New regulations and rising awareness drive uptake and expansion

The sultanate’s insurance industry has grown rapidly in recent years. According to data from the Capital Market Authority (CMA), which is charged with regulating the sector, during the period 2007-13 the sector posted a compound annual growth rate of 14% in terms of gross written premiums (GWPs). Oman was home to the second-fastest growing insurance sector in the GCC region during this period, after Saudi Arabia. The rapid uptake of insurance products in the local market over the past six years can be attributed to increasing awareness about the value of insurance among the population; the steadily improving regulatory environment; and, broadly, rapid economic expansion in Oman over the past decade.

Key growth drivers include motor, property and medical coverage, all of which have become increasingly popular uptake in recent years. “Rising salaries in the Middle East are starting to translate into increased demand for personal lines insurance products,” A.R. Srinivasan, the general manager of Falcon Insurance, a local provider, told OBG. “The perception is slowly changing from an expense to an investment.”

Onwards & Upwards

Most local players remain optimistic about future growth. While insurance penetration is low as compared to global standards, GWPs as a percentage of GDP have doubled in the past six years, from 0.6% in 2007 to 1.2% at the end of 2013, according to CMA data. This puts Oman firmly in the middle of the pack in terms of insurance penetration in the GCC region, and given the sector’s rising profile in the sultanate, this figure is widely expected to continue to climb in the years going forward.

A handful of major amendments to Oman’s insurance law put in place in early 2014 – including a doubling of minimum capital requirements, from OR5m ($12.9m) to OR10m ($25.9m) – have the potential to lead to a period of consolidation in the market, which bodes well for larger players, in particular.

Another recent rule change has led to the establishment of a takaful (Islamic insurance) segment in Oman, which is expected to attract a substantial amount of new business.

History 

While insurance has been available in Oman in various forms since the late 1970s, the sector was only formalised under the CMA in 2004, when regulatory responsibility for the industry was transferred from the Ministry of Commerce and Industry. The CMA promptly set about restructuring the sector in line with international best practice.

Since then the CMA has issued a variety of new rules and regulations. Broadly, the authority has a mandate to protect consumers, ensure an orderly insurance system, and to develop and promote the sector. The CMA works to ensure that all of the industry’s stakeholders – including policyholders, the insurance firms themselves and investors – are taken into account in all of the regulator’s decisions.

Regulation & Oversight 

In recent years the CMA has taken a proactive stance towards the insurance sector. The regulator has introduced a number of laws aimed at shoring up corporate governance and improving transparency and operational capacity across the industry. In 2013, for example, the CMA partnered with the Royal Oman Police (ROP) to develop a digital database of road accidents and violations, using data from 2009 onwards. The database, which was launched in July 2013, can be accessed by all insurers, and has allowed many firms to price risk in automobile policies more effectively. Prior to the establishment of the database there was no integrated record of driving infractions in the sultanate. With this in mind, the initiative is widely expected to have a positive long-term impact on the motor insurance segment, which accounts for 75% of all policies.

Additionally, in 2013 the CMA issued a regulatory framework for takaful. While the broader sharia-compliant financial services segment has been active in the country since 2011, when the Central Bank of Oman released the Islamic Banking Regulatory Framework, the first takaful firm did not begin operations until the CMA’s legislation came into effect at the beginning of 2014. Under the law Islamic insurers are required to list at least 40% of their shares on the Muscat Securities Market (MSM), Oman’s capital market, and hold minimum paid-up capital of OR10m ($25.9m). As of mid-2014 two takaful firms had been set up in Oman, namely Al Madina Takaful and Takaful Oman Insurance. Additional new players are expected in the coming years (see analysis).

Finally, in mid-2014 the CMA introduced a series of long-discussed amendments to the insurance law, doubling minimum capital holding requirements for all insurers from OR5m ($12.9m) to OR10m ($25.9m) and requiring all firms to list shares on the MSM, among other changes. Existing underwriters have three years to meet these new requirements. The amendment is widely expected to lead to a period of consolidation in the sector, which, according to the CMA and many of the larger private players, would be a sign of the market maturing (see analysis).

