PC: Gulf News
2024 was a highly challenging year for the insurance sector since claims from the severe April rains in Dubai shot to billions of dirhams. Claims in question entailed extensive motor vehicle and property damage, along with the interruption of significant businesses. Such extreme pressure left a strain on insurers. This forced insurance firms to hike premiums by great percentages as a response to these extraordinary pressures exerted on them due to these catastrophic events.
A CEO of a leading Dubai-based insurer justified the move, stating, “Those payouts on motor and property damages and for business disruptions had to be paid out. This is why the premium increases had to be done immediately, and insurers can hope to start with a relatively clean slate in 2025.”
Experts agree with the rationale for the premium adjustments but point to underlying complexities. In the view of Rueegg, one of the leading industry observers, the GCC region has become increasingly vulnerable to “natcats,” which previously were not a major concern.
“In the past, insurers didn’t look at the GCC markets and say they were exposed to ‘natcats’ or natural catastrophes,” Rueegg noted. “But we have seen heavy rains, hailstorms in Saudi Arabia and Oman, and not just the April rains in Dubai. This region is seeing a fair share of typhoons and (cyclonic) depressions coming through. What we saw happening now in Dubai could happen in many other places as well.
Reinsurers Play a Key Role
The pressure to adjust the premium is strongly connected with demands from reinsurers. Reinsurance acts as a crucial support system for insurers to manage claims and risks; hence, it plays a pivotal role in determining the dynamics of the market.
“So as a consequence, these markets and premiums are very much driven by what reinsurers demand of insurers in the region,” Rueegg added. Reinsurers review their contracts with insurers either annually on January 1 or July 1. Any cutback in a reinsurer’s exposure can significantly hurt an insurer’s ability to function effectively and service its clients.
The latest trends have been an indicator of how the risk landscape is shifting in the region and, thus, how the insurer must change to meet a new climate and market dynamics. Adjustments in premiums, although burdensome for policyholders, are necessary to keep the industry financially stable amidst mounting risks.
