MUSCAT : As parts of Dhofar and Al Wusta Governorates hunker down in anticipation of a battering by Cyclone Tej, the economic cost of such natural disasters – given their rising frequency and intensity – is once again weighing on the minds of market analysts.
According to a well-known insurance industry expert, Cyclone Tej’s imminent arrival, and the destruction it will inevitably bring, serves as yet another wake-up call to authorities to institute natural disaster-related risk mitigation measures with the support of the private sector.
“A modest-sized economy like Oman cannot afford the cost burden inflicted by cyclones, severe flooding, potential tidal surges and tsunamis, and other extreme weather events that are becoming increasingly frequent phenomena due to climate change,” said Murtadha M J Ibrahim al Jamalani, Entrepreneur & Insurance Expert.
“It’s imperative that the Omani government considers, for example, the establishment of a centralized reinsurance entity to cover natural catastrophe related risks in partnership with local and international insurers,” he stressed.
Speaking to the Observer, Al Jamalani stressed that a centralized funding pool can go a long way in mitigating the cost burden on the government and the public sector as well, when natural disasters strike. Thus, in addition to financing the repair and rehabilitation of, for example, roads and other public infrastructure wrecked by such perils, the fund can also provide a degree of cover to the array of large-scale industrial and economic projects located on Oman’s lengthy coastline.
“Let’s keep in mind that most natural disasters typically originate in the Arabian Sea and Indian Ocean, in the form of depressions that develop into tropical storms or cyclones. As they make landfall, they first imperil the economic installations built along the coast, notably the ports and cargo terminals, refining and petrochemical plants, and power and water facilities, before they sweep inland. Local insurers do not have the financial muscle to extend any coverage to these multibillion-dollar installations, potentially leaving them vulnerable to natural disasters. At the same time, lack of mitigation efforts in the face of the growing frequency and intensity of extreme weather events, can deter foreign investment as well.”
A veteran of the insurance sector, Al Jamalani says he has made repeated representations to the authorities calling for, among other measures, the establishment of a centralized reinsurance company or a Natural Catastrophe Fund to help mitigate natural disaster related risks.
“Some officials argue that insurance activities fall within the domain of the private sector, which should then step up and address natural disaster risks. But the reality is the private sector is simple incapable of shouldering this outsized role. But if you look at other economies, there are plenty of examples of governments taking the initiative to start centralized reinsurance to support the private sector.”
In this regard, the industry expert stressed the need for a partnership between the government and private sector in building a capable insurance industry, backed by international reinsurers as well.
“It’s high time that the government joins hands with the private sector through Oman Chamber of Commerce and Industry, either to create a new vehicle or to partner with existing insurers. This step will support investment inflows and strengthen the performance of the Omani riyal.”
Another emerging threat is from earthquakes as was evident from the recent tremor reported a short distance offshore from Sur, Al Jamalani said.
Risk mitigation measures against seismic perils will necessitate, among other things, a new construction and building code to ensure that installations and buildings in quake-prone areas are sturdy enough to withstand tremors.
Likewise, subsidence problems recorded in some hilly terrains now warrant revised codes for any construction activity in such areas, he added.
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