Severe flash flooding in the United Arab Emirates is likely to prompt a surge of claims, though low penetration and extensive reinsurance cover should mean insurers’ costs are “manageable”, AM Best says. 

The UAE experienced its heaviest downpour in more than seven decades last week when a year’s worth of rain fell within a few hours. It led to power cuts, business and school closures, and cancellations and delays at Dubai International Airport. 

Motor is the segment most vulnerable to insurers as these risks are largely retained by the market, the ratings agency says.  

“This latest incidence of flooding ... is likely to cause significant deterioration in the performance of motor portfolios – flooded roads and car parks can quickly result in a large number of losses.” 

Comprehensive motor policies typically include flood cover, though most UAE customers opt for cheaper third-party liability policies. 

Property insurers’ exposure to flood events is limited by low penetration of personal property and home contents cover.  

“Insured losses resulting from these events have been low historically and headline figures for economic damage have largely not been passed on to insurers,” AM Best said. 

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. 

AM Best says extreme weather risks are likely to be reassessed after floods in both March and April. 

“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.”