of insurance regulation in Saudi Arabia and Jordan, and identifies some of the strengths of the present structure. …