Analysis by AM Best discloses that low insurance penetration, coupled with extensive reinsurance cover, should keep the cost borne by United Arab Emirates (UAE) primary insurers at a manageable level after the recent extreme weather that caused severe flash flooding.
Reuters
Rating agency AM Best suggests the flash flooding has caused a swathe of claims for motor, property, and business interruption insurers in the region, and will cause delays that will lead to a surge in insurance claims.
The UAE was hit by flooding after it experienced the heaviest rainfall in more than 75 years, leading to power cuts, the closure of schools and businesses and cancellations and delays at Dubai International Airport.
The motor segment is most vulnerable to natural catastrophe events for the UAE’s primary insurers as these risks are largely retained by the market. AM Best notes this catastrophe is likely to cause a significant deterioration in the performance of motor portfolios due to flooded roads and car parks can quickly result in a large number of losses. Although it is predicted that these risks will be largely retained by the market.
However, the motor policy standard imposed by the UAE’s Ministry of Economy does not cover natural disasters, leaving insurers the choice of whether to offer this coverage. Typically it includes flood cover; however, these represent a minority of premiums with most customers opting for cheaper third-party liability policies.
The changing weather trends have already influenced the behaviour of insurers across the wider Gulf Co-operation Council (GCC) region, notes AM Best. In 2023 and early 2024, the market observed an increase in hailstorms and heavy rainfalls that notably caused flash floods with some insurers starting to take action to reduce potential losses through loss mitigation tactics.
Property insurers’ exposure to flood events is limited by the low level of insurance penetration for personal property and home contents insurance. AM Best notes that property and engineering books can be affected by structural damage to buildings and contents through inventory and raw material losses.
Another key aspect is business interruption which can represent a significant contribution to the overall claims cost as insured parties are unable to use properties while they are repaired. Commercial property and engineering contracts underwritten in the region are typically ceded to the international reinsurance market.
“AM Best recognises that increasing losses from catastrophes in the region, which had previously been seen as relatively benign, may make reinsurers rethink their strategy in these markets. This could result in reduced capacity and increased rates, as well as pressure to change reinsurance structures and terms and conditions,” says the ratings agency.
