Oman: Insurance companies to cover loan balance on death and permanent disability

Aiming to regulate the contractual relationship between the borrower, the bank and the insurance company, the Capital Market Authority (CMA) has issued Decision no (4/2023) on Standard Credit Life Insurance Policy on Wednesday.

The new policy prescribes a unified framework for insurance companies to borrowers from financial institutions in case of death or permanent disability, where the insurance company has been asked to pay the outstanding balance of the loan.

The new document also defines the basic benefits as well as the optional benefits of the insurance coverage in addition to the cases of exclusions.

Regulating Bank Financing Operations

Elaborating about the importance of the document, Sheikh Abdullah bin Salem Al Salmi, CEO of CMA, said that the issuance of Standard Credit Life Insurance Policy represents an advanced step in regulating bank financing operations.

“It reflects a level of professional regulation of the Omani capital market with all its components (insurance and banking sector), and reflects the permanent cooperation and coordination between the regulatory authorities supervising it, especially the coordination between the CMA and the Central Bank of Oman (CBO), in a way that enhances the confidence of customers.”

“The insurance policy aims at ensuring the protection of borrowers’ rights and provide them with social and economic protection,” Al Salmi said. “It clearly clarifies the rights and obligations of the stakeholders (the borrower, the insurance company and the finance entity) which will contribute in reducing disputes that could occur among the parties in case the risks becomes reality,” he added.

Reduce Credit Risks

Al Salmi further said that organising this type of insurance product through a unified model achieves an economic dimension of enhancing the role of insurance to reduce credit risks, which means providing financial facilities to the public, which will be directly reflected in the real estate or personal financing activity.

He said that the policy clearly clarified the rights and mainly focused on the coverage limits, the basic benefits for the policyholders and the exclusions and the cases where right forfeits.

Coverage Pricing

The policy clauses, particularly the schedule of the coverage application, enhance an important insurance principle, good faith; which stands on transparency and disclosure to specify the health status of the borrower. This simplifies the specification of the volume of the insurance risk and setting adequate criteria for underwriting and pricing the coverage.

Al Salmi also emphasised that all these inputs will positively reflect on reducing disputes among the parties of the loan relationship including the borrower, the insurance company and the finance entity in addition to reducing other negative practices. This will eventually be reflected positively on reducing insurance costs.

Conditions and provisions

The policy included some conditions and provisions to protect the rights of all the parties such as compliance of parties to good faith when disclosing material facts related to the health status with total honesty and based on the illness specified in the insurance policy. The policy also gave the insurance company maximum two years for rejection of claims in case false material information or data is provided, and the company shall not reject a claim for breaching the principle of disclosure afterwards.

Legal remedies

The policy also provided legal remedies by calculating the insurance premium which was calculated as ‘One Single Premium’ that should be determined at the commencement of the contract, maintaining the premium cost without being affected by any future volatility resulting from changing the pricing policy of the insurance company or the bank’s desire to sign a contract with another insurance company; which allows the coverage period to be the repayment of the loan, not the period of the agreement between the bank and the insurance company.

The policy also included exclusions where the right for the insurance coverage falls for this type of the insurance products and took into consideration the long length of such policies and the variables that could occur during this period and set exclusions of the insurance coverage in case a previously diagnosed illness was not disclosed before purchasing the policy which have led to disability or death within two years only from the commencement of the policy in addition to intended death or injury during one year only from the date of loan.

It is worth mentioning that issuing this policy translates the strategic plan that the CMA seeks to apply during the period, 2021-2025 through enhancing the organisational level of the insurance products and providing a legal framework that protects the parties of the insurance process, contributing to building confidence among the contractual parties.



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