The metrics for the insurance sector show that Oman is relatively underinsured and as such there is ample space for the growth of the sector, says the Central Bank of Oman (CBO) in its Financial Stability Report for 2018 released last month.
While rising interest rates bid well for the insurance sector, moderation in economic growth, smaller addition to the stock of vehicles, and shelving of some nonessential projects may weigh negatively on the growth of the sector, the report also notes.
Insurance penetration was about 1.6% which is comparable to that of GCC countries but remains much lower than the global average of 6.5%. Likewise, insurance density, which is per head insurance premium, is about OMR100 [$260](2016: OMR99) per person as compared to the GCC average of OMR141 and global average of OMR252 per head. Both of these indicators are suggestive of the potential available to cater to the underserved and unserved market segments.
The upside potential suggests that despite some slowdown in economic activity, the long term growth prospects for the insurance sector remain optimistic as growth can pick up with an increase in product awareness.
2017 market performance
The report notes that the premiums collected by insurance companies registered a small increase during 2017. The gross premiums reached OMR455m in 2017 from OMR454m in previous year.
The non-life insurance sector continued to be the dominant segment in the insurance business with a share of about 86% of gross premiums. Within this segment, the motor insurance leads the premium collection with a share of about 34%, followed by medical insurance with a 30% share.
On average, the insurers retained about 57% of the risk while transferred the rest to the re-insurers. However, for motor insurance, the insurance companies retained about 86% of premium (and proportionally higher risks) and for Individual Life, the retention ratio was 70%.
The net claims paid against motor insurance constituted about 54% of the claims paid by the insurance companies. Higher claims along with higher retention ratio implies that the net loss ratio (net claims / net premiums) for motor insurance also remained high at 68%. That is, 68% of the premiums earned by underwriting the motor risks were paid back in the form of claims.
Similarly, medical insurance also had a high retention ratio along with a high loss ratio (80%).
The loss ratio of liability insurance was the highest (82%). However, as this segment forms a small share (2.3% of gross premiums) of insurance business, the net claims paid against liability insurance were only about 1.9% of the total claims paid by the insurance companies during 2017. 2.88.
Cyclone Mekunu that made landfall in Oman in May may bump up the insurance claims and put pressure on the profitability of the insurance sector, says the report.