Insuring flooding in Gulf Cooperation Council states

In February 2016 Dubai city of the United Arab Emirates is hit by unprecedented flooding. It wasn’t that much common phenomenon and not expected to happen in this warm climate global tourist destination. But the event has transmitted a message for regional insurers on how they deal with such events.

Globally some 171 countries are exposed to natural disaster risk, according to the World Risk Index. Out of these, six Gulf Cooperation Council (GCC) states rank as some of the least risky nations in the world.

So far these six countries have faced very little damage from natural disasters such as wind and earthquake events and flooding. Such incidents are mainly caused by storm surges, cyclones and flash flooding due to heavy rain.

Other than the recent flooding in Dubai, some of GCC states have also experienced cyclonic activities. This includes, in Oman in June 2015, November 2011 and June 2010. Heavy downpours were also registered in the UAE, Qatar, Kuwait, Saudi Arabia and Bahrain. In addition, Jeddah, in western Saudi Arabia, has also experienced heavy floods in 2009, 2011, 2013 and 2015.

When it comes to insurance, flooding can impact an insurer’s operating results and balance sheet strength through a number of insurance exposures.

Flood risk represents an emerging threat in an otherwise benign region for natural hazards. Property and engineering books can be affected by structural damage to buildings and for contents through inventory and raw material losses.

Business interruption is one of the key risk and can represent a significant contribution to the overall claims cost. This is because insured parties are unable to use properties while they are repaired.

Flooding insurance is usually covered by fire and allied perils policies issued by regional insurers, which cover all natural occurrences with no separate deductible applied.

In general as insurance penetration increases and risks are transferred from individuals and businesses to the insurance sector, considerable accumulation of exposures can be created. In order to protect their balance sheets, insurers will need to monitor their exposures and adjust their underwriting and reinsurance strategies to accommodate the risk.