A positive trajectory: Mapping the challenge of balancing rising competition with efficiency

With a steady stream of new entrants in the past decade and growth from a small base, Oman’s insurance market is a competitive one. A new set of entrants is set to arrive in 2014 following the approval of a legal framework for firms offering takaful (Islamic insurance), which will bring sharia-compliant alternatives to conventional insurance. Overall potential for the market remains high thanks to the sector being at an early stage of development and on account of Oman’s strong economic growth. Investment opportunities are likely to continue as insurers seek to boost capital, absorb know-how and adopt international best practices.


Prior to the financial crisis in 2007, the main strategy of insurers was to offer low-priced policies and expect profits to come from investment income rather than from the premiums themselves. This was a winning strategy across the region and beyond, as values for real estate, stocks and bonds climbed. The success spurred demand for new licences and subsequently major competition for car insurance customers, as third-party liability insurance for drivers is the only type of mandatory coverage in Oman. Motor remains the largest line of business, accounting for 41% of gross written premiums (GWPs) in the market.

With policy income squeezed by competition, underwriters faced a challenge when the financial crisis hit. Foreign portfolio investors sold their equities on the Muscat Securities Market (MSM), the national stock exchange, on account of problems faced in their home markets that required cash injections. This in turn pushed stock prices lower in Oman, wiping out insurers’ profits from investment accounts and forcing a sector-wide re-evaluation of strategies for growth.

New Strategies

Currently, there is a greater focus on underwriting profits, and this has meant adding financial and technical capacity. Some insurers are considering mergers, which is encouraged by the regulator, the Capital Markets Authority (CMA). And with the MSM’s benchmark stock index, the MSM 30, ending 2012 with a gain of 1.15%, insurers hope that their equities portfolios will add to profits in the future rather than squeeze them as has happened in recent years.

The sector is also anticipating a future in which opportunities for additional premium income increase in both scale and variety, lessening the need to rely on investment accounts. Scale will come first from the motor-insurance market. The number of Omanis who can afford to buy cars is increasing and is set to jump in 2014, in particular because of rising public sector salaries. A minimum-wage hike in 2013, combined with newly created jobs in the public sector will mean thousands of people with money to spend at dealerships. More variety in the insurance market is expected to arrive with Oman’s public spending on infrastructure projects, creating assets and projects that require coverage, and as foreign investment in new energy projects and elsewhere generate demand. Markets such as medical and life insurance should also push growth further.

“Insurance companies are expanding into niche markets,” Gautam Datta, CEO of Al Madina Insurance, told OBG. “We are increasingly seeing companies offering products in specialised segments be it energy, large construction and engineering projects, or liability insurance.”

Size & Scope

Total GWPs reached OR320m ($828.8m) by the end of 2012, according to data from the CMA, up some 14% from OR282m ($730.4m) in 2011. Premium income has more than doubled since 2006, when it was OR144m ($373m). Net premium income, namely income from policies in which risk is retained instead of being reinsured, rose 19% to OR169m ($437.7m) in 2012. The penetration rate – the ratio of premium income to GDP – was 1.05%. The largest contributor to premium income was motor policies, as per CMA statistics. The fastest growth area was property insurance, for which gross premium income jumped 29%.

Market Players

The CMA has overseen the sector since 2004, when insurance first came under regulation. Today’s sector took shape in the wake of the 2001 collapse of the Oman National Insurance Company, a government-owned corporation that had dominated the market. After a restructuring, National Life and General Insurance (NLGI) has become the second-largest insurer in the market and the only major provider of life insurance. Dhofar Insurance is at present the largest insurer in Oman by premium income, and primarily offers general insurance. Insurers typically sell both life and general insurance, but focus on one or the other. In 2007 a moratorium on new licences was lifted, leading to the growth in competition.

Regulations mandate that no more than 25% of an insurer’s investment portfolio can be invested outside Oman or the GCC region, though sector leaders have pushed for a relaxation of the rules and insurers can appeal to the CMA for exemptions. There are also caps according to asset class: a ceiling of 20% of overall portfolio exposure to real estate, and 40% for equity.

