With tropical cyclones becoming more common and destructive, industry stakeholders in Oman need to be more prepared to deal with severe weather events.
A two-hour rainfall on 4 September last year wreaked destruction in Oman, resulting in insurers paying claims exceeding OMR3.6 million (US$9.4 million), according to data issued by the Capital Market Authority (CMA). With no warning about the heavy rain and floods, the disaster claimed at least four lives and caused widespread damage.
The CMA report revealed that engineering insurance claims accounted for the bulk of compensation payouts, exceeding OMR2 million or 59% of total insured losses. Vehicle insurance – both comprehensive and third party – came in second at OMR1 million or 22% of the total loss. Property insurance came in third with 18% of the total loss.
While the industry was hard hit by the heavy rainfall, Mr Gautam Datta, CEO of Al Madina Takaful, said the cost to the company “has not been significant”. He noted: “The underwriting discipline implemented by the company in insuring risks that were exposed to risks of flood has been effective and is reflected in the underwriting results. Fortunately the rains were not accompanied by strong winds, which could have resulted in higher losses.”
More efforts needed
With the heavy rainfall and flash floods causing substantial damage to vehicles, property, roads, and machinery, the CMA stressed the importance of coordinating efforts with institutions concerned to promote the basic structure of emergency management resulting from rains. It said: “Combined efforts to evaluate drainage channels, open drains for streaming and collected water in allies and residential areas as these are considered basic tools for risk management.”
Some industry players noted that most of the vehicle losses were due to carelessness. “From our experience, we found that several claims could have been avoided if proper attention was given,” Mr Philip K Philip, CEO of Muscat National Holding Company, told the Times of Oman.
Knowing the risks
One of the main challenges in Oman is the ineffective drainage systems built during the city’s infrastructure developments. In particular, local authorities and consultants have identified inadequate planning and a lack of proper maintenance of drainage networks as the main causes of flooding in urban areas.
As a result, floods after heavy rains have led to traffic jams, deaths, casualties and property and vehicle damages costing millions of rials for the government and insurance companies. Local authorities are already looking at efficient and effective solutions to remodelling current drainage systems or building new ones.
Mr Mark Pudwell, Training Manager at Competence HR, said in an interview with Times of Oman that there are many measures which can be taken to mitigate the effects of flooding. These include carrying out environmental and geographical studies prior to awarding construction contracts, which can show whether such areas are prone to flooding.
The lesson for the insurance industry is very clear, Mr Datta said. “Risks related to weather are very real and have a much shorter return period. It is imperative that insurance companies in Oman start pricing and building appropriate reserves for such risks to ensure there is a buffer for a ‘rainy day’.”
Impact of climate change
Tropical cyclones in Oman are frequent events during the monsoon season from May to August every year. The cyclones are usually considered low-risk events, though they cause torrential rains that frequently lead to flash floods. However, climate change has been affecting the country, with rising sea temperatures causing more frequent and severe tropical cyclones in recent years.
According to research published in a report titled “Initial National Communication under the United Nations Framework Convention on Climate Change”, Oman is highly vulnerable to climate change. The October 2013 report was the collaborative work of the Ministry of Environment and Climate Affairs and Sultan Qaboos University (SQU).
The research predicts that in Oman’s coastal areas, almost 400 square km of land will be flooded in the case of the lowest sea level rise and more than 900 square km for the highest. The Al Wusta Governorate is likely to be the most affected for high sea level cases as around 280 square km of land can be flooded.
The worst storm in terms of fatalities occurred in May 1977, during which 105 Omanis lost their lives. However, in terms of severity, number of people affected and the financial cost, super Cyclone Storm Gonu in June 2007 topped the list, claiming the lives of 49 people and leaving more than 20,000 others homeless. The direct cost of Gonu was almost US$4 billion, of which only around 17% was insured. Three years later, Cyclone Phet hit Oman in June 2010, killing 21 people and causing an estimated $780 million in damage.
Mitigating measures
After two strong cyclones in three years, policymakers have realised that Oman is becoming more vulnerable to climate change and natural disasters like cyclones are bound to rise.
Oman hopes to complete in 2017 a national strategy to adapt to and mitigate the effects of climate change, said Mr Mohammed bin Salim Al Toobi, Minister of Environment and Climate Affairs at the recent climate conference in Paris. Mr Al Toobi, Head of the Sultanate’s delegation to the conference, said Oman would develop proactive plans which are capable of preparing citizens, the government and private institutions.
He also confirmed the interest of the Sultanate to confront climate change and contribute to international efforts to adapt to and mitigate the negative effects, though it is one of the countries contributing the least to total emissions.
It is clear that all industry stakeholders will have to play a part in combating climate change and raising risk awareness.