By The Numbers 

At the end of 2013 Oman’s insurance industry had pulled in GWPs of some OR364m ($942.5m), up 10.44% from OR329.6m ($853.5m) at the end of 2012, according to data published by the CMA. Of these totals, the motor segment accounted for 41% of total GWPs in both 2012 and 2013, making it the single largest segment, which can be attributed to the fact that third-party liability (TPL) motor coverage is one of only two compulsory insurance lines in the sultanate. Medical coverage, which was responsible for 17% of total GWPs in 2013, has grown rapidly in recent years, and is up from 14% of GWPs in 2012. Property insurance, the third-largest segment, pulled in 14% of total gross premiums in 2013, up from 13% the previous year. Other key segments in 2013 included life insurance, which was equal to 9% of total GWPs, engineering, at 7% of GWPs, and marine and liability insurance, each at 3%.

Sector Makeup 

While Oman is home to 23 insurance companies – 22 primary insurers and one reinsurer – most of these firms are relatively small. Indeed, in 2013 the top two insurance companies by GWPs – Dhofar Insurance and National Life Insurance and General (NLIG) – accounted for nearly 33% of total premiums, while the top firms made up 44% and the top 10 firms pulled in just under 67%, according to statistics from the CMA. In 2013 some 1683 people were directly employed throughout the sultanate’s insurance industry, 1114 of who were Omanis, which represents an Omanisation rate – a measure of the percentage of nationals in a given sector’s workforce – of more than 66%. The CMA and other government agencies – particularly the Ministry of Manpower – have worked to raise this figure in recent years.

At the end of 2013 Oman’s insurance penetration rate – a measure of GWPs as a percentage of GDP – was 1.2%, which puts the country ahead of many of its neighbours in the GCC. Indeed, Saudi Arabia, Qatar and Kuwait all have lower insurance penetration rates, at 0.9%, 0.7% and 0.5%, respectively, according to CMA data – while Bahrain and the UAE have higher penetration rates, at 2.1% and 2%, respectively.

Oman’s insurers held OR421m ($1.09bn) in investment assets at the end of 2013, up considerably from OR37m ($95.8m) at the end of 2012. The sector as a whole earned income of OR18.7m ($48.4m) from investments in 2013, which was equal to a 4.4% investment return, up from a 3.9% return in 2012. “Almost all of Oman’s insurers derive a substantial percentage of their income from investment activities,” said Gautam Datta, CEO of Al Madina Takaful, a local sharia-compliant underwriter. “In reality many investors tend to perceive insurance companies as more of an investment company. This needs to change.”

Additionally, as compared to more developed insurance markets around the world, Omani insurers tend to hold a substantial percentage of their investments in cash. According to CMA data, in 2013 nearly 60% of the industry’s investment assets were held in cash and deposits, which are considered to be low-risk, low-yield investments. The CMA has announced that it plans to encourage companies to park a larger percentage of their investment assets in bonds and other safe, higher-yield investment vehicles in the future. However, the lack of an active bond market in Oman could be a challenge to meeting this objective.

Major Players 

Dhofar Insurance, which was established in September 1989, reported GWPs of OR62.4m ($161.6m) in 2013, making it Oman’s largest insurer and the third-largest underwriter in the GCC region as a whole. As of mid-2014 just over 43% of the firm was listed on the MSM, with the remainder being held by the Dhofar International Development and Investment Holding Company, an Oman-based conglomerate that owns 35% of the underwriter, and a handful of other private and corporate investors. Dhofar Insurance has 41 branches throughout Oman and the firm employs more than 400 people.

Lines 

Dhofar Insurance offers a wide variety of products, including construction and engineering coverage, health and life insurance policies, marine cargo, motor, accident, property, travel and workmen’s compensation, among other lines. Unlike many other local companies, Dhofar Insurance also offers several products aimed at the oil and gas industry, which continues to account for much of Oman’s GDP. The firm underwrites on- and offshore oil drilling and refining activities, for example, in addition to petrochemicals production and other related activities.

