Videos of Bugatti’s disappearing into sinkholes, Dubai Mall’s luxury boutiques even wetter than its famous aquarium, and the international airport hub at a sodden standstill swiftly went viral.
Needless to say, the incident has underscored the need for substantial changes to mitigate future flood risks and losses across the wider United Arab Emirates, Bahrain, and Oman, as well as Dubai.
According to a recent report from reinsurance broker Guy Carpenter, the floods between April 14-17 have potentially resulted in insured losses of up to U$850 million, with an estimated 30,000 to 50,000 vehicles affected in the UAE alone, predominantly in Dubai.
Guy Carpenter also reported that the flooding caused serious damage to infrastructure such as roads, vehicles, buildings, and public facilities, requiring significant resources for repair and restoration.
Many residential and commercial properties, including malls, warehouses, and industrial units, were affected. Businesses may suffer financial losses due to disrupted operations and property damage. The Middle East has low insurance penetration rates compared to global standards, with Saudi Arabia at about 1.5%, Qatar at 1%, and the UAE at 2.75%, indicating many people lack sufficient insurance coverage.
The low insurance coverage in the region stems from a lack of awareness about insurance products and benefits. Additionally, the region’s economic growth has outpaced the development of the insurance industry.
The estimated insured motor loss is likely to surpass $150 million and could reach up to $250 million in the UAE, with the final figures subject to change as claims are still being processed.
Guy Carpenter highlighted several impacts on the insurance industry:
- Insurance awareness: There may be an increase in awareness among individuals, businesses, and industries.
- Insurance claims: Insurers could see a surge in claims for vehicle repairs, property damage, business interruption, and liability.
- Losses and financial impact: Insurers may need to use reserves or seek additional reinsurance to handle the financial burden.
- Market dynamics: Insurers and reinsurers might revise their risk appetite, underwriting guidelines, and exposure control, affecting pricing and competition.
But what can be done to mitigate such an event, that in all likelihood, could easily happen again?
Submerged supercars, Dubai, 2024
Jonathan Jackson, CEO of live flood forecaster Previsico, said that Dubai’s lack of preparedness for flooding can be attributed to its typically arid climate and rapid urbanisation that may have outpaced infrastructure adaptation. The city now faces the need for significant changes in infrastructure, planning, and insurance practices.
Short-Term Strategies
Jackson believes that to better defend against extreme flooding events, Dubai could implement a combination of short-term and long-term strategies. He explains: “In the short term, investing in improved drainage systems, flood barriers, and early warning systems can help mitigate the impact of floods. Much of Previsico’s work to warn of floods focuses on local conditions such as drainage such as our work with Devon County Council.”
He also believes that long-term solutions may involve revising building codes to ensure flood-resistant construction, preserving natural water retention areas, and integrating climate resilience into urban planning processes. “Additionally, raising public awareness about flood risks and promoting community preparedness can enhance the city’s overall resilience.”
Climate changes must be taken into account
While the UAE has a well documented rainy season, and experiences monsoon-type rainfall on an annual basis, events earlier this month were entirely unprecedented and took the country by complete surprise. However, with the increased regularity of extreme weather events happening on a global scale, the UAE’s insurance industry will have to re-examine the climate related risk factors.
Dubai’s floods, April 2024
Rosina Smith, Chief Product officer at McKenzie Intelligence Services, an agency that accelerates disaster relief and economic recovery says their data clearly shows how climate change, combined with other factors, is giving rise to more complex insurance challenges for the market, as will emerge from the recent major Dubai flooding event, which also spread across the region.
She says: “Whilst climate change is driving the changing behaviour, and in some cases, the location of destructive perils, such as Dubai’s flooding, it is not acting alone. The changes in land use, lack of appropriate infrastructure and concentration of exposure in high-risk areas are already having a proven impact on the challenges facing insurers.
Smith adds: “It is vital for insurers to develop an accurate and timely representation of real-world events, as they are developing, to support effective event response, faster claims payments, better underwriting and mitigation of risks associated with climate change.”
Reassessing flood insurance solutions
Reassessing how insurance cover protects customers will be another conversation to have – and this process will involve implementing a lot of changes, in terms of risk, premium and claims assessments. However, Jackson points out that as insurance is widely available, the focus may shift towards ensuring the adequacy and affordability of existing insurance products in light of recent flood events.
He says: “One option could involve reassessing insurance coverage limits and premiums to better align with the heightened flood risk. Additionally, policymakers and insurers may collaborate to enhance public awareness about the importance of flood insurance and flood resilience measure, plus provide incentives for increased uptake of both, especially among vulnerable communities.”
Despite the availability of flood insurance, there may still be room for improvement in terms of tailoring policies to address specific flood risks in Dubai, such as coverage for damage to infrastructure and critical facilities, Jackson points out. “Most importantly, insurers will want to insure properties that are flood resilient and use flood warnings so people can prepare and act and prevent flood impacts.”
The cost of re-evaluation
As underwriters have now assessed damages in the region of $850 million, it’s clear that changes to the status quo need to be addressed as quickly as possible. Furthermore, Jackson points out that initial calculations on cost have not yet taken into account the wider impact.
He says: “The cost evaluation of the recent floods in Dubai will depend on various factors, including infrastructure damage, property losses, economic disruption, and emergency response expenses. It may take some time to assess the full extent of the damages and calculate the total bill. However, it’s likely that the cost of the floods will be substantial, considering the scale of the event and its impact on critical sectors such as transportation, tourism, and real estate.”
Jackson concludes: “The government, along with insurers and other stakeholders, will need to work together to estimate the financial losses accurately and allocate resources for recovery and rebuilding efforts.”
