Towards sustainable insurance and reinsurance pricing in Oman

It is often said that motor insurance premiums have increased in the Omani market. However, it is important to look at the complete picture rather than focusing solely on the premium amount. The issue is not merely about insurance pricing; it is about an integrated framework covering pricing, underwriting, claims management, reinsurance, risk management, solvency, corporate governance, and market competition.
The motor insurance risk today is no longer the same as it was in the past. The cost of vehicles and spare parts, labour and repair costs, medical treatment, bodily injury compensation (Ta’arish), blood money compensation (Diya), and court awards have all increased. In addition, technological developments and the increasing complexity of modern vehicles, changes in driver behaviour, increased traffic volumes, and the development of modern roads and infrastructure are factors that may affect the frequency and severity of accidents and, consequently, the overall cost of claims.
Therefore, motor insurance pricing should be based on the actual cost of risk and reliable statistical and actuarial data, rather than simply comparing current premiums with historical premium levels.
Price competition and underwriting practices
Historically, the motor insurance market has experienced intense price competition, together with agent and broker commissions and distribution costs. Therefore, comparing current premiums with historical premiums alone does not necessarily reflect the true technical cost of the risk. From a technical and commercial perspective, and in the interests of all stakeholders — policyholders, insurance companies, shareholders, and regulators — there is a need for a fair and transparent mechanism for determining motor insurance prices that balances policyholder protection with the financial sustainability of insurance companies. At certain times, some insurers may adopt.
Underwriting practices whereby motor insurance policies are priced at low levels primarily to generate immediate cash flow, rather than to reflect the true technical cost of the underlying risk. While such practices may provide short-term liquidity, they do not necessarily serve the interests of all stakeholders. They can encourage unhealthy price competition, erode technical underwriting performance and, ultimately, undermine the long-term sustainability of the insurance industry.
Technical rate and commercial rate
As the Sultanate of Oman follows a market Economy, while at the same time third-party motor liability insurance is compulsory, it is important that the relevant regulatory authority has an appropriate regulatory role in determining or approving the Pure Technical Insurance Rate, based on reliable statistical and actuarial data and the actual cost of the risk.
The Commercial Insurance Rate, however, should remain the responsibility of each insurance company and its Board of Directors, taking into account its underwriting policy, market supply and demand, the company’s efficiency and operating costs, while ensuring a fair and sustainable return or profitability. It is important to emphasise that the objective is not to eliminate competition or standardise commercial prices, but rather to establish a sound technical foundation that prevents unsustainable pricing and protects the long-term stability of the market.
Therefore, the issue should not be limited to regulating motor insurance pricing. There is a need to consider establishing an integrated framework governing Insurance & Reinsurance Business Practices. Such a framework should cover: Underwriting and pricing, risk management, technical provisions and reserves, reinsurance arrangements, capital management, claims management, commissions and distribution costs, disclosure, corporate governance, and fair competition. It would also be appropriate to consider establishing an Insurance Underwriting Code of Conduct setting out clear professional principles and business practices, establishing mechanisms for fair and responsible competition, clarifying the responsibilities of Boards of Directors and executive management, and limiting underwriting practices that could adversely affect policyholders, shareholders, or the long-term sustainability of insurance companies.
Professional competition, not price competition alone
The objective is not to restrict competition, but to ensure that competition is professional, fair, and sustainable, and is based on underwriting discipline, risk management, efficiency, quality of service, and innovation — rather than price reductions alone. Accordingly, distinguishing between the Pure Technical Insurance Rate and the Commercial Insurance Rate is fundamental. The technical rate should reflect the true cost of risk, while the commercial rate should allow insurers to compete within a market economy, subject to sound underwriting principles and financial sustainability.
Do we need to reconsider the overall framework governing Insurance and Reinsurance Business Practices in the Sultanate of Oman — and not merely motor insurance pricing — so that it reflects the true cost of risk, the requirements of international accounting standards and solvency, the principles of a market economy, professional underwriting standards, and effective claims management, while ensuring fair competition, protecting the interests of all stakeholders, and supporting the long-term sustainability of the insurance industry?