After a series of measures to strengthen capital base of insurance firms last year, the insurance watchdog is focusing on regulating insurance brokers in the country. Oman’s Capital Market Authority (CMA) has already unveiled a draft regulation for insurance firms, which include management of credit facilities between clients and brokerage firms, minimum capital requirements and separation of direct brokerage businesses from re-insurance businesses.
The whole idea of the new regulation is to protect the interest of policy holders, besides enhancing the efficiency and role of these intermediaries, who are playing a vital role in the sector.
The new regulation will become an executive rule before year-end, after receiving feedback from all stakeholders. The Sultanate has 36 insurance brokerage firms, 22 insurance firms, including two Islamic insurance firms or takaful firms, and one reinsurance firm.  A major recent initiative on the technology front was the introduction of e-insurance – a system that was launched in 2014 for providing a database shared by the Royal Oman Police (ROP) and insurance providers. With this, ROP and insurers have access to the traffic violation history of all vehicle owners, allowing policy writers to set appropriate premiums for drivers. Further, the Oman Insurance Association is pursuing better professional training for the workforce and increasing insurance awareness. The association also plans to work more closely with the sector’s regulator, the Capital Market Authority for introducing reforms.
Regulatory changes
It was only last year that the regulator raised minimum capital of insurance firms to RO10 million (from five million rials) and asked closely-held national insurance firms to list shares on the Muscat Securities Market within three years. The existing companies have been given a grace period of three years to raise their minimum capital to the new level. Strengthening capital base of insurance firms will make these institutions big enough to underwrite more risks and retain the business within the country, like its peers in other Gulf countries. In fact, the domestic players can get better underwriting capacity, which will enable retaining the business within the country. The new regulations mark a new chapter in insurance sector in Oman since local companies are able to withstand competition by strengthening their financial, technical and human resources. The market regulator has been encouraging national insurance firms to strengthen capital base for several years in an apparent move to minimise dependence on foreign companies for reinsurance, which is neither good for the companies nor helps the national economy.
As of now, only four insurance companies – Dhofar Insurance, Oman United Insurance, Al Madina Takaful and Takaful Oman – are listed on the local bourse. And the remaining 18 insurance firms, including 11 national insurance companies, are not listed on the bourse. With the new regulation, as many as eight locally incorporated insurance companies, including a reinsurance firm, will have to offer shares to investing public within three years to comply with the regulation. The national insurance firms that are expected to float shares on the local bourse are Al Ahlia Insurance Company, Muscat Insurance, Muscat Life Insurance, National Life Insurance, Oman & Qatar Insurance, Falcon Insurance and Vision Insurance. All insurance companies, which are required to float shares, will have to comply with all listing requirements and the promoters will have to divest 40 per cent in favour of investors.
Of the 22 companies in the country, 16 firms do not have the stipulated RO10 million minimum capital while six firms have either RO10 million or more paid-up capital. Hitherto, only new companies are required to have a minimum capital of RO10 million and need to go public when listing shares on the local bourse. A double digit annual growth is expected in insurance sector in Oman this year and in the coming few years. It is not far to seek the reasons for this robust growth. As the government has boosted its investment in infrastructure projects, demand for insurance coverage from contracting companies has been showing a robust growth. These are mainly for insurance protection for their ongoing projects, especially for developing ports, airports and roads.
Low penetration
Though Oman has a long way to go in terms of total business volume before it can catch up with its GCC counterparts and other developed countries, the country’s low insurance penetration of around one per cent, less even than developing countries like India, is being viewed as a positive factor for the development of medical insurance.
Oman’s insurance premium surged ahead by 10 per cent to RO400.4 million in 2014, from RO364 million in the previous year. The average annual growth in insurance sector in the last seven years was 14 per cent. Health insurance alone showed a robust growth of 34 per cent with gross direct premium touching RO78.1 million in 2014, compared to RO58.2 million in the previous year. Several corporates in Oman tend to provide health insurance for its employees, as well as offer group health insurance among workers for small and medium enterprises. The tendency of companies 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.
Within next two to three years, almost 90 per cent of companies are expected to go for group medical insurance for their employees. The market is growing, especially after expatriates moved out of government hospitals to private health centres. This is one of the growth areas for insurance companies. More than 10 local companies, including outfits of multinational firms, are currently offering employee group medical insurance to the sultanate’s corporate clients.
Retention rates
The insurance industry will continue to grow retention rates as most insurance segments witnessed a rise in rates of retention. Vehicle insurance was the highest among the various segments of insurance with 88 per cent in comprehensive insurance and 83 per cent for third party insurance, while the property insurance and engineering insurance are the lowest compared to other types of insurance.
The entry of two Islamic insurance firms (takaful) – Al Madina Takaful and Takaful Oman – initiated more competition in the industry. Although the first one is an existing firm with established business, the second company is yet to start operation since it is a new company. Gulf countries have been witnessing a boom in insurance sector, which is a reflection of the macro-economic fundamentals. For instance, GCC insurance industry has almost tripled in value between 2006 and 2013, with insurance premiums increasing from $6.4 billion to $18.4 billion.
The UAE and Saudi Arabia are the largest insurance markets in the GCC, with nearly 80 per cent of gross written premium (GWP). The UAE is the biggest and fastest-growing insurance market, accounting for almost 45 per cent of the region’s GWP and has witnessed strong growth momentum with a 17 per cent compounded annual growth rate (CAGR) over the past six years.