Insurance Penetration and Sustainability Economic Development in Saudi Arabia: Insights from Financial Development and Renewable Energy Consumption Using the ARDL Model

Saudi Arabia has consistently had low insurance penetration (around 0.89% of GDP over the previous three decades), which is far lower than the worldwide average and the goals set by Vision 2030. This research examines the factors influencing insurance penetration (INSP) in Saudi Arabia from 1990 to 2024, primarily testing the demand-following hypothesis which posits that sustainable economic growth acts as a key determinant of insurance demand. The Kingdom intends to diversify its economy as part of Vision 2030 by lowering its dependence on oil, boosting the use of renewable energy, expanding financial markets, and strengthening resilience. The insurance industry is becoming more and more important for managing risk, making green investments, and allocating long-term capital. The analysis employs annual data and the Autoregressive Distributed Lag (ARDL) bounds testing methodology to investigate both short- and long-term relationships between insurance penetration and five critical variables: sustainable economic growth (SD, indicated by GDP per capita growth), financial development (FD, domestic credit to the private sector as a percentage of GDP), renewable energy consumption (REC, percentage of total final energy consumption), trade openness (TO), and urbanization (URB). The main results show that the insurance industry is very route dependent. In the long term, sustainable economic growth, financial development, and the use of renewable energy all have big beneficial effects on insurance penetration. This shows how important they are for extending the insurable base and supporting green investments. Urbanization has a little negative but statistically weak long-term impact (coefficient −0.0056, p < 0.10), while trade openness does not have any effect at all. In the near term, using renewable energy is the biggest positive driver (coefficient 0.096, p < 0.01). This shows how important insurance is in paying for and reducing the risk of energy transition. These findings are resilient to CUSUM and CUSUMSQ stability assessments. This study makes a unique contribution to the field by presenting the first single-country cointegration analysis of an oil-rich economy undergoing structural transformation, directly correlating the adoption of renewable energy with insurance demand, supported by data extending to 2024. The results show that making insurance markets work with the Saudi Green Initiative through green insurance products, mandated coverage for private finance, and digital/micro-insurance aimed at city dwellers can help Vision 2030 targets be reached faster. Policy suggestions stress the need to combine insurance with changes in the financial and renewable energy sectors in order to reach greater penetration goals (which have recently been raised to 3.6–4.5% levels) and build a more diverse, strong, and low-carbon economy.