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.

“Damage from flooding is typically covered under comprehensive motor policies. However, such coverage may apply only under certain circumstances, for example, when a vehicle is parked and not moving, further limiting the liability of insurers,” said the report.

The company expects claims relating to motor and property damage will make up the majority of losses for local insurers. “Insurance companies typically pass large, high-value commercial risks on to international reinsurers. However, risks relating to motor business are, in most cases, retained by local insurers. That said, although the number of motor claims will be high, the industry will likely be able to cope with the total amount of insured losses,” the agency said.

Even though it is “too early” to assess the full financial impact of this natural disaster on the UAE's insurance sector, S&P Global Ratings “considers that most insurers it rates in the region benefit from robust capital and liquidity buffers and should be able to absorb related claims”.

The capital and liquidity buffers of insurance companies with “weaker capitalisation could be tested”. This could potentially lead to “some delays” in claim payments.

According to the agency, there are currently about 60 licensed insurers in the UAE. “The accumulation of claims from the same storm could also trigger reinsurance policies, depending on the reinsurance coverage companies have in place. This implies that the liability of those insurers would be capped at a set amount.”

Damage to property

Based on early estimates, damage to commercial and residential properties has been “substantial”.

“However, we note that many larger, high-value commercial risks are usually ceded to international reinsurers, meaning that local insurers retain only minimal or, in some cases, no risk,” said the company.

The government, private businesses, retailers and property developers have offered multiple services free of cost to residents of communities most impacted by the storm. These include maintenance, cleaning and pest control.

“Some property developers in Dubai have announced that they would cover repair costs for residential buildings. This, together with the relatively low number of home content insurance policies, could further limit the exposure for local insurers, in our view,” said the rating agency.

The company expects that insurers will receive a number of claims relating to damage to key infrastructure, such as shopping malls. “However, again we expect the impact on local insurers to be limited, since these types of risks are typically ceded to reinsurers and local insurers' retention levels are low.”

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