TBY talks to A.R. Srinivasan, CEO of Falcon Insurance, on reversing the fortunes of the firm, the impact takaful will have, and the Omani regulatory environment.

How did you become one of the main players in the insurance sector here in Oman?

Obviously, the main insurance products that are being sold are similar in nature. Therefore, what sets each company apart is the way you provide your services and the way the client sees you. Over the last three years, which is what we have been focusing on, I am happy to say that there has been quite a turnaround and the company has grown. We have managed to take a lot of corrective measures in the company. From a loss-making entity in 2011, we are now very profitable and all the past losses have been wiped out. Falcon Insurance is now joining the big-league players.

What is the composition of your portfolio?

Like all insurance companies, motor is the single largest portfolio. If you look at our target for 2014, around 38% of our projected premiums are from motor, while another 18%-20% are from the life and medical areas. Almost the same again, 16%-18%, are derived from property and energy. The engineering class forms about 8%-10%, and the rest is marine, liabilities, and others, which makes up the balance. Our major thrust has always been SMEs. We are a small-to-medium size insurance company, meaning we aim to insure SMEs. We prefer that we service clients across all their insurance requirements, from motor to medical, to group, life, and property. That is how we try to sell; in large portfolios. We are also expanding equally into the retail segment, which, until now, has not been a main thrust. Our major portfolio business is still corporate. Falcon Insurance currently only has three branches; however, we are looking to expand to one or two more and add on some alternative channels of business to improve the company.

“By nature, the insuring public here is quite price sensitive, which keeps up pressure on insurance premium levels."

With 22 companies present in a market of less than 3 million people, the Omani insurance market is totally beyond saturation. How do you respond to the high levels of competition in the market?

The market is extremely overcrowded with players, not only for insurance companies, but also for brokers. This makes it a very competitive market. By nature, the insuring public here is quite price sensitive, which keeps up pressure on insurance premium levels, which is not very healthy for the insurance market. This becomes starkly visible during years when the investment market performs poorly. When the investment market performs well, companies get good investment returns, which camouflages the negative results of their insurance operations. In the years that there is a negative investment market, the problems become more obvious. The last two years have been reasonably good for both segments. Motor is a business that is on the balance sheet of almost all the companies, meaning the impact of losses hits them much more than the other segments. In 4Q2013, we signed an agreement with Bank Muscat to provide life coverage for all the individual borrowers of the bank. This is a massive policy in terms of size, meaning that was a major win for us. In the 15-20 years prior to that, there was only one insurance company to achieve this. We are a major player in the life market, and this is clearly reflective of the fact that the market is now recognizing Falcon as an equally able provider. Fortunately or unfortunately, we ended up having to pay the biggest banking sector claim. Again, the professionalism of Falcon Insurance and the auditing reinsurance behind it has led this claim to be fully settled. The market is very appreciative of the fact that this was done in such a short time. It was almost a $38 million claim, and was fully settled within a few months.

How is takaful changing the share of the business in this market?

It hasn't changed anything as of now. The decision to allow takaful came in 2012. Al Madina Insurance was set up with the underlying principles of takaful and, as such, it was always ready. When the decision to allow takaful came, it wanted to convert its business. As of January 2014, it formally converted into a takaful company. Therefore, there is only one company operating in the takaful market. The second company is a company called Takaful Oman, which has launched an IPO. The company is in existence; however, it hasn't quite started operations yet. How much of an impact it is going to have remains to be seen, but like any other new insurance company, it is going to eat into the existing market. If somebody told me that Islamic-based insurance is available, and now that Islamic insurance companies are in operation, there is going to be new business, I would be quite skeptical. People simply move from conventional to takaful. And usually, they move because they find it cheaper.

What has to be done to increase insurance penetration in the country?

Like all countries in the region, Oman has a very low insurance penetration rate. As a percentage of GDP, it is very small. From that much, if you remove the refineries and big spenders, what remains is very little. Actually, personal insurance is negligible. Awareness is slowly increasing from the Insurance Association, which is still quite new. In the last two or three years, we have seen a slight improvement in minimum salary levels. People are slowly picking up on the plus points of savings-based insurance, such as life and saving for children's education. Probably in five to eight years' time, we will see a fairly big jump in these kinds of insurance. In terms of medical insurance, as of now, a substantial portion (over 90%) of insurance is for medical coverage for corporates, for their employees and their dependents. Insurance taken by the families themselves is not really happening. Some professionals do this, but it is still very few. As has happened in Dubai and Bahrain, maybe the government will slowly move toward compulsory insurance, at least for expatriates. That would create an upsurge in the buying of medical insurance. With regard to the other standard motor, property, and so on, it will just follow the general economic improvement of 3%-5% growth. Medical savings-based life policies will see a much faster growth over the years as the economy grows and salary levels go up.

How would you rate the Omani insurance regulation compliance compared to other countries in the GCC?

Oman has a very high level of regulatory framework. Corporate governance is insisted on by the regulators, fairly stiffly. In fact, it is insisted on so much so that sometimes companies feel that they are over regulated. In the last five to eight years, the regulator has become more active, and it is getting involved in studying companies, warning them, and guiding them. It has a larger team now, too, than in the 1990s. Now, the insurance regulating department is about 30-40 people. In 2014, it got an international firm to helping study and comment actuarially on the life side operations of all the companies. It is very active.

© The Business Year - June 2014