Should coverage against natural catastrophes be made mandatory in Oman?

Murtadha M J Ibrahim al Jamalani, Chairman – OCCI’s Finance & Insurance Sector Committee, highlights the indispensability of a strong insurance industry for a country increasingly buffeted by natural disasters, climate change related adversities, and now the novel coronavirus pandemic.  Besides mitigating potentially losses, a vibrant insurance and reinsurance sector can also fuel the growth of Oman’s economic diversification, he says.

With the COVID-19 pandemic threatening to unleash immense economic losses for the private individual and corporate sector – a costly tab that the government may be constrained to shoulder in part at least – the time has come for authorities in the Sultanate to consider making it mandatory for personal, businesses and establishments to insure themselves against all manner of catastrophes – natural and manmade, according to a key insurance industry official.

Murtadha M J Ibrahim al Jamalani, Chairman – OCCI’s Finance & Insurance Sector Committee, referenced the soon-to-be-launched Unified Healthcare Insurance Scheme (Dhamani) as a model for the formulation of a legislative and regulatory framework making it obligatory for all kinds of establishments – public and private sector – to secure insurance coverage against a wide array of potential disasters.

“It is well-known that insurance penetration in the Sultanate is below the global average with awareness of the importance of insurance protection still very low outside of the motoring and healthcare segments. Further, with Oman witnessing a rising trend in adverse weather events, and now an economically destructive pandemic, the burden of compensating people and businesses for losses falls increasingly on the government. This can put a tremendous strain on Oman’s already burdened national budget,” Al Jamalani explained.

In comments to the Observer, the official mooted the idea of mandatory coverage against a range of natural and manmade calamities, including cyclones, flooding, climate change related impacts, seismic disasters, fire and explosions, and even pandemics.

“Insurance can play a critical role in mitigating the economic effects of a catastrophe and hasten the recovery process,” said the expert. “Against the payment of a modest premium, which can be determined by law, individuals and businesses can get basic protection. The Dhamani model is a good paradigm to emulate in this regard. Risk is no longer placed solely on the shoulders of the government, but shared in some fashion between the private sector and the insurance industry.”

Over the past decade, a succession of cyclones and other severe flood and fires events have caused significant damage to farms, factories and plants, transport and coastal infrastructure, leaving Omani entrepreneurs, farmers and even the government to pick up the tab for reconstruction and rehabilitation works. Individuals and communities that suffered losses in these disasters have also been received aid and other support through a variety of government agencies.

But with government revenues and its spending ability being increasingly constrained by the downturn in oil prices, a new approach to risk-sharing associated with natural disasters is now imperative, says the OCCI official.

“A natural calamity like the coronavirus pandemic is causing severe economic disruption, job losses, public health impacts and wide-scale turmoil across a wide spectrum of sectors. With a sound insurance scheme, it would be possible for businesses and organisations to bounce back as quickly as possible in the post-pandemic phase without having to wait for government funding support. This is the essence of the concept of insurance protection.”

For its part, the OCCI’s Finance and Insurance Committee is weighing a number of insurance proposals to make its mandatory for some commercial activities to be covered for business disruptions as part of their license to operate in the Sultanate through the relevant, competent authorities. Notable sectors being actively looked at are private schools and agriculture, said Al Jamalani.

“A natural calamity has the potential to disrupt schooling and shutter schools for a long time, as the COVID-19 pandemic has demonstrated. Who pays the salaries of the teachers and staff during the disruption? Our goal is to make it compulsory for the investors and promoters of private schools to be covered for liability arising from the schools activities, asset damage, business interruption or other consequential losses. We are soon proposing a unified insurance police duly approved by the Capital Market Authority (CMA). The proposal is currently being discussed among the specialised committees of the Chamber.”

At the same time, more must be done to strengthen insurance sector regulation, as well as professionalise the industry in light of its importance to the national economy, he said. “Risk mitigation and management are imperatives both at the national and societal levels. To this end, the Insurance and Banking Laws should be suitably upgraded and modernized on a par with the landmark statutes that were enacted in recent times, notably the Public Private Partnership (PPP) Law, Privatisation Law, Monopoly Prevention Law, and so on. As we approach 50th anniversary of Oman’s renaissance, we should give insurance and reinsurance their due as pillars of a strong and stable economy.  With the appointment of professionals well-versed in the principles of risk management, we can aspire to grow into a vibrant sector of the economy.”

Murtadha also sees ample potential for the Omani government, directly or through various state-owned pension funds, to invest or be consolidated within the insurance industry in the Sultanate, particularly in the reinsurance business. This is to enable reinsurers to support direct insurance companies in providing coverage particularly to critical infrastructure, such as power plants, energy installations, Oil & Gas facilities, and so on. After all, this infrastructure is a magnet for foreign investment and a source of revenue generation, he said.

“Given the magnitude of the economic losses associated with a pandemic or any other natural calamity, it would make sound economic and strategic sense for the government to support the creation of an insurance pool or a fund based on insurance principles. Another option is for the government to participate in the equity of reinsurance companies, which in turn, will provide funding support for insurers.  The Ministry of Finance should take the initiative to bring together pension funds to create its own reinsurance company or partner with existing players,” he added.