Any construction company or contractor or small, medium enterprises (SMEs) requires surety bonds when a contractor bids or as a condition of contract awarded. Most government clients or others have a similar requirement. Many private owners and entrepreneurs in our country approach banks only because banks are authorized to sell 'Performance Bonds'. On the other hand, surety bond products can be offered by both banks and insurance companies in most countries of the world.
A surety bond is a promise to be liable for the debt, default, or failure of another.
There are four types of contract surety bonds:
1) Bid Bond
2) Performance Bond
3) Payment Bond
4) Warranty Bond (also called a Maintenance Bond)
During my chairmanship of the Finance & Insurance Committee at OCCI during 2018-2022, we requested Capital Market Authority and Central Bank of Oman to consider authorizing the Insurance industry to transact activities of selling surety bonds. The market has yet to receive this permission.
NATURAL PERILS & COMMON PROTECTION
The nature of the topography and landscape of our country, with a lengthy seafront that is exposed to extreme weather events, contributes to an unbalance insurance portfolio that does not easily appeal to international reinsurance players. Consequently, the centralization of reinsurance locally becomes key support to the local direct insurance companies.
Furthermore, with the government playing the role of both producer and consumer – across multiple sectors, notably Oil & Gas, Mining, Agriculture & Fisheries Wealth, Health, Tourism, Aviation & Maritime Transport, Logistics, Housing & Infrastructure, and so – its large portfolio of high-value assets and infrastructure must be suitably safeguarded against disasters. A centralized reinsurance entity can play a part in mitigating the cost burden on the government if these assets are damaged in any calamity. In the event, the proposed centralised reinsurance entity becomes the captive reinsurer for the nation – one buyer for reinsurance protection or retrocession protection, a feasibility study report shall be prepared accordingly.
Notable is a recommendation for the creation of a National Central Reinsurance Company (NCRC) as a Public Private Partnership (PPP) initiative to support, among other objectives, premium retention, cash flow management and foreign currency inflows into the country.
HEALTH INSURANCE
Separately, the Health Committee at Oman Chamber of Commerce & Industry has discussed in the First Committee Meeting the introduction of a classification system covering all private hospitals in the Sultanate of Oman – a scheme that would allow for healthcare tariffs and prices to be structured based on their grades.
When it eventually comes into force, licensed insurers are required to run their healthcare insurance business professionally independent of their other insurance activities – a move that recognizes healthcare insurance as the new dominant stream of the insurance industry. The measure will also help attracting new players into the Insurance and healthcare sectors in Oman. (Concluded)
By Murtadha M J Ibrahim al Jamalani, Entrepreneur & Insurance Expert
Oman Observer is now on the WhatsApp channel. Click here
