The complete guide of SAMA new rules of Insurance for Financially Leased Vehicles

From November 1, 2020, the enforcement of the new regulations for comprehensive insurance of motor vehicles financially leased to individuals announced by SAMA is expected to begin.

The aim of the new rules is to oversee the contractual engagement between leasing companies and their individual clients in relation to insurance coverage for the financially leased vehicles.

Quick Overview of Motor Insurance in Saudi Arabia

Under Saudi Arabia’s traffic regulations, motor insurance is a mandatory requirement. However, there are two main subcategories of motor insurance in the Kingdom. These are:

  • Compulsory (Third-party) insurance
  • Comprehensive motor insurance

Compulsory (Third-Party) Insurance

Under this cover, the policyholder is protected from financial liabilities as a result of damages caused to third parties when the car is either in use, or stationary.

This cover is required to compensate third parties according to the terms and conditions set in the policy for all the sums that the policyholder is obligated to pay such parties. They include:

  • Damage caused to third parties inside and outside the vehicle
  • Physical damage outside the vehicle

Comprehensive Insurance

This policy is designed to provide coverage against damage caused to the insured vehicle, as well as the property of others in case of an accident.

Usually, the policy covers:

  • Insurance coverage for the insured vehicle
  • Third-party liability
  • Cost of emergency medical care
  • Coverage for natural disasters (Sandstorms are usually excluded)
  • Incidents of theft and fire
  • Transportation costs to auto repair workshops

Additional coverage options under this policy include:

  • Vehicle repair at a workshop or official dealership
  • Provision of a temporary vehicle while the affected one is being repaired
  • Expanding the geographical coverage to include other countries

The Unified Comprehensive Insurance Policy for Motor Vehicles Financially Leased to Individuals

This is a type of motor insurance policy focused on covering vehicles that are owned under a leasing contract between a lessor and a lessee.

Essentially, an insurance provider commits to indemnify the beneficiaries of the insurance cover in case of damage or loss resulting from a risk covered under the policy from a premium paid by the lessor and lessee identified in the policy schedule.

Under this policy, the maximum limit of the insurer’s liability for one event, as well as, during the lifetime of the Policy should not be more than SAR 10,000,000 (Ten Million Saudi Riyals) when indemnifying claims for physical and material damages, as well as expenses combined.

This policy is the focus of the new SAMA regulations for Comprehensive Motor Insurance.

What are the Key Regulations Introduced?

SAMA directs that from November 1, 2020, any vehicle owned under a financial leasing contract shall be insured subject to the new rules.

The insurance coverage including policy conditions, provisions, or exclusions shall not exceed the minimum limits set by these new regulations.

Some of the key changes include:

  • The Lessor will be required to insure the vehicle leased on a year-by-year basis in the duration of the finance leasing contract
  • The Lessor will be required to source insurance offers from a minimum of three Insurance providers, choose the best offer with the lowest price and provide it to the Lessee
  • Insurance premiums will be calculated on a year-by-year basis depending on the changes on the sum insured and the pricing factors for the lessee. The sum insured refers to The value of the Motor Vehicle upon submission of the insurance coverage request approved by the Insurer and identified in the Policy Schedule.
  • At the beginning of the leasing contract, both the lessor and lessee are required to agree on the yearly depreciation percentage and specify it in the insurance form.
  • At the end of the insurance year, the lessor will be required to determine the balance remaining from what the lessor has paid to the insurer and the premium paid by the lessee. Once this is done, the lessor should hold the balance in a lessee insurance account and provide a copy of it to the policyholder.
  • At the end of the contract, the lessee will be entitled to either receive a refund of the extra amount of premiums paid or liable to pay the extra amount paid by the lessor to the insurance provider for the policy.
  • The lessor and lessee will be required to reach an agreement on how the repairs are carried out, and clearly stated in the insurance form.

How IHC is helping Car Financial Leasing providers?

Due to these changes, IHC team has been working extensively to develop unique and efficient solutions for our clients who sell leased cars. By integrating our advanced Tech solutions and leveraging our expertise and relations with insurance providers, we are able to develop customized solutions for our clients that can minimize the impact of change for them, and provide multiple financial, operational and technical benefits. All of these solutions are focused on our client’s competitive advantages, and full compliance with the new rules.

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