In 2013 the firm posted revenues of OR64.96m ($168.2m), up 13% from OR57.25m ($148.9m) the previous year. The company, which accounted for 17% of total GWPs in Oman in 2013, is well capitalised, with total paid-up capital of OR20m ($51.8m) at the end of 2013 – double the amount required under the CMA’s 2014 law. In February 2014 Dhofar Insurance signed a memorandum of understanding with Munich Health Daman Holding – an Abu Dhabi-based firm – to set up a new health insurance provider in Oman.

Covering Life 

NLIG was set up in 1983, making it Oman’s first life insurance provider. Since then the company has added a wide range of corporate and individual general products, including corporate motor, fire, engineering, liability, accident, marine and other types of coverage, and individual home and travel coverage. At the end of 2013 NLIG had a GWP market share of 15% in Oman, according to CMA data, making it the sultanate’s second-largest underwriter.

In the first half of 2014 the company introduced a variety of new products, including a credit life insurance scheme and an education savings plan. Nearly 98% of NLIG is owned by Oman National Investment Corporation Holding (ONICH), which is, in turn, controlled by the government-owned Oman Investment Fund. Bank Muscat owns the remaining 2% of NLIG. ONICH also owns 20% of the Al Ahlia Insurance Company, Oman’s fourth-largest insurer in 2013 by GWPs.

Other leading firms include Oman United, Oman’s third-largest insurance firm, which controls around 11% of the market, the aforementioned Al Ahlia and New India Assurance, with 8% of the market. Rounding out the top 10 insurance providers are AXA Insurance, with 5.6% of total GWPs in 2013, Oman Qatar Insurance, with 5%, Al Madina Takaful, with 4.9%, Falcon Insurance, with 3.6%, and Vision Insurance, with 3.5%, according to statistics published by the CMA.

Distribution 

A majority of the insurance products sold in Oman go through one of the sultanate’s 30 insurance brokers. Major players in this area include the local firm Risk Management Services and Marsh Oman, a local subsidiary of the US-based multinational Marsh. Increasingly, bancassurance – where an insurance policy is packaged with a banking or financial product sold by a bank – is also considered to be a key means of insurance industry growth. For example, while NLIG distributes its products via a small number of branch offices, it has also seen growing business via its bancassurance network, which includes Bank Muscat and Oman Arab Bank.

Car Coverage 

Motor insurance, which had a market share of 41% of total GWPs in 2013, makes up a large percentage of business at most firms. TPL coverage is one of just two mandatory insurance lines under Omani law – the other being workmen’s compensation at companies with more than eight employees. With this in mind, the motor segment has been extremely competitive over the past decade, with many firms pricing TPL and other motor policies at extremely low rates in an effort to attract customers.

“The competition in the motor segment is unhealthy,” said Datta, Al Madina Takaful’s CEO. “While most of the risk of motor coverage is retained in Oman – unlike many other profitable product lines – that means we also retain all the losses.” Indeed, in 2008 and 2009 the motor insurance loss ratio – a measure of incurred losses set against net income earned from a given segment – was in excess of 100%, meaning that the sector was losing money on motor policies.

This figure has fallen substantially over the past five years, as firms have worked to shore up their risk management regimes and price motor policies more realistically. In 2013 the overall motor insurance loss ratio was at 74%, which was in line with the GCC market as a whole, though Oman’s TPL policy loss ratio remained above 90% in the same period.

Medical Coverage

Medical insurance has been one of the fastest-growing product lines in recent years. At the end of 2013 the sector accounted for 17% of all GWPs, up 39% from the previous year. Corporate group medical lines account for a large proportion of this new business.

In the past five years many companies have taken to offering medical coverage as part of their benefits package for employees. While Omanis and many non-Omani government employees have access to free health care at state-run clinics and hospitals, many privately employed citizens prefer to take advantage of group health plans, which allow them to access private clinics and other private facilities.

This situation reflects a wider change taking place in the health care sector. Since the mid-2000s Oman has seen a considerable amount of new private health care investment and development. Perhaps the largest project now under way in this area is International Medical City, an 866,000-sq-metre medical complex that is currently being developed in Salalah. Overseen by the Saudi Arabia-based Apex Medical Group, the $1bn project will include medical, educational and resort facilities (see Health chapter).

