Insurance Story

18 Business Today APRIL 2014 www.businesstoday.co.om

C O V E R S T O R Y

THE SAFETY NETAn overcrowded insurance sector facescut-throat competition, price sensitivityand low premiums. But compulsorymedical insurance could drive growth,finds out Businesstoday.

By Maheswaran P

Cov-insurance/E1:BusinessToday 3/30/14 4:31 PM Page 1

www.businesstoday.co.om APRIL 2014 Business Today 19

Oman’s insurance industry has

been there for nearly four

decades. The country has a popu-

lation of over 3.5mn while the

insurance penetration in the

country – ratio of gross written

premium to GDP – is just under

one per cent. It is less than 1.2

per cent in the GCC region, way

less than the global average of

seven per cent.

According to the annual report

(unaudited figures) released by

the insurance regulator, Capital

Market Authority (CMA), the total

direct premiums grew by 10.4 per

cent to touch RO364mn in 2013

from RO329.6mn in 2012.

Motor insurance segment led

the pack with 41 per cent of total

premiums, followed by health

insurance (17 per cent) and prop-

erty insurance (14 per cent). How-

ever, life insurance premiums wit-

nessed a 16 per cent fall to

RO33.6mn.

According to the report, health

insurance posted a 38 per cent

rise to touch RO63mn in 2013

compared to RO45.6mn in 2012,

marking the highest rise among

the different insurance segments.

The next wave of growth is

expected in this segment.

Both the regulator and insur-

ance companies believe that as

and when compulsory medical

insurance comes in, it will give the

much-needed fillip to the industry.

Ahmed al Mamari, acting director

general of the Directorate of

Insurance Supervision, a division

ONE OF THE MAIN CHALLENGES FACING GOVERNMENTS IN THE GCC REGION ANDOMAN IS THE SHARP INCREASE OF PUBLIC HEALTH SERVICE COST, SAYS AHMED AL MAMARI

Health insurance posted a 38 per cent

rise to touch RO63mn in 2013 compared

to RO45.6mn in 2012, marking the

highest rise among the different

insurance segments


of CMA, says the idea is at an ear-

ly stage and is being studied.

“The growth in the last two

years has come from medical

insurance. So the future for health

insurance is bright. One of the

main challenges facing govern-

ments in the GCC region and

Oman is the sharp increase of

public health service cost. That's

why many countries have intro-

duced compulsory medical insur-

ance schemes. With a rising

population, we need to find a

way to ensure that everyone gets

affordable medical care. One of

the alternatives is compulsory

medical insurance,” says Mamari.

A R Srinivasan, general manag-

er of Falcon Insurance, agrees that

the government may not want to

continue giving free health-care

and will eventually opt for com-

pulsory medical cover. He says

that more and more young Oma-

nis are opting for a nuclear family

system, which in the long run

will fuel the growth of savings-

based insurance.

Compulsory medical insurance

will eventually happen believes S

Venkatachalam, CEO of National

Life and General Insurance, a

leading player in the health insur-

ance sector. “It's happening

across the region. It happened in

the UAE, it happened in

Saudi Arabia and slowly it will

happen here.”

Jonathan Jane, country man-

ager, Oman, for Axa, says the

demand for health insurance is

increasing as customers are see-

ing that it is adding value and

speeding up medical assistance.

“Around the region, medical

insurance is becoming a sought-

after product. The awareness

about what insurance companies

can do is gradually changing.”

Ali Abduladheem al Lawati,

chairman, Oman Insurance Asso-

ciation (OIA), the umbrella body

of the industry, agrees that health

insurance has seen phenomenal

growth and expects that to con-

tinue. “When medical insurance

started four years ago, premiums

were quite modest. But now they

are double that level. I think the

regulator has plans to make

it compulsory but the industry

needs to be ready in terms

of infrastructure.”

Is the industry ready?So is there enough infrastructure

in place to support compulsory

medical insurance? Mamari says

companies have to enhance their

systems and human resources by

investing in these areas. “They

have to be ready as growth is

coming from medical insurance.

But we have to look at it closely

and ensure that quality medical

care is affordable.”

To harness that potential, OIA

has developed a blueprint with a

seven-point agenda for the next

two years. Increasing awareness,

better professional training for the

workforce and the development

of a regulatory framework for

credit control are some of the ini-

tiatives that the association has

decided to undertake.

