An Analysis of the Current Saudi Arabian No-Claim Discount System and Its Adaptability For Novice Women Drivers

This paper analyzes the existing car insurance ratemaking system in Saudi Arabia, with the goal of assessing its readiness for novice women drivers allowed to drive only four years ago (starting June 2018). Saudi Arabia has an a posteriori ratemaking system to set the premium for the next contract period based on the policyholder’s claim history. Concretely, it rewards drivers with no claims, and therefore, it is often referred to as a non-claim discount (NCD) system. We set to analyze the system’s efficiency by transforming the current rules established by the Saudi Arabian Monetary Agency into a 6-class premium rate system. Since Malaysia and Brazil have ratemaking systems with a similar number of classes, we compare the efficiency of the three systems. By evaluating convergence to steady-state, average premium level charged, and elasticity, we conclude that the Saudi Arabian one is the slowest to reach a steady-state, charges the highest average premium to new policyholders relative to drivers with a long history in the system, but is relatively elastic. All of these lead us to conclude that the current Saudi NCD system is financially imbalanced and does not achieve fairness (quickly) among the insured drivers, an essential feature for the new generation of women drivers. Furthermore, based on claim data from Allied Cooperative Insurance Group, we conclude that there is still insufficient information to fully describe the driving pattern of these novice drivers. Hence, we consider some possible scenarios/behaviors for the new generation of women drivers, which confirm our conclusion.