Gargash Insurance's Executive Director, Mr. Suresh Nair discusses strategies for UAE businesses to manage insurance renewals efficiently in this interview featured in Gulf News.

The year-end is fast approaching.

Most corporates will be scrambling to wrap up their financials for the year. Meetings for locking in budgets, fine-tuning strategies and putting in place arrangements for the coming year will be happening in a frenzy.

With an estimated 40% or more of corporates in the UAE having various insurance policies coming up for annual renewal on January 1, putting in place the insurance program for 2025 should also feature in the critical to do lists for many organizations. In reality, corporates often tend to treat insurance as a low priority area and it languishes at the bottom of the list.

It is, perhaps, time to reconsider this approach.

A rush to get insured

As alluded, a disproportionately large number of corporates seek to conclude their insurance requirements with insurance providers at the year-end mainly for the convenience of syncing the insurance period with the financial year. During this period, insurers find themselves stretched thin to cater to the massive upsurge in demand.

Some insurers need to buy their own insurance coverage which enables them to underwrite risks that may otherwise be beyond their financial capacity. In more simple terms, insurance companies will need to procure insurance covers for themselves. This is termed as reinsurance and is purchased from specialized reinsurance markets based overseas both globally and regionally.

Calling in reinsurers

Mainland Europe, the UK, and US are among the key reinsurance markets that the local insurers have a heavy dependence on. Reinsurance arrangements are done both on a specific basis for large risks and/or for the overall portfolio of the insurance company annually on an umbrella basis.

Many in the latter category fall due for renewal in January.

Risks with very high values and certain categories of risks, falling beyond the retention capacity of the insurer, due for renewal during this period will also need to be reinsured. These are again disproportionately high at year-end.

All in all, the Decembers happen to be a very frenetic period in the insurance calendar. The holidays during the festive season, especially the longer one in the West curtails the common working days and does its part in exacerbating matters.

Weather patterns upstage everything

Reinsurers have faced major losses from extreme weather events in many other regions also, which have resulted in reduced capacities and increased rates globally. In local markets, the rains in the first four months of 2024 and the high magnitude of claims have added an extra dimension.

Rains in April alone, have resulted in reported aggregate insurance claims in the UAE of between $2.5 billion to $3 billion mainly in property and motor insurance. These figures relate to insured losses. If uninsured losses are added, the aggregate will climb even higher.

The UAE National Centre of Meteorology has predicted a 20-30% increase in rainfall along with increase in temperature in the future. This regularity and severity of rains in the region has prompted insurers (and reinsurers) to reassess their risk appetites both in terms of insurability of certain types of risks, as well as, the price at which these can be insured.

The underlying fear is that severe weather events which were supposed to happen once in 75- or 100 years are happening with far greater frequency perhaps caused due to the planet heating up. Signs of this are evident globally.

The net effect is that customers falling in certain risk matrices will need to be prepared to expect more constraints and delays in putting in place their insurance programs, especially property insurance and to a lesser extent motor insurance and other types of insurance, as compared to previous years in terms of availability, comprehensiveness and pricing. While the issues mentioned are especially aggravated at the year-end for certain types of insurance coverages, such issues may be encountered at other times of the year and for other types of insurance covers also.

While there is no ‘one size fits all’ solution, there could be some simple remedies to consider. Early discussions with your provider, insurance broker or insurer, to start with, could help in understanding the challenges, if any.

It is advisable to invest some time and resources into review of the current insurance program and also the values to be declared for the forthcoming period. With this knowledge and some sound advice where required, strategic approaches like re-engineering of policies, increases in self[1]retention, having a consortium of insurers etc. can be looked.

Planning ahead, to a large extent, will help mitigate unpleasant surprises at the last minute.

Remember, the lowest price may not always be the best option. A bespoke well-structured insurance program tailored to the specific profile of the company offers a significantly more comprehensive protection when it is most required.