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overcoming challenges

With a population of just 2.5mn, Oman is a small market but players in the insurance sector say they have found niches
Nazia Khan

There is certainly no dearth of choice when it comes to companies offering various insurance services in Oman. As of now, there are 16 players in the sector, both national and global firms, offering general as well as life insurance. All for a population of a little over 2.5mn. To further enhance options, companies are moving out of their specialisations, paving the way for composite structures. NationalLife, the market leader in life insurance, has recently started offering general insurance products. Newer entrants like Al Madina Gulf Insurance, among others, have a licence to sell both life and non-life products.

While these facts suggest action, the question is whether there is too much competition over too small a market. Peter Drummond, general manager, Muscat Life Assurance, is all for healthy competition. "But having too much competition obviously brings the prices down."

With the signing of the WTO agreement, the doors have opened wider for investors to enter the insurance market. And with money flowing in, liquidity is high. But as Deepak Kamath, area manager-Oman, AXA Insurance, points out, “While insurance premiums are booming, the cake is being divided more.” He adds that 2006 had been a struggle for the company.

Total direct premiums in the general insurance sector have indeed risen by around 15
per cent – from over RO87mn in 2004 to RO100.75mn in 2005. But insurance penetration in the sultanate remains a figure rooted in the lower single digits. Thomas Devasia, general manager, Oman Qatar Insurance Company (OQIC), is among those who see this as an opportunity. "My view is that if there are more players, there are more people to work on the market. And it is not as if all these players will concentrate on someone who is already insured. The customer who could not be reached earlier will now be reached. It is a win-win situation."

Shifting trends
The win-win situation is appealing no doubt, but at present it is just a scenario. Most of the insurance companies have a network of three to six branch offices, with their newer centres generally being located in Salalah, Nizwa, Sur or Sohar.

Among the exceptions to this rule is Dhofar Insurance, which has 35 branches. The comp-any also has a ten per cent share in both Oman United Insurance and Muscat Insurance. Says Rawny Khadr, vice president-development and marketing, Dhofar Insurance, "Our prem-ium turnover last year was US$110mn. We also saw a 30 per cent increase in revenue last year. We are pleased with the developments and would like further growth of personal lines insurance, as well as more retention in larger energy related projects."

Infrastructure related projects are on an upswing like never before. And their scale is bringing about changes in primary sources of revenue for insurance companies. Traditio-nally, premium income from motor insurance, averaging around 50 per cent, has topped the charts in general insurance. It still does but there are more and more companies like Muscat Insurance who say that the bulk of their business comes from the property, engineering and marine categories.

In fact, Andrew Woodward, general mana-ger, Muscat Insurance, says that the company is very selective about writing motor business. The high expense ratio and high loss ratio attached to it, combined with the fact that it is a very labour-intensive business, contribute to this. Explains Woodward, "Since this is a very competitive market, pricing is, generally speaking, going the wrong way. We are proud of the fact that our motor insurance results are extremely good. And we would rather preserve the bottomline than get all excited about the topline." Meanwhile, AXA's Kamath believes it is very important for the health of a company to have a diversified portfolio. "If you focus on just one category, you will be in trouble if there is a downturn."

Together, energy and construction sectors account for more than 60 per cent of OQIC's business. Adds Devasia, "In 2006, we have grown by around 70 per cent. Energy is predominant and indicates the technical competencies of the group and the team in Oman, in this core sector. I expect that as we create new markets, we will progressively have more retail business."

Business has been good for Royal & Sun Alliance Insurance Oman as well. Managing director Sanjeev Jha informs that the company's premium base has grown nearly four times in the period from 2002 to 2006. He says that they have more corporate than individual clients. But he sees this trend changing, like it is in most emerging markets. "The dominance of the corporate premium is reducing. It will remain a large segment because that is where the economic activity is. But personal lines will start becoming larger and in line with the increasing affluence and enhanced perception around risk mitigation."

Personal lines mean everything from travel and health insurance to a cover for a pet, or for accidental property damage a customer may cause while playing golf. The market has come up with innovative products, services and channels to attract more customers. Jha talks about his company's affinity distribution, and their new marine proposition. Royal & Sun Alliance has distribution relationships with key motor dealers, travel agents and others. Adds Jha, “We have recently launched an innovative on-line facility for providing marine cargo certificates at end clients or brokers offices.” Then there is OQIC, which has adopted alternative distribution channels such as with Times of Oman and Muscat City Centre to popularise its products. Kamath says that AXA has tie-ups with most travel agents in Oman as well as the rest of the Gulf. "We have also recently launched our healthcare series for individuals."

Adds Khadr, "Generally, the demand from the outset for any new product is gradual with the increased potential for exponential growth. This is indicative of changing corporate and individual attitudes towards insurance."

