Insurance: Spurring growth

New regulations will mark a new chapter in Oman’s insurance sector, as local companies will be able to withstand competition by strengthening their financial, technical and human resources



Insurance companies need a solid capital base to achieve sustainable growth and for retaining a major portion of the business within the country. With this aim, the Oman government in 2014 asked national insurance firms to float shares on the Muscat Securities Market (MSM) within three years, besides raising their minimum capital to RO10 million from RO5 million. The initial public offering of five national insurance companies is expected to strengthen the sector, as listing would take these firms into a different league. Also, all insurance companies have raised their capital base to a minimum of RO10 million, after the insurance regulator stipulated on the same.

Five insurance firms – Al Ahlia Insurance Company, National Life and General Insurance, Oman and Qatar Insurance, Arabia Falcon Insurance and Vision Insurance – are offering shares on the Muscat Securities Market now. Insurance firms must comply with all the listing requirements and promoters will have to divest a minimum of 25 per cent in favour of investors before August 2017. The relaxation was given recently after national insurance companies made a request with the insurance regulator.

The regulations will mark a new chapter in the Omani insurance sector, as local companies will be able to withstand competition by strengthening their financial, technical and human resources.

A higher capital base will make these institutions large enough to underwrite more risks and retain premiums within the country. This was also needed in view of the fact that Omani insurance firms are relatively small compared to their counterparts in other GCC states in terms of their business volume. Also, the listing of insurance firms would enhance transparency and disclosure. Although the Sultanate has 22 insurance companies (11 locally incorporated and 11 branch operations of foreign firms), only four companies — Dhofar Insurance, Oman United Insurance, Al Madina Takaful and Takaful Oman — are listed. Of these, Al Madina Takaful and Takaful Oman are Islamic insurance firms. In fact, the insurance sector is continuing its growth, although at a slow pace. This is despite an economic slowdown in the aftermath of a slump in oil prices. This is in continuation of the growth witnessed in the sector in the recent past, mainly driven by a series of mega projects and a robust growth in demand for medical insurance. Oman’s insurance companies have posted a combined growth of 1.9 per cent in gross direct premium income at RO454.64 million in 2016, from RO446.18 million for 2015.

According to a recent report on insurance released by the Capital Market Authority, life insurance portfolio posted a 213.3 per cent growth at RO33.40 million in 2016, marking the highest rise among different insurance segments. National companies represent the largest portion of the insurance market in the Sultanate. Likewise, health insurance registered a 12.5 per cent growth at RO121.41 million, over 2015. However, vehicle insurance declined to RO157.89 million from RO162.83 million during the period, mainly on account of a drastic fall in vehicle sales in the country. Marine insurance stood more or less same at RO14.17 million last year. The gross premium income from property insurance dropped to RO43.18 million in 2016, from RO47.04 million in the previous year, while engineering insurance premium was lower at RO20.11 million (against RO25.46 million in the previous year).

The CMA report also noted that the vehicle insurance has the biggest share in direct premium income with a 34.73 per cent share, followed by healthcare insurance. The net direct premium income of insurance firms in Oman stood higher at RO258.26 million in 2016, against RO249.24 million for 2015. Like gross premium income, vehicle and medical insurance segments showed maximum share in this segment as well. Although Islamic insurance firms – Al Madina Takaful and Takaful Oman Insurance– are late entrants in the insurance arena in Oman, Sharia compliant insurance schemes are gaining popularity.

However, additional efforts are needed to create awareness among the public on the importance of Sharia-compliance insurance schemes. The success of takaful insurance firms depends on the ability of takaful players to gain people’s trust, ability to offer affordable and competitive premium and quality of service. Further, the insurance regulator, in coordination with the agricultural ministry, Oman Chamber of Commerce and Industry and insurance firms, is working on an insurance scheme for farmers and fishermen – which provides livelihood for thousands and thousands of families in Oman. The whole idea is to protect farmers against crop failures due to natural calamities and a wide fluctuation in prices. Agricultural insurance is one way to protect farmers and boost agricultural production in the country, which is striving to minimise imports of essential food items through food security measures. Insurance firms will be able to come up with special insurance schemes for agricultural and fisheries sectors soon, which will be the first attempt.

According to a study, as many as 40 per cent of the insurers expressed their willingness to underwrite such risks in the near future, while 44 per cent of believe that it is viable to provide such risks. Here, experts believe that a government support, in terms of subsidy, should be given to insurance firms that are willing to underwrite farm sector. Like other developing countries, Oman needs insurance for its farmers to mitigate the risks posed by droughts, locust attacks and other plant diseases, which reduce farmers’ income. Majority of the holdings are tiny, and farmers are able to derive marginal surplus only in certain good years and incur heavy deficits in the bad ones.

Another promising segment for Omani insurance firms is healthcare insurance, thanks to the recent trend among the corporate sector to go for group medical insurance for their employees. There is also a move to make healthcare insurance compulsory for those companies, which employs more than 100 workers, from the beginning of 2018. National Life and General Insurance Company (NLGIC), a lead player in this segment,  has just reported a record gross written premium of RO101.20 million, a milestone achievement in Oman’s insurance industry. S Venkatachalam, CEO, said, “With commitment and the engagement of our teams, focused approach towards customers, strong quality products, wide distribution network and best-in-class service quality, we have been consistently delivering these strong results year on year. The record Gross written premium reflects these qualities.”

The tendency of insurance firms to make arrangements with designated clinics for providing healthcare facilities is becoming a story of the past, and a group medical coverage is now the norm, rather than the exception. Employee medical insurance is a cashless scheme wherein the insurance company, which ties up with a network of hospitals/polyclinics, gets volume business and the employees get access to cashless healthcare facilities. The market is growing, especially after expatriates moved out of government hospitals to private health centres.

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