Judging from footage shared on social media of the devastation unleashed by flash floods across many parts of the Sultanate of Oman last week, it is likely that the Omani government will be faced with yet another hefty public infrastructure repair bill. Insurance companies too will be fretting about potential exposure from claims filed by private homes and businesses impacted by the severe flooding.
But given the rising frequency and worsening magnitude of flood events occurring in the Sultanate of Oman, of late, the relevant government authorities must get their act together as quickly as possible to manage these risks through the use of insurance and reinsurance tools, says a key market official.
According to Murtadha M J Ibrahim al Jamalani (pictured), Chairman, Finance & Insurance Committee – Oman Chamber of Commerce and Industry (OCCI), climate change-induced natural disasters will continue to exact a heavy toll on infrastructure and private property unless concrete measures are adopted to mitigate costs through effective risk management.
“The rapid development of Oman’s economy and infrastructure over the last 50 years has resulted in an exponential increase in the value of assets exposed to loss or damage by natural perils,” Al Jamalani warned.
“The concerned authorities have already been made aware of the severity and frequency of losses - both insured and uninsured - faced by the economy. But lack of improvement in risk management measurements may jeopardise the interests of all stakeholders. Various risk mitigation proposals are already before the authorities for their consideration. We eagerly look forward to their further action on these initiatives,” he noted.
A number of people lost their lives and their properties, while rampaging floodwaters wrecked roads, disrupted water and wastewater networks, and also damaged private homes and businesses in several parts of the country during last week’s downpours.
“Adding to Oman’s vulnerability to deadly cyclones is its geographical location between the Tropic of Cancer and the Equator,” said Al Jamalani, noting that the country’s rugged landscape turns floods into rampaging rivers in the aftermath of a wet spell. Compounding these challenges for Oman is global warming, which is spawning natural catastrophes once every 3 to 5 years, he further warned.
In this regard, the official underlined the role of insurance industry mechanisms in moderating the losses for the government, as well as the public and private sectors, from the effects of natural disasters.
“Insurance and reinsurance models provide effective financial mechanisms for easing any disaster-related losses for the national economy and the overall social welfare system. They can be activated by introducing and implementing technical Insurance & Reinsurance and financial measures which are commonly applied in disaster-prone regions under the supervision of the Ministry of Finance and Capital Market Authority.
This is the only way to keep potential losses to the local market within bearable limits,” he stressed.
Previous disasters have prompted the industry to act to pare its losses, according to the well-known industry professional. For example, cyclone events and flash floods have spurred the insurance industry, as well as the general public, to reassess the scope of comprehensive property insurance coverage, and to include household belongings in their policies as well.
Furthermore, vulnerable segments, notably fishermen, farmers, farm owners and so on, have become increasingly concerned about the impacts of cyclones, flash floods, mudslides, lightning strikes and other such natural phenomena on their lives and property.
In this regard, Al Jamalani welcomed the announcement by the CMA in June 2020 about the proposed formation of a ‘Catastrophe Fund’ by the government to cover un-insured losses. But the initiative has since languished, he lamented.
“We are anxious to hear more about the fund and its application methodology. This is to ensure that any duplication with existing funds is avoided, and double compensation payment practices averted,” he said.
Speaking to the Observer, the official also reiterated his longstanding call for the establishment of a joint venture Central Insurance & Reinsurance Corporation as a Public Private Partnership (PPP) initiative. Such an entity, he said, will help build reinsurance capacity and security within the country and the wider region, manage cash-flow and support foreign currency inflows. He appealed for the establishment of the entity within the framework of the Oman Vision 2040 strategy.
Further, to safeguard the interests of all stakeholders and enhance the contribution of the insurance and reinsurance segments in the national GDP, insurance firms are encouraged to weigh Merger & Acquisition (M&A) options to support their business growth, he added.