Recent flooding in the UAE, particularly in Abu Dhabi, has highlighted the need for regional insurers to assess and manage their exposure to this category of catastrophe event, said A.M. Best in a report.
In a Best’s Briefing, “Flood Risk in the Gulf Cooperation Council – An Underestimated Catastrophe?”, the rating agency said that while the Gulf region has thus far experienced very little damage from wind and earthquake events, floods as a result of storm surges, cyclones and flash flooding are a regular occurrence. These events can impact an insurer’s operating results and balance sheet strength through a number of exposures.
Property and engineering books can be affected by structural damage to buildings and for contents through inventory and raw material losses. However, the most critical risks that can affect an insurer’s performance are motor damage and business interruption.
Mr Michael Dunckley, A.M. Best financial analyst, said: “Insurers’ exposure to flood events, at least on their property books, is limited by the low level of insurance penetration for personal property, and home contents insurance in particular. As a result, total insured losses resulting from these events have been low so far and headline figures for economic damage have largely not been passed on to insurers.
“However, as insurance awareness and penetration increases across the GCC, exposures are likely to increase, making this a greater risk for insurance companies.”
A.M. Best’s briefing also noted that it is not currently typical for insurers to maintain accumulation records in respect of potential flood exposures. As flood risk represents an emerging threat in an otherwise benign region for natural hazards, and with insurance penetration increasing and risks transferred from individuals and businesses to the insurance sector, considerable accumulation of exposures will be created.
In order to protect their balance sheets, A.M. Best believes that insurers will need to monitor the exposures created by their portfolios and adjust their underwriting and reinsurance strategies to accommodate the risk.