Insurance payouts surge in UAE after record rainfall

October 8, 2024, 9:22 AM

Flood-related losses are $82m
Other factors also contribute
Increasing property claim costs

The UAE’s record-breaking rainfall contributed to soaring levels of insurance payouts in the first half of this year.

The increase is also attributed to inflation, the Gulf state’s growing population and expanded insurance coverage across various sectors.

The Central Bank of the UAE said in its quarterly economic review that the gross paid claims of all types of insurance plans in the UAE rose 34 percent to AED18.9 billion ($5.15 billion).

The banking regulator says the increase was mainly due to a 46 percent year-on-year rise in claims in property and liability insurance and 150 percent increase in insurance of persons and fund accumulation.

In April the UAE experienced the heaviest downpour since records began in 1949. While severe flooding caused widespread damage across the UAE and Oman, Dubai was among the hardest hit cities, with more than 14cm of rain in 24 hours – equivalent to a year and a half of average precipitation.

Neeraj Gupta, CEO of UAE car insurance provider Policybazaar, says insurance companies experienced a similar flood of claims in the aftermath.

“Insurers in certain business lines were getting six to nine months’ worth of claims in one month,” Gupta says.

“For example, if they typically got 100 or 200 motor claims in a month, they were suddenly dealing with 1,500 claims in one month.”

Piyush Dubey, a UAE-based partner at management consulting firm Kearney, says the increase in paid claims was due to a rise in the number of insured individuals and additional drivers such as inflation and increasing claim complexities.

“The UAE’s growing population, rapid urbanisation and economic diversification have expanded insurance coverage across various sectors,” he says.

“Inflationary pressures, rising healthcare expenses, increasing cost of repairs, and natural disasters – most notably, the severe flooding earlier this year – have all played a role in the surge of claims across property, health and motor insurance.”

A volunteer uses a kayak during a rescue operation through a road flooded due to heavy rains in Dubai

Dubey estimates, based on information gathered from various public sources, that the floods resulted in insured losses exceeding AED300 million ($82 million) – equivalent to about 1 percent of total claims paid.

Avinash Babur, founder and CEO of InsuranceMarket.ae, says there are “broader macroeconomic factors” that have contributed to a 34 percent increase in paid claims.

“As the UAE continues its rapid urbanisation and expansion, there’s naturally more at risk, and hence more claims being made,” Babur says.

“The increasing cost of repairs, medical treatments and other expenses have further driven up claim payouts.”

A growing number of residents have reevaluated their coverage following April’s disaster, with more demand for comprehensive insurance products, particularly in areas such as health, home and motor insurance.

“Consumers are becoming more aware of the need to protect their assets, especially in an environment where unpredictable events like floods are more common,” Babur says.

Insurance companies are changing too.

Increasing claims costs, (particularly in property and motor insurance, which showed a 7.5 percent increase year on year) have prompted insurers to reevaluate risk strategies and expand coverage. Dubey says this signals “a shift in managing large risks in the UAE’s fast-evolving insurance landscape”.

“The changing risk patterns will likely require updates to actuarial models and risk assessment methodologies, along with ensuring a more sustainable distribution of risk and value among insurers, reinsurers and alternative risk transfer systems,” Dubey says.

Gupta says electric vehicle insurance has become expensive because insurers realised that several EVs were unrepairable and more likely to be written off.

“We are also seeing that insurance companies are collecting a lot more data for home insurance and business insurance and trying to figure out if a property is in a previously flooded area,” he says.

“Earlier, it was probably much simpler to take out home insurance, but now there’s a lot more underwriting involved.”

The Central Bank announced last week that profits in the UAE’s insurance sector amounted to AED2.5 billion last year, a year-on-year rise of 27 percent.

Those figures are likely to come under pressure this year. Insurance industry experts warned that the April floods are likely to have a very severe impact on the sector and lead to an acceleration of mergers.

Consolidation in the GCC’s insurance sector was already underway due to rising competition and stricter regulations on solvency capital requirements.

S&P Global estimated in April that of the UAE’s 60 licensed insurers, about a fifth have capital and liquidity buffers that are only slightly above, or even lower than, the regulatory minimums.