25 September 2012
Muscat: Local insurance companies have expressed serious concern on the move to stipulate a minimum RO10 million capital for takaful firms as it will pose a major entry barrier for local companies.
The insurance firms, which suspect an edge for foreign companies to enter Oman due to high capital requirement, prefer window operations in takaful business like the proposed regulation in banking sector.
The insurance regulator Capital Market Authority (CMA) has proposed for standalone companies for Sharia-compliant takaful insurance business, with a minimum envisaged capital of RO10 million and a three-member board. The CMA has given two weeks for insurance companies to give their feedback on draft takaful regulation, which was prepared with the help of Clifford Chance.
"I think RO10 million (minimum capital stipulation) is too much for a small industry like takaful insurance. I do not think the takaful business will be more than 10 per cent or 20 per cent of the whole insurance business,- Nassir bin Salim Al Busaidi, chairman of Oman Insurance Association told Times of Oman, on the sidelines of a conference organised by the Federation of Afro-Asian Insurance and Reinsurance (FAIR).
Al Busaidi, who is also the managing director of Oman United Insurance Co, said it would be practical and helpful if the authorities allow insurance companies to start window operations, like the proposed regulation in banking sector.
"This will help to see the demand for takaful insurance and if higher capital is required, we can start a separate company,- he said; adding, "It can be a joint venture of all national companies. All national companies can work together to open one takaful insurance company in the Sultanate, instead of everybody opening separate companies. The premium expected from takaful insurance may not be enough to open separate companies-¦ It does not make much sense.-
However, CMA Executive President Abdullah bin Salem al Salmi, earlier said that Sharia-compliant insurance company has to be a separate entity because of the nature of its business, which is completely different from conventional insurance. So, it can not be accommodated in one legal entity.
'Need for market study'
Al Busaidi said the Oman Insurance Association will submit a memorandum with the CMA to address their concerns. "We are going to give our opinion and comments on the draft regulation. We will sit with CMA to discuss the benefits of the law and the benefits of takaful insurance,- he said, adding; "There needs to be a market study to see what is needed, the benefits and how much capital is required for this type of business.-
If the minimum capital is stipulated at RO10 million, takaful firms will find it difficult to invest the money as they can deploy the funds only in Sharia-compliant financial products.
"What are you going to do with the RO10 million capital? Where are you going to invest (the money)? It should be in Sharia-compliant financial products. As you are aware, there is no Sharia-compliant financial product (in the country).- The demand for takaful insurance products within the country will be aided by Islamic banks and window operations as they need to go for Sharia-compliant insurance products.
In fact, countries like Malaysia and Bahrain are very advanced in takaful insurance, which is growing fast.
Al Busaidi also noted that the two weeks' time given for giving feed back of companies (after reviewing the regulation) is not enough.
Al Busaidi said Oman United Insurance is planning to promote a takaful insurance company. "We have written to CMA for this. We are open for all options. If it is a joint venture, it would be better.-
Al Salmi also said three companies have approached the CMA for setting up takaful insurance firm in Oman.
Takaful insurance concept is based on the notion of mutual help that is provided voluntarily. In practical terms, it is a risk sharing arrangement among a group of members, who are known as contributors or policyholders collectively, who then agree to compensate each member against potential loss or damage.
Muscat: Local insurance companies have expressed serious concern on the move to stipulate a minimum RO10 million capital for takaful firms as it will pose a major entry barrier for local companies.
The insurance firms, which suspect an edge for foreign companies to enter Oman due to high capital requirement, prefer window operations in takaful business like the proposed regulation in banking sector.
The insurance regulator Capital Market Authority (CMA) has proposed for standalone companies for Sharia-compliant takaful insurance business, with a minimum envisaged capital of RO10 million and a three-member board. The CMA has given two weeks for insurance companies to give their feedback on draft takaful regulation, which was prepared with the help of Clifford Chance.
"I think RO10 million (minimum capital stipulation) is too much for a small industry like takaful insurance. I do not think the takaful business will be more than 10 per cent or 20 per cent of the whole insurance business,- Nassir bin Salim Al Busaidi, chairman of Oman Insurance Association told Times of Oman, on the sidelines of a conference organised by the Federation of Afro-Asian Insurance and Reinsurance (FAIR).
Al Busaidi, who is also the managing director of Oman United Insurance Co, said it would be practical and helpful if the authorities allow insurance companies to start window operations, like the proposed regulation in banking sector.
"This will help to see the demand for takaful insurance and if higher capital is required, we can start a separate company,- he said; adding, "It can be a joint venture of all national companies. All national companies can work together to open one takaful insurance company in the Sultanate, instead of everybody opening separate companies. The premium expected from takaful insurance may not be enough to open separate companies-¦ It does not make much sense.-
However, CMA Executive President Abdullah bin Salem al Salmi, earlier said that Sharia-compliant insurance company has to be a separate entity because of the nature of its business, which is completely different from conventional insurance. So, it can not be accommodated in one legal entity.
'Need for market study'
Al Busaidi said the Oman Insurance Association will submit a memorandum with the CMA to address their concerns. "We are going to give our opinion and comments on the draft regulation. We will sit with CMA to discuss the benefits of the law and the benefits of takaful insurance,- he said, adding; "There needs to be a market study to see what is needed, the benefits and how much capital is required for this type of business.-
If the minimum capital is stipulated at RO10 million, takaful firms will find it difficult to invest the money as they can deploy the funds only in Sharia-compliant financial products.
"What are you going to do with the RO10 million capital? Where are you going to invest (the money)? It should be in Sharia-compliant financial products. As you are aware, there is no Sharia-compliant financial product (in the country).- The demand for takaful insurance products within the country will be aided by Islamic banks and window operations as they need to go for Sharia-compliant insurance products.
In fact, countries like Malaysia and Bahrain are very advanced in takaful insurance, which is growing fast.
Al Busaidi also noted that the two weeks' time given for giving feed back of companies (after reviewing the regulation) is not enough.
Al Busaidi said Oman United Insurance is planning to promote a takaful insurance company. "We have written to CMA for this. We are open for all options. If it is a joint venture, it would be better.-
Al Salmi also said three companies have approached the CMA for setting up takaful insurance firm in Oman.
Takaful insurance concept is based on the notion of mutual help that is provided voluntarily. In practical terms, it is a risk sharing arrangement among a group of members, who are known as contributors or policyholders collectively, who then agree to compensate each member against potential loss or damage.
© Times of Oman 2012