Women drivers not the only winners of Saudi’s new decree

We all cheered Saudi Arabia lifting the driving ban on women last month. The next consideration is the short and long-term implications of the kingdom’s decision on the auto and insurance industries.

Who benefits the most?

The obvious answer is the car manufacturers, but there will be a multiplier effect to this decision. As the decree goes into effect in June 2018, we can expect the number of drivers on the roads in the kingdom to almost double. These drivers will need a range of products and services for their cars, whether it be auto insurance, car wash facilities, car accessories and car servicing. So the car manufacturers are not the only ones that will benefit. Suppliers to the auto industry, marketing and sales agencies, are expected to get a boost too.

And the winner is?

What many people fail to realise is that an increase in drivers does not necessarily mean an increase in cars on the roads of Saudi Arabia. Most households in the country employ male drivers to drive women around. As the government lifts the ban, it is quite possible that there would just be a switch in the driver of each car while the number of cars on the roads stays more or less the same.

If this turns out to be the case, the key beneficiary, especially in the near future would be the motor insurance industry. As women pass their driving tests and receive their licences, the odds are that they will simply be added to existing insurance policies. The updates in policies will lead to higher premiums, which means more profit for the insurance companies. Smart policy owners will also update their policy limits to ensure adequate coverage for their whole family.

This scenario was understood quite well by the insurance industry, which saw a surge in its stocks in Riyadh on the day of the announcement. The actual profits, of course, will be determined by the number of Saudi women that opt to drive instead of continuing to depend on their drivers.

The plot thickens

If, however, more cars do get added to the roads, the insurance industry is still the likely winner. New cars come with comprehensive car insurance, which means higher premiums and more profits. This profit from a potential increase in the total number of car insurance policies will be on top of any profits from updating existing policies.

This is not to say that the auto manufacturers won’t do well. Toyota and Hyundai, the most popular cars in Saudi Arabia, are expected to fare favourably in the coming years with the growth expected to be slow but steady.

According to some experts, the growth in the total number of cars in the country will be gradual, but we can expect to see at least 20 per cent more cars a decade from now as a direct result of this landmark decree. This means that insurance providers foresee a similar growth in their profits over this period of time.

Women are usually recognised as better drivers by insurance companies and their premiums are low.

However, the verdict is still out since most of the women applying for car insurance will be new drivers and insurance providers tend to bump up the premium for inexperienced drivers.

If Saudi women do turn out to be safer drivers compared to men, then insurance firms will see even higher profits because of lower net loss ratios.

Perhaps Saudi women can even help settle this debate, once and for all.