Insurers are set to review building premiums after the New Year’s Eve blaze at The Address Downtown Dubai.
The fire at the hotel was the latest in a string of building blazes in Dubai last year, including ones at The Torch Tower at Dubai Marina in February and the Regal office tower in Business Bay in November.
Mohammed Hesham, operations manager of Abu Dhabi-based Capital Shield Insurance Brokers, said that the impact on Emaar’s own premiums might not be significant as the company owned thousands of buildings and could take a commercial decision to switch insurers if premiums rose by too much.
However, he believes that insurers will look more closely at the type of materials used on a building, and set higher premiums for those clad in aluminium composite panels.
“Insurance is a pool. We all pay into the pool, and whoever has a claim takes from this,” said Mr Hesham. “But let’s say you have more risk than me – you should pay more. If an insurer notices that claims from BMW owners are higher than others, they will increase rates for all BMW cars. Here it is the same situation. If they notice that these types of buildings have more of a tendency for claims, then it will have an impact on the whole market.”
Michael Rafter, the executive vice president of general insurance at Oman Insurance Company, which insured the Torch Tower, said that given the quantum of loss faced from the Address Downtown fire, “it may impact property insurance premiums”.
He said: “But this would be specific to buildings with combustible cladding only, and it is not possible to predict how much [premiums will rise].”
Mr Rafter said that Oman Insurance Company had learnt from the Torch Tower fire that even a minimal amount of combustible material could lead to devastation. “It has made us more cautious in our approach towards insuring buildings that utilise any kind of flammable cladding.”
Garry Taylor, the Mena managing director of the specialist broker Bowring Marsh, believes that the impact of The Address Downtown fire on the market for building premiums will not be significant.
“In our opinion, a single loss incident represents a very small percentage of the market and only a dramatic shift in market capacity would shift premiums,” Mr Taylor said.
Alison Fenech, head of general insurance at Dubai-based Nexus Insurance Brokers, agreed, stating that premiums did not rise after other Dubai fires last year.
“We have seen more of an increase in awareness than premiums,” she said.
Ms Fenech said that although individual insurers may increase rates if they own more than one building, the market as a whole is not likely to be subject to rate rises as a result of this incident in isolation.
She added that the frequency of fires was more important than a single, high-profile event. “If you have 10 fire incidents in a year amounting to Dh20 million, it is more likely to increase premiums than one incident in a year amounting to Dh25m,” said Ms Fenech.
Sam Thakker, managing director of Earnest Insurance Brokers, said that although there may be a few “knee-jerk reactions” from insurers looking to capitalise on the incident, the fact that it happened so late in the year meant that across-the-board premium increases were unlikely as most insurers had already set rates for 2016.
mfahy@thenational.ae
Follow The National's Business section on Twitter
Russia's Muslim Heartlands
Dominic Rubin, Oxford
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
