Omani company enters takaful market
Muscat, January 22, 2014
Oman has seen the birth of its first Islamic insurance (takaful) firm as two others prepare to enter the market, hoping to gain an edge in the sultanate's crowded insurance sector.
This month Oman's eighth largest insurer, Al Madina Takaful, converted itself from a conventional insurer to a takaful company. Takaful follows religious principles such as bans on interest and pure monetary speculation; risk is pooled among policy holders rather than borne entirely by the company.
Set up in 2006, Al Madina has accumulated a five per cent share of the insurance market. It changed its conventional insurance clients to takaful policies after a customer education process, and said it did not experience client exits or other problems.
It now hopes its switch to takaful will attract clients who may have shied away from financial products for religious reasons. This could prove important in a market where the top seven firms, out of 23, account for as much as 70 per cent of total gross written premiums.
"We have the opportunity of saying something different in the market. It is overcrowded but we have the 'new' factor," Al Madina's chief executive Gautam Datta said.
"This gives us an opportunity to grow into areas where we might not have been able to make a dent."
In the next two years, the firm plans to add up to seven new branches to its network of three, and distribute products via Islamic banks, a practice known as bancatakaful, said Datta.
Two new firms could soon follow in Al Madina's footsteps. One is Takaful Oman Insurance, which completed an initial public offer of shares last month, backed by investors including Kuwait's T'azur Takaful Insurance.
Takaful Oman projects reaching a 4 per cent share of the overall insurance market within five years of starting operations, its IPO prospectus shows.
Last February, Oman United Insurance obtained board approval to incorporate a takaful firm of its own, but it has not provided further details of its plans.
Because these two are new takaful firms, rather than conversions of existing ones, their entry could crowd the market further and add to pressure on profitability.
"Considerable over-capacity in the Oman insurance industry depresses the market's overall performance," said Mohammed Ali Riyazuddin Londe, analyst at Moody's Investors Service.
"The Omani insurance market is fragmented and highly competitive, albeit price competition is arguably less than that witnessed in Kuwait or the UAE," he added.-Reuters