Looming tropical cyclone season spurs calls for National Disaster Fund

KEY GOAL: The proposed Catastrophe Insurance & Reinsurance Pool should be a joint undertaking of the private insurance sector and government, aimed at helping victims recover from natural and man-made disasters

Calls for the institution of a National Catastrophe Insurance Fund to help mitigate the impacts of natural and man-made disasters have gained traction following the extensive damage to residential homes, farmland and small businesses caused by recent thunderstorms in various parts of the Sultanate. These appeals have also gained weight as the annual tropical cyclone season looms, bringing with it the threat of economic disruption, human loss, and property and infrastructure damage.

Leading these calls, this time around, is a senior official of Oman Chamber of Commerce and Industry (OCCI), who has long advocated for robust insurance legislation to ensure effective coverage across key aspects of socioeconomic life in the Sultanate.

Murtadha bin Mohammed Jawad Ibrahim al Jamalani, Chairman — OCCI’S Finance and Insurance Committee, said a National Disaster Fund (doubling as a Catastrophe Insurance & Reinsurance Pool for insured and uninsured catastrophic losses) is the need of the hour given the plethora of natural and man-made risks that Oman is potentially exposed to.

“As is the case anywhere in the world, the people of Oman — citizens and residents alike — have a human right to be protected against natural catastrophes to the extent possible. But in safeguarding this right, the state can either shoulder this responsibility independently or share the burden with the private insurance and reinsurance sector,” he explained.

A week of torrential rains in parts of North Al Batinah, among other areas around the country, damaged homes, felled fruit trees and ruined vegetable crops earlier this month.

Pleas for compensation circulating on social media were backed up by calls for a more permanent insurance-based mechanism, such as a Catastrophe Insurance & Reinsurance Pool shared jointly by the private insurance sector and government, to help victims recover from such calamities.

An Insurance & Reinsurance Catastrophe Pool was first mooted in 2007 in the aftermath of Tropical Cyclone Gonu that pummelled large swathes of the Sultanate, causing significant loss of life and extensive infrastructure and property damage.

Extreme weather events in the form of tropical storms, flash floods and tidal surges have since become an almost annual recurrence in the Sultanate, spurring calls for such a national support mechanism.

In the aftermath of Gonu, the insurance industry agreed to incorporate coverage against storms, tempests and floods (STF) when insuring property, vehicles and other private assets against weather-related perils.

That initiative was spearheaded by Murtadha in response to threats by international reinsurance companies not to underwrite local insurance companies unless measures were adopted to improve Storm, Tempest & Flood (STF) related risk mitigation.

“In the wake of those developments, we formed the Omani Insurance Assurance and also laid the groundwork for the establishment of Oman’s first reinsurance company (Oman Reinsurance Company SAOC) — a move aimed at limiting and minimising the cash outflow of premiums abroad to the international reinsurers,” the official said.

The people of Oman — citizens and residents alike — have a human right to be protected against natural catastrophes to the extent possible. But in safeguarding this right, the state can either shoulder this responsibility independently or share the burden with the private insurance and reinsurance sector

MURTADHA BIN MOHAMMED JAWAD IBRAHIM AL JAMALANI Chairman — OCCI’S Finance and Insurance Committee

But efforts to establish a National Catastrophe Insurance Pool have so far remained elusive, despite pledges by the authorities, notably the Capital Market Authority (CMA), to make it happen.

“We understand the intentions are there, but the mechanisms underpinning the proposed catastrophe or disaster fund are somewhat challenging to formulate,” Al Jamalani reckoned. “After all, compensation claims stemming from a natural disaster can potentially overwhelm the government. Likewise, the private insurance sector, as a relatively modest-sized industry, will be unable to cope as well.”

Despite the increasing frequency of adverse weather events in the Sultanate, insurance coverage of private residential holdings in coastal or flood-prone areas remains dismal, according to the official. With the exception of commercial organisations, there are barely any takers for insurance among owners of homes, farms and small holdings located in risk-prone areas. Victims typically depend on government assistance or grants from local charities to recover from damage inflicted upon them by adverse weather events.

Nevertheless, any disaster recovery fund, Al Jamalani points out, should be a joint undertaking between the government and the private insurance industry. “Looking at models employed successfully by some countries, the government can consider rolling out an insurance scheme that piggybacks on the electricity billing system in the country. The premium amounts to a small proportion of the monthly bill payable by that establishment. As virtually every type of property — whether private, government, commercial, agricultural or industrial — has a power connection, it will be abundantly feasible to provide coverage to every establishment in the country. Insurance firms, for their part, can help with the management and operation of this scheme on behalf of the government.”

Other business models can also be considered in consultation with the government, he noted. One such option is to map the entire length and breadth of the country into flood zones, each with a colour-code designating the degree of flood risk. This colour-coded mapping decides the quantum of premium payable by properties located therein, he said.

Regardless of the choice of business model, it should be underpinned by five key objectives, Al Jamalani noted. It should aim to: (i) provide protection and compensation in the event of loss or damage to public property or injury or death at an affordable premium; (ii) improve the infrastructure of the country from the Risk Management point of view by working with the concerned authorities; (iii) enhance insurance contribution in the Gross Domestic Product (GDP); (iv) minimise cash outflow and bring foreign currency into the country; and (v) create employment for nationals.

As a first step in the delivery of the initiative, a working group with representatives from key stakeholder organisations needs to be set up. It should include officials from OCCI, Capital Market Authority, Ministry of Finance, Central Bank of Oman, Ministry of Agriculture, Fisheries and Water Resources, and Ministry of Social Development, in addition to domain experts, he said.

Also adding to the urgency of this initiative are a number of factors, including global warming, limited fiscal resources, enhancement of non-oil revenue, and the need to protect strategic infrastructure assets. Besides, practices related to government property insurance and reinsurance need to be reviewed. At the same time, the insurance industry will need to reorient its market outlook and tweak its Corporate Social Responsibility strategy to align with these goals, Al Jamalani added.