Safe ride: New regulations help make the sector and drivers more secure

The motor segment dominates general insurance in the Omani market. Alpen Capital’s 2011 “GCC Insurance Report” showed 62% of all insurance business activity in the sultanate going to motor coverage. Faced with the dominance of the motor segment in the sector, the industry regulator, the Capital Markets Authority (CMA), has recently moved to increase the amount of oversight it lends to this corner of the market.

Critical Condition

As in many other countries, motor insurance is a line of business that poses high risks and narrow margins. In Oman, this challenge is exacerbated by the fact that traffic accidents are especially high, which compounds to the losses of many companies that are dependent on this market segment.

Figures from the Royal Oman Police (ROP) highlight the extent of the problem. In 2011 the ROP recorded 1056 deaths on the roads and 4040 injuries, out of a total population of around 2.8m. This shows a remarkably high fatality rate, suggesting that many basic safety measures are not being taken by drivers. Meanwhile, some 60-70% of all emergency surgery conducted in the sultanate is attributable to traffic accidents, and around one-third of all car accident fatalities come from the 16-25-years-old age group.

Taking Action

The government has run extensive campaigns to promote roadside safety. One approach has been to not only to punish bad driving, but also to reward good driving. In 2012 the CMA moved to change regulations regarding no-claims bonuses. The regulator has set this bonus discount rate at a minimum of 5% for both comprehensive and third-party insurance policies. This holds both for when policies are initiated and when they are renewed, although the rate may be negotiated upwards and for a longer period of time. The fixing of this percentage has not been entirely popular with insurers, who at times prefer to calculate their own lower limits. Nevertheless, the move is a significant step in increasing regulation.

A second move announced by the CMA in September 2012 was to increase the maximum liability amount of the insurer for material damage caused by a third party. This was boosted from OR75,000 ($195,450) to OR150,000 ($390,900) for claims related to a single accident. The CMA also issued several more extensive regulations on injury compensation. A detailed breakdown of the cost of medical care is now required, signed off on by the hospital authorities and using the Ministry of Health’s pricing chart. Furthermore, a claimant must prove that any medical care conducted abroad is unavailable in the sultanate itself.

Market Impact

Some insurers believe the new moves will raise costs in the motor segment, which may then be passed on to customers in the form of higher premiums. With competition fierce and prices generally low, the impact of the new laws remains to be seen. There is also discussion over the lack of an industry pool, as found in some other countries, meaning that Omani motor insurers must shoulder losses alone. In the meantime, some firms are diversifying their portfolios to reduce the risk against motor losses. “Our company’s strategic decision has been to make motor only around 25% of our portfolio,” Niel Brand, country manager at Oman Insurance Company, told OBG. “Our biggest areas are engineering, then oil and gas, then motor.”

The segment’s challenges underscore the CMA’s policy trajectory in trying to ensure that all sector players are well capitalised and capable of sustaining the demands of the expanding market. Smaller insurers may increasingly come under pressure to merge or exit as losses mount, while low capital bases will make it increasingly difficult for such operators to widen their portfolios into segments like engineering and oil and gas.