Split focus
The promise of the revenue that will follow this change in attitude is the key driving companies to diversify. S Venkatachalam, general mana-ger, NationalLife, says its entry into the non-life sector has come about because as a group they would like to increase their market share. "We see a lot of scope in the market." Manoj Pandey, resident manager, Life Insurance Corporation (International), shares that und-erstanding of scope. The company, which has permission to sell policies only to Indian nationals currently, hopes to get official approval to cater to all residents of the sultanate soon. But Pandey believes it will take a lot more time before life insurance policies get popular with the population. "This is true anywhere in the world, not just in Oman. Unlike general insurance, life insurance is a matter of choice."

Life insurance premiums in Oman are at a nascent stage. AXA's Kamath says that it may be because people are risk-averse. "They often do not have the liquidity or savings to go for life insurance. That is actually a paradox, because if you don't have money, it is better to go in for life insurance for protection. For us, the point is that it remains difficult to penetrate the life market. There is basically too much capital chasing too little premium."

One of the basic vehicles of consumer awareness is compulsory insurance. So motor insurance and worker's compensation insurance score over, say, home owner's insurance. Says Woodward, "There is much more demand nowadays for director's insurance, officer's insurance and professional indemnity insurance, than you would have seen five years ago. What remains to be seen is whether 15 years into the future, the customers here will buy home owner's insurance as automatically as they buy motor insurance now."

Bancassurance still has the potential to be an effective instrument to serve the awareness cause. It is a cost-effective way of distribution in a market where it can be very expensive to have a team of sales people out on the field with individual products. NationalLife had tied up with BankMuscat for bancassurance a while ago, but it is in 2007 that Venkatachalam believes the model will definitely take off. "Bancassurance is a new concept in the country. It took some time to sell this to people. But we have come up with some corrections in the model, such as introducing incentive schemes and referral schemes for BankMuscat emplo-yees. This will help to improve the business."

The fact that many customers tend to be segmented by culture is another factor that counts. Drummond says that the expatriate culture is far more willing, though not necessarily more able, to save for the future through insurance. "The Omani culture is more of a consumer one. So we have to go out and educate people to the idea of saving for the future. Typically, this would include short term savings for weddings, savings for the medium term like children's education, and long term savings for retirement."

Venkatachalam believes that the education being provided is leading to the right questions being asked by customers. "People who have a certain lifestyle will wonder: ‘Can I lead this same lifestyle after 20 years?’"

Companies understand that catching the trends among consumers will lead to catching the next growth wave. "Investing in property is a big thing right now," says Drummond, who expects mortgage protection policies to be an area for expansion for the company in 2007.

Set expectations
As per the data sourced from CMA, the regulatory authority for the sector, insurance firms issued 612,997 policies in 2005, compared to 486,907 in 2004, recording a growth of almost 26 per cent. With these figures as foundations, what would the industry like to see in the future? Less competition, Kamath replies instantly. What he does seriously believe is that the market is overcapitalised. "You cannot stop new players from coming in. But may be the rules for entering the market can be tightened. It also needs to be ensured on a continous basis, that existing companies govern themselves better and that reporting standards are maint-ained at high levels."

Royal & Sun Alliance's Jha sees the right talent to fuel the growth as the biggest challenge. "The people we have working with us curren-tly are great. But supposing the industry grows at 20 per cent year on year, would we have enough talent to meet our needs?" This is a question that CMA as well as insurance companies are tackling. Employees have been trained in accordance with a programme already established by CMA.

An action plan was also put into place in 2004-2005 to enhance the technical skills of employees in the insurance supervision directorate for onsite and offsite inspections through academic inputs and practical training. Continues Jha, "We are in talks with colleges to build up programmes to build insurance into their curriculum. Insurance is an exciting career, and it is by nature a global business. The economy is booming, so there will be growth. Thus, I would seriously recommend that the youth of Oman look at this sector as an attractive career option."

Stay at home
What actually lies ahead for the insurance industry is a matter of speculation, but there is a certain consensus on what should lie ahead. Devasia believes that the market can afford to and should retain more risk. "It certainly has the financial capacity. Besides, unless you retain more risk, you cannot grow. I think all players can work together to ensure this."

There is a view that this risk retention will probably happen better with fewer and stronger players rather than a multitude of low capitalised players. But this is an interesting market, which is why it attracts so many pla-yers. Consolidation through tie-ups, mergers and acquisitions could change the way it looks. Such developments would be infinitely preferred over any company collapsing, which would adversely affect the entire industry.

It does take more than lots of new companies to develop markets. But it is also true that markets can be created by raising awareness. The insurance companies are certainly doing their bit. Combine their efforts with the fact that the bulk of the sultanate’s population is young and will enter the workforce soon, and they are inevitably aware of and looking for non-life and life insurance. Spectacular growth in the insurance sector just might be nearer than we think.