Finance

Flood insurance in Dubai under threat says expert

May 2, 2024, 7:32 AM

A man moves his belongings from a flooded residential complex in Dubai. It has been reported that only 15% of UAE residents have flood insurance

Flood-prone areas could be uninsurable
Potential impact on house prices, says S&P
Smaller insurers may need liquidity support

Insurance companies could opt against covering areas of Dubai that were flooded during last month’s heavy rainfall, according to an expert from the S&P Global Ratings agency.

Some areas remain badly affected since the torrential storm wreaked havoc across the emirate over two weeks ago, with record amounts of rain over a 24-hour period.

It has been reported that as little as 15 percent of UAE residents had home insurance.

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The increasing number of storms hitting the region may force the hand of some providers, said S&P’s lead insurance ratings analyst, Emir Mujkic.

“Obviously if it becomes more frequent then we may see a scenario where insurers stop covering certain areas. But we are not there yet,” he told a media event this week.

Mujkic said the idea of obtaining flood coverage in the UAE pre-2018 was “not very common”, but the inclement weather was happening more often, with a flood weather warning issued earlier this year and more rain forecast for this week.

The UAE experienced its heaviest rains in 75 years last month. The downpour turned main roads, particularly in Dubai, into waterways, leaving motorists stranded and causing widespread damage to commercial and residential properties.

Tatjana Lescova, associate director of corporate ratings at S&P, said the changing weather could create “increasing differentiation between areas”, with people reluctant to risk moving to areas that are more susceptible to flooding.

“It could create some discrepancy,” she said. “It’s also very much a question of reputation for the developer. With insufficient drainage systems and just echoing people’s experiences from different areas, this can have an impact on prices.”

Ranjay Verma, general manager of Armab, chief agent in the UAE for India’s state-owned Oriental Insurance Co, described April’s floods as the worst event for the country’s insurance industry since he moved to Dubai in 2006.

“The impact is going to be very severe on the insurance sector,” he said. “Most insurance companies have been badly hit.”

The UAE Central Bank, which regulates the country’s insurance industry, ordered banks and insurers to allow flood-affected customers to defer repayments on personal and car loans for six months.

Of the UAE’s 60 licensed insurers, about one fifth have capital and liquidity buffers that are only slightly above, or even lower than, the regulatory minimums, S&P Global estimates.

“I wouldn’t be surprised if at least for some of the smaller, less solvent insurers, there could be some liquidity support by the government,” Mujkic said.