The development of the private health care sector has spurred the expansion of medical insurance in recent years. Consequently, local underwriters have worked to introduce a variety of new, competitive coverage schemes. This has contributed to an increase in the medical insurance loss ratio, which jumped from 63% in 2012 to 81% in 2013. In mid-2014 the CMA announced that it was monitoring the medical segment to ensure that insurers were meeting their commitments and maintaining high-quality services.

Other Product Lines

The property insurance segment, meanwhile, saw growth in GWPs of 18% in 2013, making it the third-largest segment in terms of premiums at the end of the year, equal to 14% of total GWPs. Rising competition and exposure to risk at many firms has pushed up loss ratios in the segment in recent years. By year-end 2013 the property segment’s loss ratio was 99%, nearly double the GCC average of 44%. The CMA is working to encourage the sector to address this issue by raising premiums.

Demand for life insurance, which brought in 9% of GWPs in 2013, is driven largely by corporate accounts. Most individual policies are linked to bank loans and, as such, are sold in the context of bancassurance. A significant portion of the population remains somewhat sceptical about life insurance, but this is set to change in the coming decade as the large number of young people in Oman choose to start families.

Takaful

In 2013 the CMA released a new regulatory framework for takaful. Since then a number of firms have begun to offer Islamic insurance in Oman. Al Madina Takaful, which was established as a conventional underwriter in 2005, carried out a company-wide restructuring to become a sharia-compliant operator, launching its Islamic line of products in January 2014. During the transition the company managed to hold on to all of its clients. Consequently, Al Madina, which had around 5% of total GWPs in 2013, is the sultanate’s largest takaful operator by a long stretch. Takaful Oman Insurance, which began operations in June 2014, was the only other takaful provider in Oman at time of publication, though the sector is expected to grow in the near future. Demand for sharia-compliant products thus far can be attributed primarily to individual Omanis, though the Islamic banking sector has also shown some interest (see analysis). “It is too early to make any kinds of projections in terms of long-term interest in Islamic insurance in Oman,” Datta, Al Madina’s CEO, told OBG in August 2014. “That said, we can say that there is definitely interest in takaful, both from individual policyholders and from the banking sector.”

Reinsurance

Oman’s sole reinsurer – the Oman Reinsurance Company (Oman Re) – was established by a handful of GCC-based insurance and reinsurance players in June 2008. Its major shareholders include the Qatar General Insurance and Reinsurance Company, which has a 25% stake, Oman’s Dhofar Insurance, with a 12.5% stake, the Muscat Life Assurance Company, and a substantial number of other corporate and private entities. The firm has seen steady growth over the course of the past five years, and while it continues to face strong competition from foreign reinsurance players throughout the GCC, it has gained market share in a number of markets, including Oman, the UAE, Egypt and Lebanon, among others.

Historically, Oman’s insurance companies have reinsured a substantial percentage of GWPs. In 2013, for example, the domestic primary insurance industry retained 54% of premiums, up slightly from 52% in 2012, according to data from the CMA. “Retention rates are noticeably low here,” John Spencer, the head of the department of strategy and business development at the CMA, told OBG in August 2014. “This is a result of the low capacity to handle risk at most companies.” The regulator has worked to improve risk management in the industry in recent years.

Outlook 

While demand for various insurance products has jumped considerably in Oman in recent years, the industry faces a variety of challenges. As home to 23 insurance providers, including one reinsurer, the market is considered to be relatively overcrowded. This has contributed to intense price competition and relatively high net loss ratios at some firms. Similarly, despite growth in underwriting revenues in recent years, most local insurers continue to generate a considerable percentage of income from investment returns. Other challenges include relatively low in-country GWP retention rates, which are the result of a lack of local underwriting capacity; the fact that the motor segment, which constitutes the largest share of GWPs, has been loss-making in recent years; and relatively low insurance penetration rates as compared to international standards.

Despite these and other issues, most local players remain broadly optimistic about the future. Recent amendments to Oman’s insurance law and rising awareness about the value of insurance among corporates and individual Omanis alike bodes well for future growth. “Insurance uptake has increased rapidly in Oman over the past decade,” said the CMA’s Spencer. “The industry faces a number of hurdles still, but in general the outlook is broadly positive.”