As many as 80 per cent of buildings in Dubai are either uninsured or underinsured, according to the chief executive of the country's biggest insurance company. Abdul Muttalib al Jaidi, the chief executive of Oman Insurance Company, said a "lack of awareness" was to blame for the low insurance penetration in the country.
"We have seen in the last few months major fire incidents happening in flats with no insurance," he said. "There is nothing they can do. It is my view that 80 per cent of the buildings in the city are not properly insured." The law does not require buildings in the Emirates to have insurance. Fire safety has become a major concern for municipal authorities in the UAE. The Dubai Civil Defence is surveying 60,000 buildings in the emirate to spot deficiencies, while Abu Dhabi Commercial Properties, the largest landlord in the capital, has hired the consultancy Shirmer Middle East to conduct a safety audit of its entire portfolio of more than 2,500 buildings.
More people are taking out insurance thanks to more rigorous requirements from banks. To obtain a mortgage in the UAE, most banks require that a buyer purchase home insurance and life insurance signed with the bank as beneficiary, according to John Charcol Mortgages. Mr al Jaidi said there had also been a steady rise in life insurance in general. Penetration of insurance in the UAE is just a fraction of the level found in more developed economies. "In Europe or the US, you literally insure everything," said Gurnos Stonuary, the business services director at Nexus Group, an insurance brokerage. "In the UAE, people have become quite complacent. There is little crime. Insurance is one of those things that none of us wants to buy, but when something goes wrong, we are eternally grateful."
He said his company had seen a pick-up in property insurance because of the bank requirements but added that many buildings were not properly insured. "You can be wiped out very easily in a situation like this," he said. "You can literally have nowhere to live and no money to buy something else." Premiums written in Muslim countries amounted to just 1.3 per cent of GDP in 2007 compared with 2.8 per cent in emerging markets, according to Swiss Re, one of the biggest reinsurers.
One issue is the lack of compatibility of insurance with the Islamic faith. Takaful is an Islamic insurance concept that is being used increasingly. "It's an area that needs more study," Mr al Jaidi said. "Whether its religious issues or costs, people still think insurance is a luxury, not a necessity." This could be a major issue homeowners have to face as they take control of the management of their buildings later this year under the strata law that governs the management of jointly owned property.
Strata law will affect property owners and residents in Dubai in a range of ways when it comes in. Some buildings already have interim homeowner associations and residents have been paying regular maintenance fees. Others are in disarray, with little preparation made for the imminent change-over and insufficient savings made for major repairs. Richard Briggs, an executive partner at the law firm Hadef and Partners, said a further issue was the absence of a link between homeowner insurance and the insurance taken out to cover specific buildings.
"There is a lot of disconnect, where the two sides are either doubling up on insurance or not covering certain things," he said. During the property boom, insuring buildings was also a challenge because property prices kept rising at such a rate policies could be rendered inadequate within months. "The important thing is that there is a lot more thought going into investments now and this means getting advice on how to insure an asset," Mr Briggs said. "This may be a problem left over from the boom time."
* with reporting by Asa Fitch firstname.lastname@example.org