Current licensees in the insurance sector include 21 insurers, 29 brokers, and one reinsurer, according to the CMA. The addition of takaful, made possible by the decision in 2011 to allow Islamic finance, is in part a response to demand in the market for sharia-compliant alternatives. For existing insurers, however, it represents a new challenge, as three new providers will be introduced into a market already considered competitive with a history of price wars eating into profit margins. That is in part the result of the attractiveness of the market over the previous decade, thanks to investment returns before the financial crisis. For the future, changes to the legal framework will likely compel some consolidation, but the potential for new sources of growth in the sector may spur others to hold off considering mergers and try to go it alone. One of the three new takaful entrants is a current conventional insurer; Al Madina plans to convert its existing licence, so in effect there will be two additional competitors in the market. The other two licences will go to Oman United Insurance, an existing player that plans to set up a new joint venture takaful operation, and the Oman National Investment Corporation, a conglomerate owned primarily by Oman Investment Fund, the sultanate’s sovereign wealth fund, which is promoting Takaful Oman.

Legislative Revisions

The legal framework for insurance is the Insurance Companies Law, established by royal decree in 1979. The legislation is in the process of being updated, with a draft working its way through the legislative process in 2013 expected to become law in 2014. The new legal environment is not expected to bring many changes, but those it does make are likely to be significant. Foremost is the boosting of minimum paid-up capital from OR5m ($13m) to OR10m ($26m), and provisions to encourage more insurers to sell shares on the MSM. A change banning composite insurers offering general and life insurance under the same licence was considered but scrapped. Takaful will be handled in a separate law, which will be guided by current international standards (see analysis).

In addition to insurance-specific laws, the sector is currently affected by restrictions in the labour market that mandate specific targets for local workers. Omanis have typically viewed the state as the preferred employer, and the sultanate is using hiring thresholds for private companies as a means to stimulate increased private sector activity and entrepreneurialism.

The Omanisation process sets employment thresholds for nationals across all sectors. As of the end of 2012, insurers were to have at least 65% of workers sourced from the local labour market. This requirement represented an increase from 45%. While some companies had met the new target, the industry was not quite in compliance as of the end of 2012 when the Omanisation rate was 63%, according to the CMA.


The regulatory framework for insurance is also evolving. The CMA has made it a priority to address risks in motor insurance, as third-party liability remains the crucial market for most insurers in Oman. It is also a line of business in which insurers tend to retain a greater share of the risk than normal in Oman – for most lines of business much of the risk is passed along through reinsurance companies. This retention of risk presents a problem because insurers are still working to move from the strategy of discounting policies and making profits from investments which had led to a system in which risks were not a major consideration in setting premiums, therefore leaving insurance companies with undue exposure to losses.

The CMA is working together with public-safety agencies such as the Royal Oman Police to promote safe driving in the sultanate and to help collect data to support those efforts. Studying the trends will allow the agencies to further target their efforts as well as provide insurers with additional tools to help them more accurately assess the risks of individual motorists. The CMA is also working on regulatory reforms to further encourage insurers to price auto policies according to these risks, rather than to the value of the vehicle a driver wishes to insure (see analysis).

Building Focus

A move toward risk-based pricing will be key for the future because growth opportunities in other areas could result in potentially much larger claims than those resulting from car accidents. In the general insurance segment, Oman’s current infrastructure drive is a prime example, and will present the opportunity to insure projects worth millions or billions of dollars rather than automobiles worth tens of thousands of dollars. “The government’s spending and increased budget for infrastructure projects and road construction are growth drivers for the insurance sector,” said Niel Brand, country manager for the Dubai-based Oman Insurance Company. “Companies view this as an opportunity to create product-specific insurance.”

Reinsuring Risk

Under Omani law, insurance for such projects must be placed with local insurers. Though much of the risk will be passed on via reinsurance, a significant opportunity exists for those firms that can price according to risk and retain their net premium account. The area where this could be most difficult is in road construction. Oman suffers from flash floods in wadi (valley floors and river beds that are usually dry). These can wipe out progress on road-building projects in rural areas. Reinsurers have been more cautious of taking on risks in Oman in recent years in which natural catastrophes are a possibility. Those sensitivities have been heightened since 2007, when Gonu, a cyclone that flooded parts of Muscat, landed. Gonu was the worst storm of its type in the sultanate’s history. Oman’s southern areas are exposed to the cyclone season in the Indian Ocean, and in recent years storms have become a factor. Gonu was followed by Phet in 2010. At the government level the response includes public works projects to improve water management and protect densely populated areas from flooding. Until those responses are in effect, insurers have been advised to boost their capacity to assess these types of risks.

Covering Catastrophe

US-based ratings agency AM Best said in a recent analysis of the sector: “It is of material importance for domestic participants to understand their aggregate exposures and concentration to ensure their capital base is adequately protected to cover catastrophe risk.” According to its research, property and engineering risks accounted for some 20% of GWPs in 2011, but 6% of retained risk.

