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Oman multiplying insurance products

Thursday, 12 August 2010 12:25

The Omani insurance industry is continuing to gather pace as the number and variety of products offered to customers multiplies. While the market is relatively small by international standards, with a population of 2.7m people, the conditions for growth are strong, whetting the appetite of both dedicated insurance companies and other financial institutions looking to gain a foothold.

Recent figures released by the Capital Market Authority (CMA) illustrate the growing importance and relevance of the insurance industry. Over the last decade, premiums have grown at an average annual rate of 16%, reaching $613m in 2010. This translates into per capita insurance premiums of $218.2, with total premiums accounting for 1.1% of GDP.

While this has brought Oman into line with regional averages in the Gulf, the country remains significantly underinsured compared to international norms, with developed country premiums reaching approximately 15% of GDP.

Yet the nascent nature of the market may well present strong opportunities for investors. As such, many companies are looking to the Middle East because of significant potential for rapid growth in insurance premiums. Oman is no exception in this regard. The country has a young demographic, with 83% of the population under the age of 35.

Economic growth, which is expected to hit 6% this year, is also boosting income levels, with gross national income per capita reaching $17,890 in 2009, according to the World Bank. These trends are complemented by a strong government infrastructural investment plan, and together should offer plenty of opportunity for the diversification and growth of premiums in the Sultanate.

Indeed, the country’s insurance sector is beginning to prosper at a time when the industry is struggling internationally. The global financial crisis had a significant impact on insurance, with global premium volumes falling 1.1% in 2009 on an inflation-adjusted basis to $2.3trn. This continuing decline was driven by a 2% drop in life premiums. The hardest-hit areas were the US and the UK, while life premiums increased by 4.2% in emerging markets.

While Oman seems to fit comfortably within this trend, it still has some way to go in order to build a flourishing market. Currently, the industry is dominated by non-life premiums, which account for 83% ($509m) of the market. Within this segment, motor insurance is key, accounting for 51.3% of all premiums, followed by property (26.8%) and marine (7.5%).

Given the underlying fundamentals of the country’s economy and demography, life and medical insurance, as well as insurance for large-scale infrastructure projects, could well be expected to grow. However, in the shorter term, growth is being fuelled along established retail lines. The industry is becoming increasingly competitive and innovative as established players and new entrants vie for market share.

One manifestation of this trend is the rise of bancassurance. Banks began offering insurance products in the Sultanate as early as 2004, and the volume, sophistication and scope of these products have grown immeasurably since then. In May 2010, the CMA issued directives for bancassurance following a resolution passed by its board of directors in June 2009. The CMA wants to encourage this segment as it believes banks have the greatest capability to reach the widest possible audience when it comes to insurance products.

The CMA also believes that the greater volumes that banks can achieve will have a positive effect on decreasing premium prices. As such, the directives state that an insurance company may formulate a deal with one or more banks licensed in the country to market one or more insurance products. The directive allows for the marketing of a number of products including life, endowments and medical, as well as personal lines including household and motor insurance.

The latest insurance offering from a bank came in May 2010 when BankMuscat launched the Hayatuna Home Contents Plan. The home insurance scheme covers a variety of personal effects and follows the model of BankMuscat’s two previous bancassurance products in the Hayatuna range. The new product offers monthly premiums of OR3 ($7.80) or OR5 ($13) per month to nationals and expatriates for coverage levels of OR5000 ($13,000) or OR10,000 ($25,970). Such schemes should bring added price competition to the market and give local banks another channel for building their retail fee base.

Such products should bring a greater awareness of insurance to the market and help to bolster penetration levels. While growth rates have been impressive in recent years, the sector has been building up from quite a low base and there is still plenty of room for expansion before uptake approaches international averages. The underlying demand drivers, coupled with the momentum that the industry now has, should ensure robust growth and profits in the market for the foreseeable future.

Global Arab Network

This article is published in partnership with Oxford Business Group

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