Lawati says lack of awareness

about insurance and the products

is the reason for the lack of pene-

tration. He says that the popula-

tion in Oman is fairly young and

hence they don’t think about

securing their life. “The industry

needs to focus on programmes

that will project the advantages

of insurance.”

Rawny al Sayed Khadr, general

manager of Dhofar Insurance,

feels that the perception of insur-

ance is still under-developed and

as such its market penetration

could be enhanced significantly.

He agrees that it is essentially an

issue of awareness and under-

standing and knowing that

insurance will provide a sense of

security and comfort.

“The real reason why penetra-

tion is significantly lower than the

global average is because of the

lack of awareness and maturity

in terms of understanding insur-

ance. The big challenge is to

convince people that it adds value

and security, which will encour-

age them to purchase insurance,”

he says.

Gautam Datta, CEO of the


C O V E R S T O R Y

I THINK THE REGULATOR HAS PLANS TOMAKE HEALTH INSURANCE A MUST BUT THE INDUSTRY NEEDS THE INFRASTRUCTURE,SAYS ALI ABDULADHEEM AL LAWATI

OIA'S SEVEN POINTAGENDAg Optimise utilisation of

e-insuranceg Training employees g Increase consultation

level with CMA andindustry

g Propose legal andregulatory framework forcredit control

g Increase insuranceawareness

g Standardise fire policywording

g Improving customerexperience


Shari'a-compliant Al Madina

Takaful, says the insurance com-

panies haven’t been too proac-

tive and a lot needs to be done.

“The insurance industry needs to

overcome the negative impres-

sion it has in minds of the public

that it collects premiums and

does not pay claims. In this mar-

ket, we have not been able to

convey the message that insur-

ance plays an important role in

everyone's lives.”

Datta, as the vice-chairman of

OIA, is in charge of increasing

awareness. He believes that

companies should look beyond

advertisements and take a differ-

ent approach. “It is not just

through advertisements. We

have to look for alternate ways.

One such initiative is the Royal

Oman Police initiative of e-insur-

ance, where we talk about the

benefits and advantages of the e-

insurance platform. We would

also like to visit schools and create

awareness among the students

about the role of insurance in cre-

ating a safe environment, protect-

ing the economy and providing

job opportunities.This will help in

increasing the penetration

levels too.”

Short of manpowerQuality manpower is a hurdle that

the industry is facing. Getting the

right people for the right job is a

tough task, especially in a country

like Oman where people prefer

government jobs. "It is a chal-

lenge to get good and talented

workforce and then retain them,"

says Srinivasan of Falcon

Insurance. “There is a constant

movement of people between

companies. The preferred job is

with the government, oil and gas

sector, banks and then insurance.

We impart the requisite insurance

training to staff, especially to

new recruits, and this costs mon-

ey. However, after gaining some

experience they move on.”

To tackle manpower shortage,

the association is now planning to

come up with a training plan.

“We are in the process of bring-

ing in a training plan for all staff,

which we will propose to the

regulator. Medical insurance

especially needs more attention

and we will be focusing on this in

a big way,” says Lawati.

Consolidation But the problems for the industry

don’t end there. The insurance

sector is overcrowded with 22

insurance companies, one re-

insurer and nearly 40 brokers. This


THE BIG CHALLENGE IS TO CONVINCEPEOPLE HERE THAT INSURANCE ADDS VALUE AND SECURITY, SAYS RAWNY AL SAYED KHADR

THE AWARENESS ABOUT WHATINSURANCE COMPANIES CAN DO IS GRADUALLY CHANGING, SAYS JONATHAN JANE

KEY CONSTRAINTSg Awarenessg Quality manpowerg Overcrowded marketg Low penetrationg Credit availabiltiy g Distribution


is leading to cut-throat competi-

tion, price sensitivity and low

premiums, which are driving

down the margins of insurers.

Consolidation in the industry is

long due. It will also benefit cus-

tomers as a bigger company can

leverage on a better distribution

system and will have more

branches. Companies on the oth-

er hand will also have bigger

budgets for marketing and more

quality workforce.

