Finance

UAE insurers will need two years to clear flood losses

August 7, 2024, 3:53 AM

UAE insurance — April's floods in the UAE have led to insurance premiums increasing by up to 30%

High premiums since April flooding
Consumers will continue to take hit
Insurance take-up in region is low

Insurance premiums for properties in the UAE increased by as much as 30 percent in the second quarter of the year as the sector reeled from hundreds of millions of dollars worth of losses stemming from the record-breaking April floods.

Manik Kak, from professional services firm Marsh McLennan, told AGBI it would take at least two years for the industry to recover from the flooding.

For the next six to 12 months, consumers should expect prices to remain “moderately high”, he said. “There is a significant amount of loss, particularly to the weather-related events.”

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The average increase in property insurance rates across India, the Middle East and Africa was 6 percent. Saudi Arabia remained “stable”, while South Africa recorded increases of up to 5 percent and in India rates fell by as much as one-fifth on average.

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

Natural catastrophes worldwide were responsible for $120 billion worth of losses in the first half of 2024, according to a report from German reinsurer Munich Re.

A reinsurer is an insurance company that provides financial protection to other insurance companies by assuming some or all of their risk.

Although the US dominated losses in the period, Tobias Grimm, Munich Re’s head of climate advisory, said other developments of note included floods in regions where they are very rare, such as Dubai.

“It is clear that climate change plays a role in this development,” he said.

Insurance penetration in the Middle East remains low compared with global standards. The rate in Saudi Arabia stands at around 1.5 percent, about 1 percent in Qatar, and 2.75 percent in the UAE.

Faisal Abbas, vice president at insurer The Continental Group, said there had been a notable increase in villa owners buying home insurance since the April floods but apartment holders are still reticent to do so.

Kak said there had been a 30 percent increase in businesses looking to protect their properties. “The personal side of things definitely has picked up, but more has picked up on the corporate side,” he said. A “significant portion” of the losses were felt by reinsurers.

“Reinsurers look at the region as a portfolio and are seeing a rise in the natural catastrophes over the last 10 years,” Kak said.

“That’s having an impact on what kind of capital and capacity they are willing to deploy and what kind of return they are looking to get from that exposure. But I don’t think reinsurers are going to walk away from the region.”