UAE car owners now find motor insurance renewal costs start to pinch, with 7-12% hikes

Dubai: Motor insurance renewals are starting to pinch UAE consumers, with average premium increases in the first two months at between 7.7-11 per cent from a year ago, depending on the vehicle, model year, and, of course, the claims record of the owner.

Insurance industry sources say that such an increase in short period of time is unprecedented, and comes as insurers have seen losses pile up on their motor lines at rates they can no longer sustain. That means SUV renewals come to around Dh1,300 on average, while sedans are at Dh1,100. (On luxury vehicles, add in a few more hundreds…)

Market sources say there were higher claims generated from accidents during these two months, and that too will have a role in deciding how high car premiums could go in the rest of 2023. (Late last year, some of the bigger insurers in the UAE had made an ‘informal’ deal to hike motor premiums from early 2023.)

The increases are particularly affecting those who bought a car a year ago with free 1-year insurance. These vehicle owners are also coping with having to pay higher instalments on the auto loans they took, with the successive rate hikes seen since March last year. (Add in a few hundreds to the EMI as a result…)

Dealerships are concerned that the mounting cost of ownership will slow down buying decisions this year. Some of them are thinking of offering free insurance beyond the 1-year, and also talking to banks to see if they are willing to extend longer ‘no instalment’ periods to car buyers.

“The insurance premium on a Dh70,000-Dh80,000 car in its second year is experiencing an increase towards pre-Covid rates,” said Avinash Babur, CEO of InsuranceMarket.ae. “Before the pandemic, premiums were relatively stable, with modest increases year-to-year. What’s distorting the scene this year is because vehicle owners are comparing premium hikes to the significant drops recorded during 2020-21, when fewer people were driving and the number of accidents declined sharply.

“The higher motor accident claims in January can be attributed to a number of factors, one being the weather conditions leading to slippery roads.”

Car owner concerns

Insurance industry sources say they are well aware of the heavier burden on consumers’ budgets from higher motor premiums and auto loan instalments. They add that their hands are tied when it comes to doing anything through offering lower premiums. (The UAE insurance industry regulator, the Central Bank, doesn’t want to see ‘unhealthy’ practices on premiums,” said a senior insurance official with a Dubai firm. “Insurers themselves realise that cutting rates will only lead to losses down the line for them. And in these times, this cannot be sustained.”

In its report on the 2022 results and forecasts, Abu Dhabi National Insurance Co. notes, "(Insurance) Market is starting to show signs of softening across various products after some rating discipline in the recent past in commercial sector." On motor rates specifically, ADNIC says the market is seeing 'rationalization'.

Will dealerships weigh in?

A lot thus could fall on car dealerships, maybe through extended warranties and with incentives such as longer free insurance. Bu here too, it might be difficult to do so. “Extended warranties are already there, but offering more than 1-year free insurance or registration will be difficult,” said one dealer. “Maybe, for luxury cars or a new entrant into the market, it’s possible. But not for all.”

Because dealers worry that if they offer longer free insurance, it could soon become a standard – and then, pulling it back will be difficult.

Plus, new car sales in the UAE are growing at 10 per cent a year, which means dealers are not under pressure to clear stocks. In most cases, cars reaching the showrooms are already sold well in advance.

What options then for car owners facing an imminent motor renewal? Be ready to pay higher...