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Industry experts applaud insurers’ reaction to Phet

Industry experts tell Tracey Scott why the devastation wrought by Cyclone Gonu has left insurers better prepared for the latest catastrophe to hit Oman, Cyclone Phet. 

Damages from Cyclone Phet could cost up to $900m after it ripped along Oman’s eastern coastline earlier this month killing 21 people.

The category one cyclone pounded the east coast causing severe flooding, property damage and material loss for contractors, retailers and individual entities.

But while the damage could cost some OMR350m according to Arab Loss Adjustors - considerably less than Cyclone Gonu’s OMR3bn to OMR4bn economic loss, of which OMR245m was insured - industry experts have applauded insurers’ and government’s reaction to Phet.

Walid Jishi, Arab Loss Adjustors chairman and managing director, said the three primary insurers it works with were releasing payments within 24 hours.

“A lot of improvements have taken place at government level and at the insurance level since Gonu. We have three primary insurers who are socially responsible and releasing payments within 24 hours.”

Neil Gosrani, Standard & Poors credit analyst, said since Gonu insurers have reviewed the reinsurance protection they have in place to deal with such catastrophes therefore given the lower intensity of Phet, these should provide some protection against claims received.

Gosrani also highlighted that since Gonu the government has introduced changes to the insurance industry, such as the unified motor policy which includes catastrophe cover, therefore “we would expect like-for-like claims which were not covered at the time of Gonu are likely to be covered now”.

He added: “Like many Gulf countries, insurance penetration remains low in Oman and so the cost of much of the damage wrought, particularly to property, will be borne by individuals rather than insurance companies.”

However, Yassir Albaharna, Arig chief exective officer, said the market has  not seen much improvement in terms of preparedness following Gonu. 

“Following any catastrophic event in the insurance market, one normally gauges market’s reaction, with subsequently, terms and conditions being improved substantially. But unfortunately, in the case of Omani market after Gonu for example, we have not seen any such improvement.”

According to Albaharna, terms and conditions remained the same, if not deteriorated, and the market has not charged adequate rates for the catastrophe exposure.  He said: “Also, due to the low retention of the market, most of losses were paid by the reinsurers. Our other issue has been that it seems to take companies extremely long to settle outstanding claims, requiring reinsurers to hold reserves at unnecessarily high levels.”

Gosrani has suggested that Gonu was considered a 1-in-100 year event so while Phet was not of the same magnitude, “it does make one wonder whether future years will bring more cyclones making landfall and causing damage to Oman on a scale previously not envisaged”.

Likewise, Albaharna  said Gonu was considered an exceptional event with an estimated return period of 30 – 50 years. “Now, only three years later, we have yet witnessed another major cyclone battering the country,” he said. “This is clear indication that windstorm exposure is on the rise, yet the key risk supporters of the Omani insurance industry are not allowed to adjust their terms of trade.

“I therefore cannot say that the market is in any way better prepared for future events since clearly, the increased loss frequency that is expected has not yet been priced into the insurance products sold in the market.”

According to Jishi, areas worst affected were Sur, Masriah Island, Quryat and the surrounding areas. “The 450mm of continuous rain and the flow from the mountains to wadis has caused extensive damage to properties. The severe flooding mixed with mud invaded houses, retail outlets, shops, and washed away some bridges and roads. We think that the domestic side, including retail outlets located in community shopping centres and secondary cities like Sur, will cost around OMR350, AED3.3bn.”

Albaharna estimates the insured loss of Phet is likely to be around 15 per cent of the economic loss, as was the case in Gonu. “At any rate, Arig would be much less affected as we have scaled down our involvement in Oman considerably following the post-Gonu experience in the market”, he said.

KV Francis, New India Assurance Oman resident manager, who estimates losses of OMR600m, said as a result of Gonu vehicle owners had taken better care of their motors, “hence vehicle claims were less”.

“This time the national calamity control department and the Royal Oman Police did a commendable job to minimise loss of lives and property. Presumably they have taken clues from Gonu experience.”