With the Crowd

Oman is a small but growing insurance market; however, 23 companies compete for limited business, the competition about evenly split between domestic and foreign players. New infrastructure spending, strong car sales, and a plan to mandate health insurance are projected to help the Omani insurance industry grow in the coming years.

Industry insiders see Oman’s insurance market as being too saturated. According to a Lloyd’s of London country profile of Oman issued in September 2013, the high level of competition in the sector has actually driven prices down, when in a more mature market the prevailing conditions would have seen prices rise. Nonetheless, the Sultanate has potential for future growth. The Capital Market Authority (CMA) aims to manage the growth and also help the industry to grow. A Moody’s Investors Service report published in September 2013 projected strong growth in the insurance sector in the GCC).

Moody’s reported the 2012 premiums of these six countries amounting to $16.3 billion, up significantly from $6.4 billion in 2006. The figures represent a compound annual growth rate (CAGR) of 16.8% over the six-year period. The growth in each market varied, ranging from nearly 20% CAGR in Saudi Arabia to 7.9% in Kuwait, with Oman in the middle range.

To put Oman’s size in perspective, its 2012 gross signed premiums totaled $829 million (OMR320 million), according to the annual report of the CMA. The Authority reported that the gross value of direct insurance premiums grew by 14% in 2012 compared to a growth rate of 15% in 2011, with an increase of OMR38 million ($98.8 million). The gross value of such premiums was OMR320 million ($832 million) compared to OMR282 million ($733.2 million) in 2011. Property insurance recorded the highest growth at 29%.

CHALLENGES TO GROWTH

The CMA reported that the growth rate in total direct insurance premiums during 2012 reflected favorably on the gross net premiums, which are calculated after deduction of reinsurance. Net gross premiums in 2012 totaled some OMR169 million ($439.4 million) at a growth rate of 19%. Motor insurance holds the largest share with 68% of net insurance premiums in the Sultanate, which mandates third-party liability motor insurance.

Reinsurance in 2012 comprised 47% of the gross direct premiums (about OMR150 million) compared to 49% in 2011. The CMA reported reinsurance in property, transport, and engineering insurance is the highest compared to other branches of insurance, which the government considers a drain on local foreign currency reserves and a loss to the national economy.

The Omani insurance industry also engages in cross-marketing. Falcon Insurance Company announced at a press conference in October 2013 that it had signed an agreement with Bank Muscat for Falcon to provide life insurance to all customers taking out consumer loans from the bank. The “Group Credit Life Insurance” provides life insurance coverage to all existing and new customers purchasing consumer loans from Bank Muscat. Bank Muscat is the premier financial services provider in the Sultanate and initiated the synergy of bank and insurance operations with a similar agreement in 2004.

The government of Oman is active in the insurance market as a regulator, insurer, and employer. The Export Credit Guarantee Agency of Oman (ECGA) provides below market-cost insurance to support exports and help boost the non-oil economy. Oman’s Public Authority for Social Insurance, PASI, covers Omanis working in the private sector and in 2006 introduced compulsory coverage for Omanis working in the GCC.

The CMA also supports training programs for insurance agents and brokers, especially aiming to support the hiring and promotion of Omani citizens in the sector—the Omanization program. The Omanization ratio is 65% in the insurance sector, with 2012 witness to a rise of 13% in the ratio of local workers. In order to develop and improve the regulatory infrastructure of the insurance market the Regulation for Insurance Brokers No. E/53/2013 was issued and promulgated in the Official Gazette, Volume 1018, dated 23/6/2013. The regulation’s most salient point is the licensing process for insurance brokers and the required documentation to carry out the business. The CMA is not shy to exercise its power, announcing in September 2013 that this year it had imposed penalties on 20 insurance firms for violating several rules and regulations.

MARKET DRIVERS

Omani people like health insurance, and, if the government goes through with plans to make it mandatory, that will surely boost the insurance industry. The draft plan would mandate health insurance not only for citizens, but also for expatriates. According to Oman’s National Centre for Statistics and Information (NCSI), the number of expatriates in the Sultanate has more than doubled in the past three years, rising to 1.68 million in 2013 from around 800,000 in 2010.

Increasing numbers of foreign workers and rising prosperity for Omani citizens will help drive higher penetration rates for insurance and takaful, and will also help drive the market. Oman was a late entrant to this sector of “green” financial services, with a royal decree in 2011 opening the way for the establishment of such insurance companies.

In the latest related development, Oman’s Al Madina Insurance Company (AMIC) in October 2013 announced plans to list its shares on the local exchange as part of its transformation into a takaful firm. Oman’s draft takaful regulations require local Islamic insurers to be public companies, and AMIC said it expected to become one of the first takaful companies in the Sultanate, depending upon approval from the CMA.

The private sector is doing its part to promote insurance, with the recently formed Oman Insurance Association (OIS) working to encourage young Omanis to understand the value of the sector both in terms of personal financial security and as a viable career path with global applications.A.R. Srinivasan, General Manager of Falcon Insurance Company, told TBY that Omani attitudes are changing. “A decade ago, society at large operated in a different manner,” said Srinivasan. “In the event of the unfortunate death of the earning member of a family, the relatives and friends would pool money and take care of the family of the deceased. However, this is no longer the case, and therefore people are realizing the importance of saving, and of having a back-up plan in case of misfortune.”

The current position of the Omani insurance industry is certainly challenging for many insurers, both domestic and foreign, but there are just as many reasons for cautious optimism as for complaint.