UAE flash flood losses manageable as insurers adapt to changing weather

The recent extreme weather that caused severe flash flooding in the United Arab Emirates (UAE) is expected to prompt swathes of claims for motor, property and business interruption insurers in the region, according to AM Best. But low insurance penetration, coupled with extensive reinsurance cover, means that the cost borne by the country’s primary insurers should be kept at a manageable level.

The ratings agency said that changing weather trends have already influenced the behaviour of insurers across the wider Gulf Co-operation Council region. In 2023 and the start of 2024, the market observed an increase in hailstorms and heavy rainfalls, which notably caused flash floods, such as those experienced in November 2023 and March 2024, Best noted.

The UAE experienced the heaviest rainfall in more than 75 years – a year’s worth of rainfall within a few hours – which led to power cuts, the closure of schools and businesses, and cancellations and delays at Dubai International Airport.

On the property side, Best said that flooding is typically covered by fire and allied perils policies issued by regional insurers, which cover all natural occurrences with no separate deductible applied. Commercial property and engineering contracts underwritten in the region are typically ceded to the international reinsurance market.

Best said it “recognises that increasing losses from catastrophes in the region, which had previously been seen as relatively benign, may make reinsurers rethink their strategy in these markets. This could result in reduced capacity and increased rates, as well as pressure to change reinsurance structures and terms and conditions.”

Motor is the segment most vulnerable to natural catastrophe events for the UAE’s primary insurers as these risks are largely retained by the market, said Best, and this latest incidence of flooding is likely to cause significant deterioration in the performance of motor portfolios.

Best added: “Overall, the higher frequency of such events has reportedly resulted in an increase in demand for comprehensive insurance, notably in motor lines. This, combined with greater levels of underlying risk, should result in higher insurance premiums prospectively.”