Legally mandated health insurance coverage enforced in Oman

In August 2017 the Ministry of Health announced that private sector companies would be obliged to begin providing insurance for their employees starting in 2018. The move has set up the health coverage market, which has expanded in recent years, to generate even faster top-line growth. Speaking to OBG in January 2018, the regulator, the Capital Market Authority (CMA), expressed confidence that the move would increase penetration and enhance medical service quality. However, insurance companies say that competitive pressures in the market mean that margins are currently low, and that the impact on insurance firms’ profits will depend on whether the authorities set minimum premiums when implementing the requirements.

Dominant Players

Oman’s health insurance market is currently dominated by the country’s largest insurance firm, National Life and General Insurance Company. The firm registered health coverage premiums of OR85.6m ($222.3m) in 2016, or 73.8% of total segment premiums, according to figures from the CMA. French insurer Axa and local company Oman United followed in second and third place, with figures of OR6.7m ($17.4m) and OR5.2m ($13.5m), respectively.

Rapid Expansion

The health segment is in the midst of a rapid growth spurt. Gross direct health insurance premiums rose by 13% in 2016 to OR116m ($301.2m) making it the fastest-growing insurance line for the year, according to CMA figures. This followed growth of 31% the previous year, when it was the second-fastest-growing line nationally. Segment premiums have nearly doubled since 2013, and the proportion of total premiums accounted for by the segment has grown from 16.2% in 2013 to more than 25.8% in 2016.

Mandatory Coverage

However, levels of health insurance penetration still remain fairly low, having started from a small base, though this appears set to change. Rules mandating companies to provide coverage already existed but were not enforced. In September 2017 the ministry pointed out to local media that only 10% of foreign workers and 9% of Omanis employed in the private sector were covered. The enforcement is not a surprise: the Oman Chamber of Commerce and Industry had informed companies in November 2016 that such a change was coming. The requirements, occurring under a phased implementation programme, should have a major impact on health care provision.

Bottom Line Impact

The move appears to represent good news for insurance companies, suggesting a major boost in premiums is on the horizon. However, some providers say that the impact of the change will be limited by the existence of intense competition, which will lead to low profit margins in the segment. “Health insurance is a high-volume business, and lots of companies have been trying to expand in the segment in order to make up for top-line shortfalls,” A R Srinivasan, CEO of Arabia Falcon Insurance, told OBG. “As a result, the market has become very competitive, with firms offering policies at uneconomic levels.”

Underscoring this, the segment’s net loss ratio stood at 92.5% in 2016, up from 82.4% in 2015. This was the largest of any industry branch other than third-party motor insurance, another highly competitive sector, due in part to its mandatory nature. “Health insurance traditionally is not profitable, as it is more a matter of insuring a claim than insuring a risk,” Philip K Philip, CEO of Muscat Insurance Company, told OBG. “The system is also at risk of abuse by certain stakeholders, and there is a need for something of a cultural change to fix that,” he added, saying also that he hoped the new rules would improve performance of this line of business.

The nature of the regulations around the requirement could determine whether the segment remains characterised by low margins following the change. “If the regulator fixes a minimum premium at a reasonable level, health may become more profitable.” Srinivasan told OBG. “However, if they allow the market to set rates, we will see companies continue to fight for business as they are doing now, pushing down margins.”