OBG talks to Lloyd East, CEO, Al Ahlia Insurance; and Board Member, Oman Insurance Association

Interview: Lloyd East

As fronting and insurance fraud grows in Oman, to what extent can assessing international trends help create a workable solution to these issues?

LLOYD EAST: Fronting is the name given when the majority of a given risk or group of risks is not retained within an insurance company but rather passed on to a second reinsurer. Smaller insurance companies often depend largely on commission from reinsurance and a large portion of the business is not retained within Oman because of a lack of capacity and the disproportionate terms of reinsurance treaties. To avoid this, capacity should be built within Omani companies to retain premiums within the country rather than ceding it out.

As for fraud, the damage to the company’s reputation can often be devastating. The risk of falling victim to fraud increases with the size of a company and the complexity of its organisational processes. Induced motor accidents, fraudulent arson, disability claims or supplier fraud, where insurers receive bills for work that has not been done, are the most common examples. As the market matures, insurers need to understand the importance of working with high quality, rated re-insurers who adhere to international best practices, minimising room for fraud. Learning from more advanced insurance markets can provide some pointers for establishing risk and compliance frameworks that cannot easily be breached.

How can companies take advantage of the current momentum in Oman’s insurance industry while also managing to boost their technical profitability?

EAST: The government’s commitment to investing in infrastructure, jobs and asset creation point to the prospects of Oman’s insurance industry. Despite its relatively low penetration rate, Oman has seen high growth rates in recent years, and companies here have demonstrated real resilience in their capacity to withstand high motor losses over recent years. For insurers to stay on the path of long-term growth, they require a strategic focus on boosting technical and operational efficiency. In order to thrive in an increasingly competitive insurance market characterised by under-penetration, insurers need to be able to maintain a drive towards risk-adequate pricing, for instance by developing competencies in risk selection, rating and management. Global insurers can leverage their international experience as well as local knowledge to drive technical sophistication, benefitting their customers. Local companies can then learn from this experience and build their own capabilities and use their local knowledge to better raise risk management awareness among clients.

How feasible is the implementation of compulsory medical insurance in Oman?

EAST: Demand for medical insurance is on the rise, due to the high cost of quality medical care and the need felt by people to consult private health care providers. The implementation of compulsory medical insurance requires all stakeholders, from government departments to health regulators and employers, to participate collectively in building a strong and lasting health insurance framework. This framework has to be accessible and appropriate to individuals as well as the state. Although one needs to consider the existing capacity of the market, a healthier nation would boost Oman’s economic growth, as well as improve social welfare.

To what extent has Oman been part of the regional trend in Islamic insurance, which has outpaced growth in conventional policies in recent years?

EAST: Islamic insurance is still at a relatively nascent stage in Oman. The local insurance sector has yet to participate in the growth of takaful, which has been a key factor in the expansion of Islamic insurance for Oman’s neighbours. The Capital Markets Authority has in principle approved the establishment of Oman’s first sharia-compliant insurance company, which is anticipated to start operations in 2014. While it is too early to draw conclusions for the long term, any initiative that broadens customer choice ought to be welcomed.