When buying a car, you obtain motor insurance Dubai before driving the new vehicle out of the showroom. This is not because you intend to have an accident. Which, in any event, would void the claim, but because accidents do unfortunately happen.
Notwithstanding the large amounts spent on property acquisitions in the UAE. The subject of property insurance has not featured much prior to this year’s Cityscape exhibition and conference. When the importance of property insurance was highlighted.
The law relating to insurance in the UAE was codified following the enactment of Federal Law No.6 of 2007 on the establishment of the Insurance Authority and regulation of insurance operations (the “2007 Law”), which created the Insurance Authority (the “IA”).
At present, there is no Federal obligation on an owner, be it developer or landlord, to take out buildings insurance.
The aim of the IA is to “regulate and supervise the insurance sector in a way capable of providing the appropriate climate for its development. Enhancing the role of the insurance industry in insuring persons. Property and liabilities against risks for the protection of the national economy, pooling. Developing, and investing the national savings for supporting the state’s economic development, promoting fair and effective competition, providing the best insurance services for competitive prices and overages, and nationalising the jobs in the insurance market”.
With the huge scale of construction and infrastructure development in the UAE (new projects announced at Cityscape 2008 were estimated to be in excess of US$100 billion), the requirement for commercial insurance has increased.
According to a recent IA report, over the past eighteen months, non-life insurance premiums have risen by 38%.
A reason behind this positive shift within the insurance sector could be a surge in expatriates moving to the region, who are used to taking out property-related insurance policies in their own jurisdictions: for example, landlords usually take out buildings insurance, whilst tenants will take out contents insurance.
With the number of expatriates in the UAE in 2009 predicted to rise by almost 7%, it will be interesting to note whether such a population increase will result in further growth in the insurance industry.
What is certain is that, in line with the IA growth and competition mandate, some of the world’s largest insurers have set up in Dubai, for example, Royal & Sun Alliance and AXA, with more companies currently in the process of obtaining local trade licences by satisfying the IA’s regulatory requirements and procedures.
The rationale for such moves is that it is not actually permitted for insurance cover for UAE-based property, or liabilities arising from them, to be insured outside the UAE, although reinsurance written externally is permitted.
As to insurance cover that is currently available in the UAE, there is a mix of conventional insurance products, such as D&O, construction and professional indemnity cover, to Takaful (the Shariah-compliant insurance) products.
It should be noted that all insurance policies issued must be written in Arabic. Which shall prevail over any English translation should any conflict arise.
At present, there is no Federal obligation on an owner, be it developer or landlord, to take out buildings insurance. However, the position differs in relation to free zone companies. Since free zone authorities do require a level of property insurance to be taken out. In addition to employees and public liability insurance.
Insurance levels in the region are relatively low but this is a direct result of lower building costs. In addition, all insurance policies issued in the UAE are usually occurrence-based policies. And it is not usual for insurers to issue claims-made policies.
Therefore, premiums can only increase based on actual loss history. Following incidents such as the recent warehouse fires in Al Quoz Industrial Estate in Dubai. Warehouse insurance has increased by approximately 300%.
An owner needs to consider taking out home insurance. Who knows when a building might be damaged to such an extent that it needs to be reinstated?
Or when a business must close because of a force majeure event with the knock-on effect on profitability? These are just some examples of defects and delay that basic property insurance will cover.
With the amount of construction in the region. Along with innovative techniques in widespread use. It would be prudent for an owner to minimize all potential risks. And such minimizing should start with adequate insurance cover.