Motor and property insurance rates in the UAE could increase following last week’s record-breaking rains, a report by a rating agency has said.
On April 16, the UAE received a year’s worth of rains in a single day — making it the heaviest on record since climate data recording began in 1949.
Many motorists were forced to abandon their vehicles on flooded streets, while rainwater seeped into residents’ homes, causing damage.
“Many motor insurers in the UAE have increased their rates by up to 50 per cent for certain coverage over the past year due to a spike in the frequency and costs of claims. In view of the recent floods, we anticipate another round of rate increases, mainly for comprehensive motor policies,” said the report by S&P Global Ratings, which provides independent credit risk research.
“We also anticipate that rates for insuring commercial and residential property risks could increase as local insurers and international reinsurers review their pricing following a rise in the frequency and severity of rainstorms in the UAE and neighboring countries.”
The agency also predicted an increase in demand for insurance.
Insurance coverage
As reported by Khaleej Times, local insurers are bracing for what they expect to be the highest-ever number of claims. Some have reported a 400 per cent jump in claims as compared to previous peaks.
A “significant” number of cars damaged during last week’s rains may have only third-party insurance and, therefore, not covered for natural disasters such as flooding, said S&P.
“Flood damage is usually covered by comprehensive car insurance. However, such coverage may only apply in certain circumstances, such as when the vehicle is parked and not moving, and insurance The company’s liability will be further limited,” the report states.
We expect auto and property damage claims to account for the majority of losses for local insurers. “Insurance companies typically transfer large, expensive business risks to international reinsurance companies.
However, in most cases, the risks of the automotive business are underwritten by local insurance companies. “Although the number of auto insurance claims will be high, the industry is likely to be able to control total insured losses,” the agency said.
While it is “too early” to assess the full financial impact of this natural disaster on the UAE’s insurance sector, S&P Global Ratings said:
“Capital and liquidity buffers of weakly capitalized insurers may be challenged.” This may result in “some delays” in the payment of insurance claims.
According to the agency, there are currently approximately 60 licensed insurance companies in the UAE. “Depending on a company’s reinsurance coverage, the accumulation of claims from the same storm may also trigger a reinsurance contract. This means that these insurers’ liability is limited to a certain amount.
Property Damage
Initial estimates indicated damage to commercial and residential property was “significant.”
“However, many larger and more expensive commercial risks are typically transferred to international reinsurance companies, which means that domestic insurers retain minimal risk or, in some cases, none at all. This means we retain no risk,” the company said.
Governments, private companies, retailers, and real estate developers provided a number of free services to residents in areas hardest hit by the storm. This includes maintenance, cleaning and pest control.
“Some real estate developers in Dubai have announced that they will cover the cost of repairs to residential buildings.” “This could further limit the company’s risk,” the rating agency said.
The company expects its insurance companies to receive a large number of claims related to damage to major infrastructure such as shopping centers. “However, again, we expect the impact on local insurers to be limited as this type of risk is typically transferred to reinsurers and local insurers have low retention rates. Masu.”