Car insurance premiums skyrocket across UAE, here’s why
Businesses and individuals are grappling with the rising cost of motor coverage
Dubai: In a sharp turn of events, motorists have started feeling the heat of increased car insurance premiums this year in UAE.
While insurers are recalibrating their pricing models to reflect the growing frequency of severe weather, businesses and individuals grappling with the rising cost of coverage.
Gulf News can reveal that motor insurance premiums across the UAE have surged up to 40 per cent during the last few months, driven by a wave of extreme weather conditions and flooding earlier this year.
Industry experts say that as climate change intensifies the frequency and severity of weather-related incidents, insurers are adjusting to a new reality — one where rising claims, inflated repair costs, and unpredictable weather patterns are creating a perfect storm that is forcing both companies and consumers to confront higher costs.
Impact of extreme weather
Earlier this year, in April, the UAE experienced unprecedented rains and widespread flooding, causing significant damage to vehicles and driving up the number of insurance claims.
Mahesh Balani, Chief Operating Officer at Insurancemarket.ae, told Gulf News that the combination of these extreme weather events and the removal of COVID-era discounts in third quarter of 2023 has compounded the rise in premiums.
“In Q3 2023, the government removed the COVID-era discounts, which previously allowed customers to enjoy up to 50% off comprehensive insurance premiums. This change, along with rising claims inflation, has contributed to higher premiums for 2024,” Balani explained.
The surge in claims is primarily linked to the severe flooding, which has caused irreparable damage to many vehicles. From engine failures to water damage, the widespread destruction has led insurers to pay for the replacement of affected cars, further driving up costs.
“Many insurers began raising rates earlier in 2024 due to rising claim costs, but the impact of major floods in April and the February hailstorm forced them to correct their pricing,” Balani added.
Furthermore, the rapid rise in electric vehicles (EVs) is putting additional pressure on the market. “EVs have much higher claim costs per incident compared to traditional vehicles, leading to significant premium hikes,” said Mahesh Balani, Chief Operating Officer at Insurancemarket.ae.
Premiums for electric vehicles have risen by 50-70%, significantly outpacing the increase for traditional combustion engine vehicles.
Reinsurance costs
The insurance industry is also grappling with higher reinsurance costs, which are passed on to consumers. “Reinsurers are adjusting their pricing based on the increased likelihood of extreme weather events, leading to higher premiums across the board,” Balani explained.
As global weather patterns continue to worsen due to climate change, insurers are recalibrating their risk models to account for the rising frequency of large-scale weather incidents.
Strain on rent-a-car businesses and consumers
The ripple effects of rising premiums are also being felt by rent-a-car businesses. Hassan Khursheed, CEO of 7Cars Rent-a-Car, revealed that his company has seen a staggering increase of more than 200% in insurance costs for rental vehicles.
“Last year, we paid about 2% of the total car value in insurance, but since July 2024, it has jumped to between 7.5% and 8.5%. This has put immense financial pressure on our business,” Khursheed said.
He added that he also had to pay almost double for his personal sports car.
“My insurance spiked from Dh1,500 to Dh3,100 for my personal vehicles because insurance companies are now charging more sports cars,” he noted.
Consumers are also feeling the pinch.
Ramesh K.H, an undergraduate student in Dubai, saw his car insurance premium rise by Dh1,000 in November, from Dh1,400 to Dh2,400. “I was told that the recent floods and heavy rains were the primary reasons for this hike,” Ramesh shared.
Imran Ali Jan, a Dubai resident, said that he had to shell out at least Dh500 more for his car insurance. “This time I paid Dh1,700 compared to Dh1,200 last year despite the fact of 5 per cent depreciation of my car,” he added, calling for some clear regulations on insurance premiums for cars.
Insights from an insurer
Julien Audrerie, Executive Vice President — Head of Consumer Lines and Marketing at Sukoon Insurance, offered further insight into the rise in premiums.
“The main driver behind the increase this year is the unprofitable results of motor insurance for most insurance companies,” Audrerie said. “This is the result of continuous reductions in motor insurance premiums over the past few years, which were accelerated during the COVID period. As vehicle circulation returned to pre-COVID levels, accidents increased, putting more strain on insurers.”
Audrerie also pointed to a 10% rise in repair costs due to inflation, which, combined with the heavy rains earlier in 2024, has exacerbated the financial challenges facing insurance companies. “These factors have pushed insurers to increase premiums in order to stay profitable,” he explained.
Advice for vehicle owners
Audrerie offered some crucial advice for vehicle owners.
“It’s essential to choose an insurance company with a proven track record of financial stability, industry expertise, and high customer service standards. Clients should be cautious of cheap premiums, as they may not provide the protection or service needed when a claim arises.”
He also explained that motor premium calculations are based on factors like accident probability and repair costs. “For example, young drivers are more likely to have accidents than experienced drivers. Similarly, repairing a German car at a dealer will be much more expensive than repairing a Japanese car at a local garage,” Audrerie said.
High-tier insurers use advanced actuarial pricing models to assess premiums based on individual circumstances, while less sophisticated companies tend to rely on flat-rate pricing, which can unfairly subsidise across client groups.
Outlook for 2025 and beyond
Looking forward, experts predict that the trend of rising premiums is likely to continue. Balani forecasts that premiums may rise even further in 2025 due to sustained claims inflation, increasing repair costs, and the ongoing impact of extreme weather events.
“We may see further hardening of rates as we move into 2025,” he said.
Audrerie agrees, predicting a further increase of more than 10% in motor premiums in the coming year. “The recent flood events have put immense pressure on the profitability of insurance companies, and while we can’t estimate the exact percentage of the increase, it’s expected to be significant,” he concluded.