Following the unprecedented rainfall that inundated the UAE last week, insurance rates for both motor and property coverage are anticipated to rise, according to a report by S&P Global Ratings. The torrential downpour, which saw the country receive a year’s worth of rain in a single day, has prompted concerns over increased frequency and severity of weather-related claims.
The report highlights that many motorists were compelled to abandon their vehicles on flooded streets, while homes suffered water damage due to the rainwater infiltration. Consequently, insurers are bracing for a surge in claims, with some reporting a staggering 400 per cent increase compared to previous peaks.
S&P Global Ratings predicts a potential hike in insurance rates, particularly for comprehensive motor policies, as insurers grapple with the escalating costs associated with weather-related claims. The agency also anticipates upward adjustments in premiums for commercial and residential property coverage as insurers reassess their pricing strategies in response to the heightened risk posed by rainstorms in the region.
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Furthermore, the report underscores that the recent floods may expose gaps in insurance coverage, particularly for vehicles with only third-party insurance, which typically does not cover natural disasters such as flooding. While comprehensive motor policies may offer protection against flood damage under certain conditions, limitations exist, potentially complicating claim settlements.
Despite the anticipated increase in demand for insurance, S&P Global Ratings notes that most insurers in the UAE benefit from robust capital and liquidity buffers, which should enable them to absorb related claims. However, companies with weaker capitalization may face challenges, potentially leading to delays in claim payments.
In terms of property damage, the report indicates substantial losses, particularly for commercial and residential properties. However, larger commercial risks are typically reinsured internationally, reducing the exposure of local insurers. Additionally, government initiatives and support from private businesses, retailers, and property developers are expected to alleviate some of the financial burdens on affected residents.
While the full financial impact of the natural disaster is yet to be assessed, insurers are poised to handle the influx of claims, albeit with potential challenges for some companies with weaker capitalization.
