Poor uptake of property insurance despite storms

MUSCAT, OCT 13 – With Tropical Storm Luban —downgraded from a Category 1 cyclone early yesterday — bearing down on Oman’s southern coast, few lessons have been learned by the owners of private residential properties and farms whose holdings were battered by Cyclone Mekunu barely five months ago, according to insurance experts. “We haven’t seen any uptick in property policies since Mekunu devastated Salalah and parts of Dhofar Governorate last May,” said a well-established Muscat-based insurance broker, who did not wish to be named in line with company policy. “Lack of awareness of the importance of insurance coverage is primarily to blame, but equally, few of these property owners did imagine that a new natural disaster in the form of Tropical Storm Luban would hit them so close to Mekunu. Luban has caught many by surprise,” the veteran industry expert told the Observer.
Cyclone Mekunu, which ravaged Dhofar Governorate in the last week of May this year, had generated hundreds of property, engineering and vehicle-related claims, according to the Capital Market Authority (CMA), which is the regulator of the insurance sector. Insurers were hit with claims to the tune of around $200 million barely a month since the storm, with officials warning that the aggregate figure was expected to spiral when all of the claims were finally in.
Still, the scope and magnitude of the devastation has failed to suitably galvanise property owners into seeking insurance cover against the next natural disaster, lamented the expert. “Private properties and agricultural holdings potentially imperilled by tropical storms and flood events remain largely uninsured in the Salalah area despite Mekunu’s impact. Property owners are not taking the threat from natural disasters very seriously — from the insurance standpoint. They are also not very heedful of the fact that the frequency of these events will increase, while the destructive impact will grow as well. Going forward, due to the effects of global warming and the El Nino phenomenon, we are likely to see more and more of these destructive events and at unpredictable timings.”
Additionally, many property owners who suffered damage in Cyclone Mekunu’s wake have yet to fully recover from the previous storm, according to the expert. With their efforts currently focused on rehabilitating their holdings, they have neither the resources nor the inclination to think about insurance coverage, he explains.
In response to the CMA’s urgings, insurance companies in the Sultanate have been scrambling to speed up the processing of claims stemming from Cyclone Mekunu. But a significant snag is causing delays in the expeditious settlement of some property-related claims in particular, it is pointed out.
The shortcoming hinges on premiums that were left unpaid by policy holders taking advantage of liberal credit terms offered by insurance companies amid fierce competition in the sector. In the upshot, reinsurers have balked at settling claims when the insured was found to be in breach of the Premium Payment Warranty (PPW) clause — failure to pay premiums within the allotted timeframe.
An insurance executive explained: “When we sell property insurance, we get it reinsured through reinsurers. Under this arrangement, premium is collected from the insured party upon which payment is made to the reinsurer.
However, because of a longstanding market practice, policy-holders tend to get lax in paying their premiums, while taking advantage of credit terms. But when hit by a storm, they want their claims to be speedily settled in order to rehabilitate their properties. At this point, the reinsurer points out to the insurance company that the claim cannot be settled unless the premium is paid in full. Inevitably, the settlement process stalls at this point.”
Given the rising frequency and growing threat from natural disasters, some insurance companies have urged the regulator to make it compulsory for property owners to pay their premiums upfront when obtaining coverage for their holdings.
“This measure will help all the parties concerned — the insurance companies, brokers, reinsurers and the insured as well. With places like Salalah hit by back-to-back cyclones and tropical storms — and with such natural events set to occur at a more frequent interval — it becomes necessary for property owners to pay their premiums in full at the time of the policy being written up. This way, they are not only secure, but any claims will be settled promptly,” he added.

Conrad Prabhu