Oman: New policy for insurance

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Oman’s insurance industry is about to experience a major shift in direction, with sharia-compliant products, such as takaful, set to be launched onto the market. This is part of a broader programme of reforms that are opening up the financial sector to Islamic insurers and banks.

It was only in May this year that Sultan Qaboos bin Said Al Said gave approval for Islamic banks to operate in Oman, along with other sharia-compliant financial services. Soon after, local insurance firms expressed an interest in entering the potentially lucrative market. Al Madina Insurance Company was given initial approval by the Capital Market Authority (CMA) in mid-August to convert itself to a takaful insurer, with the market regulator saying at least two other conventional policy writers had applied for licences to offer takaful products.

The CMA is in the process of finalising the regulations and standards required for takaful operations, though it has made it clear that it would require an all-or-nothing approach, with conventional insurers not being allowed to operate takaful windows in conjunction with their other policy writing activities.

Abdullah bin Salem Al Salmi, the CMA’s executive vice-president, told local media in September that firms would only be able to offer one form of insurance, not a mix of both.

“Takaful windows are currently not allowed in the insurance sector. Insurance companies cannot operate takaful windows with conventional business,” he said in an interview with the Muscat Daily. “If they want to offer takaful, they will need to become a takaful company.”

Even with the closing of the takaful window to conventional insurers, analysts still expect sharia-compliant insurance to generate strong interest from the Omani public and within the sector itself. After approval was given for the establishment of Islamic banks and associated financial services, Murtadha Ibrahim Al Jamalani, the secretary of the Oman Insurance Association, said he believed takaful products would be well-received in the local market.

“Takaful products would make a mark here,” he said in an interview with the local press. “There is not much of a difference between takaful and conventional policies available in the market. The difference exists from the marketing point of view. The management of the portfolio would also be a little different.”

Many analysts share Al Jamalani’s confidence. In June 2011, Ernst & Young’s Islamic Financial Services Group issued a report predicting a successful roll out of Islamic financial services. The report indicated that services such as takaful and banking could see the sector gain up to $6bn in assets in a matter of a few years.

According to Ashar Nazim, Ernst & Young’s executive director and head of Islamic financial services in the MENA region, the firms that have taken the initiative to break into the market quickly will be well placed when the market opens to take advantage of the new operating environment.

“Given the size of the local market, early movers are set to create a strong advantage in both Islamic banking and takaful. The next 18 months could materially change the competitive landscape in favour of Islamic windows and banks,” Nazim said, during a seminar held in Muscat.

While the Al Madina Insurance Company looks set to make the early running, competition will quickly follow, not only from other stand-alone takaful firms but from the sharia-compliant banks preparing to open their doors in Oman. Some existing conventional insurers in the sector are concerned about becoming providers of Islamic insurance products for fear of losing their present clientele. This may provide excellent opportunities for newcomers looking to enter the sector.

Anil Kapadia, country manager of Oman Insurance Company, says that while his firm does not intend to offer takaful products, he foresees the segment taking off in conjunction with sharia-compliant providers.

“Once Islamic banking is initiated, takaful as a financial product will pick up,” Kapadia said in September. “If an existing company converts to a takaful company, it may lose some existing clients. It would be slightly difficult for existing players to become takaful providers.”

However, conventional players may change their stance if takaful gains in popularity. With an already crowded conventional segment, comprised of 25 firms competing for a stake in a relatively small market − a population of just 2.7m and total premium value of less than $700m per year − the opportunity to break new ground may be tempting.

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