Vehicle, property insurance rates could increase, says report

UAE floods

In the wake of record-breaking rains in the UAE, a recent report by a leading rating agency suggests that motor and property insurance rates could witness an uptick. The report, issued by S&P Global Ratings, forecasts potential rate hikes following the unprecedented rains that deluged the UAE on April 16, 2024, resulting in widespread damage to vehicles and properties across the region.

According to the report, the surge in frequency and costs of insurance claims over the past year has prompted many motor insurers to raise their rates by up to 50%. The recent floods are expected to further exacerbate this trend, particularly impacting comprehensive motor policies. Additionally, rates for insuring commercial and residential properties are also likely to see an increase as insurers reassess their pricing strategies in response to the heightened risk posed by rainstorms in the UAE and neighboring areas.

One significant concern highlighted in the report is the insurance coverage gap faced by motorists affected by the recent floods. A substantial number of vehicles damaged during the torrential rains may only have third-party insurance, leaving them inadequately covered for natural disasters like flooding. While comprehensive motor policies typically include coverage for flood damage, certain limitations may apply, potentially limiting insurers' liabilities in such scenarios.

The surge in insurance claims following the recent floods is expected to predominantly comprise motor and property damage losses. While local insurers generally retain risks associated with motor claims, larger commercial risks are often passed on to international reinsurers. However, despite the anticipated increase in claims volume, the industry's robust capital and liquidity buffers should enable it to absorb the losses efficiently.

Although it is too early to quantify the full financial impact of the recent natural disaster, S&P Global Ratings asserts that insurers in the region are well-positioned to manage the aftermath. Companies with stronger capitalization are expected to weather the storm with minimal disruption to their operations. However, insurers with weaker capitalization levels may face challenges in meeting their claim obligations, potentially resulting in delays in claim settlements.

Regarding property damage, early estimates suggest substantial losses, particularly in the commercial and residential sectors. Yet, many high-value commercial risks are typically reinsured internationally, mitigating the exposure for local insurers. Moreover, proactive measures undertaken by the government and private entities, such as offering free services for impacted communities, are expected to further alleviate insurers' liabilities.

In conclusion, while the recent floods have posed significant challenges for the insurance sector in the UAE, the industry's resilience and robust risk management practices are expected to mitigate the impact on insurers and policyholders alike. As insurers navigate the fallout from the natural disaster, policyholders are advised to review their insurance coverage carefully to ensure adequate protection against unforeseen events.