The ravaging super-cyclone throws up key questions in insurance for the UAE and the region
Even as Oman is assessing and measuring the losses inflicted by the super-cyclone Gonu that swept Oman recently, the catastrophe that claimed several lives and millions of riyals worth assets can be seen as an eye-opener to other GCC countries, including the UAE.
"Hurricanes and other forms of natural calamities are not meant for a few select countries like the US, Europe or the Philippines alone, this could ravage us any time," was the observation made by a senior insurer in the UAE.
Sources said several insurance companies in the UAE that have facultative reinsurance arrangements with Oman's insurance companies will be affected by Gonu which rattled Oman. The result will be that the reinsurers who cover risk in this region will now be more cautious and would certainly increase their rates for the region.
"Though the insurance companies do cover atmpospheric perils under floods, lightning and fire insurance, it used to have a limit. Now, this will naturally go up and as a result, the rates are bound to increase," a top official with an insurance company in Dubai told The Business Weekly.
Losses arising out of Gonu's destructive ravage through Oman two weeks ago could cross $1 billion and most of the insurance companies in the Sultanate are expected to take the hit, be it small or big.
There are some who argue that the current estimates cannot give even a rough picture of the financial losses Oman has incurred as they are yet to be ascertained, and once the final 'counting' is done, the losses could go up to several billions of dollars. However, the combined loss of these insurance companies could be at least half the loss inflicted by Gonu.
Much of the damage is concentrated in the capital region, where many of the insurance companies are headquartered. Insurers across-the-board are liable to pay out hefty claims with bigger firms likely to be worse off than the smaller ones.
The Capital Market Authority (CMA), the market regulator for stock markets as well as the insurance industry, convened a meeting of the chiefs of insurance companies in Oman in order to take stock of the situation and chalk out ways to address them from the viewpoint of the insurers. A number of insurance firms were represented at the meeting at which CMA officials stressed the need for insurers to expeditiously process Gonu-related claims.
This raises several questions for the UAE. Reinsurers hitherto never looked upon the Gulf as a risk-prone region, at least in terms of floods and cyclones, and the pricing never factored such risks. Gonu would certainly trigger a rethinking among the reinsurers when it comes to extending cover to natural calamities.
It was heard that a huge stock of cars, estimated to be in the region of 1,200 to 1,500, kept in open stock by a leading auto dealer in Oman, has been damaged and the claim on this could be substantial. But once again, the issues being debated are whether stock in open is covered against floods under 'atmospheric perils'. Opinion is divided but there are strong views expressed by veterans in the industry that this can be included in the cover by paying a marginal additional premium.
"However, this also depends on the underwriter and the 'dependence factor' will increase in the aftermath of Gonu," one of them said.
While some argue that for an individual, his car is covered against everything under a comprehensive cover, this is disputed by others. How comprehensive is the comprehensive cover is something that needs to be assessed.
The Business Weekly was told by a leading insurance company that a flood cover or an atmospheric peril like a cyclone has to be specifically added to the cover by paying a marginal extra. Otherwise, even the 'comprehensive cover' will not be as comprehensive as many perceive.
Even in the basic cover under fire policy, perils such as floods and cyclones are not covered. Only fire and lightning are included, according to a leading insurance broker.
"There will definitely be an increase in 'catastrophic excess of loss reinsurance', premium which covers the catastrophic cases. There will be a greater need and demand for risk to be covered in the region and consequently, the prices also will go up," an industry source concluded.
By CL Jose
© The Business Weekly 2007