Finally on the regulatory front in late 2013, the CMA was working on new solvency regulations, which are intended to provide a framework of more specific requirements on how insurers set aside capital to account for retained risks. These types of regulations often end up mandating more capital requirements, and that could also serve to encourage some firms to merge.

Life & Medical

Life insurance purchased by individuals accounted for around 3% of GWPs as of 2011, and group policies 9.8%, according to AM Best. The market for individual life is not typically driven by consumer demand, but is considered a prospective area in the long term. “Life insurance is usually taken out with a bank loan,” Brand told OBG. “It will be a slow process to interest Omanis in purchasing voluntary life insurance, but the growth potential is there.” Such expansion will likely be driven by a slow shift from households of extended family to nuclear ones, according to Mohammed Taki Al Jamalani, vice-president of insurance operations regulation at the CMA. “Once you are no longer taking care of your parents, you do not expect it from your kids,” he told OBG. “We expect to see growth in long-term life insurance products like private pensions,” he added.

Oman classifies medical policies as life insurance, and they accounted for 11.6% of premiums in 2011. Medical coverage is an area with major growth potential in the short term (see Health chapter), with the main drivers of demand being private sector employers and Omanis working for government. Government employees are entitled to health care via public facilities. As of 2012 there were 65 modern hospitals with 6000 beds, a ratio of 2.1 for every 1000 citizens, according to a report by the US Commercial Service (USCS), a unit of the Department of Commerce.

However, private clinics and hospitals are a growing market in part because Omanis in the public sector who want extra coverage are opting for elective procedures at these facilities, or view these for-profit options as more desirable. The USCS study counted 242 private health centres and clinics. Tapping into this demand is in the early stages in Oman, and individual plans are not yet a large source of premium income. Nonetheless, 2013 saw a new offering that is indicative of this trend: individual medical policies by NLGI, under the brand Sahatuna that offers three levels of coverage.

While there has, in the past, been talk of making medical insurance mandatory by law, there is at present no timeline for this. For private sector employers, however, offering health insurance as part of benefits packages is a way to compete and attract talent, in particular given the Omanisation mandate. Employers are also opting for group health plans as a way to control costs – many have covered health expenses for employees in the past, but have done so by paying directly rather than opting for an insurance plan.

Medical costs are rising in the sultanate, and insurance companies offer certainty to employers via group medical plans. In the long term, major health expenses loom as a result of the shifting disease burden. According to a World Health Organisation (WHO) report, lifestyle illnesses such as diabetes are on the rise. WHO data indicates that the per capita expenditure on health has increased from $200 in 1995 to $600 as of May 2013, which exceeds the Eastern Mediterranean regional average of less than $200. This region includes the GCC and countries with lower per capita incomes, such as Iran, Pakistan and some in North Africa.


Bancassurance partnerships between insurers and banks are present in Oman, with laws stipulating that banks can establish a relationship with one insurer for life-insurance products and another for general insurance, but not more. Bancassurance is likely to grow as a way of reaching customers; however, for now distribution is dominated by brokers. Of the 29 licensees in the brokerage category, the two largest are the local branch of Marsh Insurance and Risk Management Services, an Omani broker. Relations between brokers and insurers have been subject to more regulation since 2013, when the CMA mandated that the two sides set up a contractual relationship clarifying their obligations and responsibilities. The goal is to avoid disputes over payment, or long delays in the transfer of premiums from client to broker and from broker to insurance firm. In addition to contracts, the CMA instituted a 90-day maximum on this transfer as of early 2013, and may move to a 60-day deadline.


The insurance sector has found its footing in the post-financial crisis era. The forecast has improved in the short term thanks to an end to investment-account losses owing to a rebound in stock prices on the MSM, and also due to a clearer sense of where profits are likely come from in the medium term. The sultanate’s infrastructure spending is combining with job growth to present a growth opportunity significant enough to attract multiple new entrants.

The challenge that comes with this positive outlook is increased competition, in particular that from the Islamic finance segment, as the 2011 decision to allow sharia-compliant financial services in the sultanate has brought three new providers of takaful to the market. Sector growth now depends on whether this change will result in a larger pool of Omanis willing to buy insurance products outside of motor policies, or if it will instead result in more firms entering the mix without a major rise in customers. While Omanis have shown demand for sharia-compliant options, Islamic products are typically more expensive than conventional options. As an alternative, takaful providers can price their products more competitively, if they accept smaller profit margins. How Omani consumers respond to this coming choice of alternatives is a key long-term question.


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The Report: Oman 2014

Insurance chapter from The Report: Oman 2014

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