The regulator too agrees that it

is the need of the hour. Mamari

says, “We have seen some initia-

tives in that direction and we

encourage that. Consolidation is

needed for the market because

there is intense competition, not

just locally but internationally too.

It is the time for the companies to

enhance their capacities.

Enhancing insurance companies'

solvency and financial capacity

will improve the level of retention

in the local market and the

human resources skills of those

who are working in the sector.”

The insurance association

however feels that selling and

merging is not common in the

GCC nations. Lawati says, “It is

partly due to the culture and also

the feeling that you can grow

independently. So these are

national and cultural issues. In the

West some companies grow to be

acquired. Here the local model is

developed more as a family busi-

ness. Hence there is no idea of

setting up to exit.”

Paid-up capital Yet another factor that could pave

the way for consolidation could

be the minimum paid up capital

required, which has been

increased from RO5mn to

RO10mn for new insurance com-

panies. For existing companies,

this regulation is likely to be

announced this year.

“There are many reasons for

that. We need to redefine the

market and make the companies

increase their financial capacity to

help them take and retain more

risks. Minimum base capital is

only one way towards achieving

that. For existing companies, we

plan to bring in the regulation this

year and we are not going to

ask for immediate implementa-

tion. A grace period will be grant-

ed prior to its implementation,”

says Mamari.

The regulator also plans to

issue new market regulations to

enhance the financial solvency of

companies. Mamari says it is

important for the insurance sector

as it will show if companies can

keep their obligations to policy

holders and beneficiaries. “We

need to pay high attention to

Enterprise Risk Management

(ERM). Many insurers still view

ERM as just a compliance exercise

or a rating agency requirement,

failing to recognise that their ERM

is also meant to generate signifi-

cant business value.”

One for the futureLife insurance contributes to a

major chunk of the global insur-

ance market. But in the GCC

countries, this segment hasn't

taken off partly due to the reli-

gious principles. The inability to

create awareness about life insur-

ance by the companies too is a

reason. But with the emergence

of Takaful insurance or Islamic

insurance things could change.

Takaful is based on Shari'a princi-

ples, where members contribute


C O V E R S T O R Y

WE BELIEVE THERE IS A CUSTOMERSEGMENT WHO PREFER TAKAFUL OVERCONVENTIONAL INSURANCE, SAYS GAUTAM DATTA

THERE IS COMPULSORY HEALTHINSURANCE IN THE UAE AND SAUDIARABIA. SLOWLY IT WILL HAPPEN HERETOO, SAYS S VENKATACHALAM


money into a pool which provides

financial protection to its mem-

bers against fortuitous losses.

Datta from Al Madina Takaful

says he sees an opportunity and

being the first mover he hopes to

capitalise on that. However, he

believes it will take time for the

new business concept to establish

itself. Awareness, regulations,

range of products and delivery of

service will be critical success

factors for Takaful insurance to

take off.

“We believe there is a

customer segment who prefer

Takaful over conventional insur-

ance. In any market when a new

concept or a new business model

is introduced, it takes time. We

are ready to wait and invest

in establishing our brand and

our infrastructure to respond to

the demand.”

Currently there are only two

Takaful players in Oman – Al Mad-

ina Takaful and Takaful Oman. Al

Madina Takaful started as a con-

ventional insurance company, Al

Madina Insurance, in 2006 and

when the notification for Takaful

came in 2012 it became the first

Islamic insurance company

to set up operations.

Despite all the challenges

facing the insurance sector, there

is some glimmer of hope. A popu-

lation of over 3.5mn and low pen-

etration means there is enormous

scope to expand. The industry

feels proper awareness coupled

with quality workforce and a

better distribution system could

turn the fortune for the sector. g


IT IS A CHALLENGE TO GET A GOOD ANDTALENTED WORKFORCE AND THENRETAIN IT, SAYS A R SRINIVASAN

MOTOR

LIFE

MEDICAL

ENGINEERING

LIABILITY

PROPERTY

MARINE

OTHERS

SEGMENT-WISE PERFORMANCE

148.19% 135.7

40.4-17%

63.138% 45.6

23.85% 22.7

10.612% 9.4

51.821% 42.7

12.74% 12.1

-3% 20.6

33.6

20

All figures in RO million

Source: CMA Report

2012

2013

Growth


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