Over 35% of drivers in the UAE will have to pay more for their fully comprehensive car insurance this year as a result of new tariffs imposed by the UAE Insurance Authority (IA), according to an analysis from compareit4me.com, a regional financial comparison site.
The new tariff system, which took effect on 1 January 2017, sees UAE insurers adopting minimum insurance premiums of AED1,300 (US$354) for saloon cars, and AED2,000 for SUVs.
The system also sets maximum insurance premium rates of 5% of the value of a saloon car, or 7% of the value of an SUV.
However, with very few people in the UAE paying more than 5% or 7% for their insurance premiums (just 0.15% in 2016), the biggest effect of the new tariff system will be that people will pay more at the lower end of the market.
According to statistics gleaned from compareit4me’s insurance comparison platform, 30.86% of saloon drivers last year paid less than the new minimum premium rate of AED1,300.
Meanwhile, 43.04% of SUV drivers paid less than AED2,000.
Taking these two groups together, 35.6% of UAE drivers will end up having to pay more for their car insurance this year.
On average, compareit4me calculates that affected saloon drivers will have to pay AED114 more for comprehensive insurance in 2017 than they did in 2016. For the 43.04% of SUV drivers who will see insurance prices go up, an average increase of AED428 is expected.
“What is perhaps an unintended consequence of the regulatory changes is that, while the owner of a luxury vehicle will emerge unscathed, the owner of an average family car is likely to be substantially worse off. The new tariff system will particularly hurt drivers of vehicles worth AED50,000 or less – 82.8% of such people will be worse off,” said Ms Radhika Agnihotri, analyst at compareit4me.com.
In contrast, owners of vehicles worth more than AED100,000 are unlikely to pay more than they had previously.
However, benefits have increased for policyholders under motor insurance rules introduced last year by the regulator. According to Mr Ebrahim Obaid Al Zaabi, Director General of the IA, a nationwide unified vehicle insurance policy means it will be mandatory for insurers to provide policyholders with a compensation equivalent to the cost of a replacement car after an accident for a maximum of 10 days and a value of up to AED300 per day. The Third Party Limit has been increased substantially to AED2 million from AED250,000.
It is also expected that the introduction of a minimum premium price will partially address the UAE car insurance market’s extended run of financial losses. The past few years have seen insurers savagely competing on price, with many insurers “racing to the bottom” in order to preserve market share.
“Insurers will have to amend their premiums based on the new regulation. But as to how much the rates will exactly increase, it will be difficult to tell, as insurers use different formulas for calculating their rates. Also the rates are dependent on so many factors, such as the age of the car, the driver, vehicle type, among many others,” a source told Gulf News.
AED1 = US$0.27