LONDON: The cost of insuring high rises in Dubai is expected to
rise following a number of building fires in the emirate, including
the Torch Tower in the Marina area, which caught alight in August
for the second time in two years.
Any potential rise in premiums will be partly driven by increased
demand for insurance as awareness grows of how at risk some of
Dubai's apartment blocks are to fire outbreaks, according to
insurance market experts.
Many tall buildings in the emirate still have inadequate fire
safety standards, with some still clad with poor-quality material
that allows blazes to spread quickly, they said.
"The fire incidents have continued to occur, as the core
problem of flammable cladding has unfortunately not been
solved," said Michael Kortbawi, partner at the Dubai-based law
firm, BSA Ahmad Bin Hezeem & Associates.
"This has created awareness with building owners and
owners' associations about the need to carry proper levels of
insurance coverage, and has thus led to an increase in demand for
cover for high-rise cladded buildings.
"Underwriters have also taken note of the increased risk and
have accounted for this in setting their rates. Therefore, rate
increases can be expected."
In 2013, the UAE revised its building safety code, which required
cladding on all new buildings over 15 meters to be fire-resistant.
Older buildings are exempt from the ruling.
The lack of adequate fire safety standards in high-rise towers is
not just a Dubai problem.
In the UK a fire broke out in Grenfell Tower, West London, in June,
claiming the lives of at least 80 people.
It is suspected that the blaze was able to spread quickly because
of the type of cladding used on the building. Rates will inevitably
be higher for those buildings in Dubai that do not meet required
safety standards, said Anthony Cerchiai, head of general insurance
at Nexus insurance brokers.
"Where a building is sub-standard, such as through the use of
dangerous cladding, the insurer might totally refuse to take up the
risk, leaving the homeowner or resident exposed and uninsured. In
those cases, we advise people to talk to an expert in risk
insurance," he said.
Insurers are likely to be increasingly wary about insuring
buildings, according to Tim Davies, deputy CEO at insurance broker
Marsh UAE. "In relation to tall towers, we are seeing stricter
underwriting criteria and more scrutiny is being applied," he
said.
However, Michael Rafter, CEO at the underwriter Arma Group,
tempered expectations of significant price rises, saying premiums
had already began to rise last year.
"During 2016 the market had experienced an increase in the
property insurance rates, particularly in respect of high-rise
buildings, especially those with cladded exteriors," he said,
adding that this momentum subsided during the second quarter of
this year.
"The current fire losses will certainly make more insurers
hesitant about decreasing premiums, but we don't see these
current losses as events that push the insurance markets up
significantly from the increases already achieved during
2016," he said.
Instead, Rafter sees insurers placing greater emphasis on their
clients implementing risk management and loss-prevention
measures.
While premiums for high rises are likely to start edging upwards,
the wider insurance market in the UAE remains relatively soft owing
to a competitive and overcrowded market, Kortbawi said.
"This leads to a price war, which has affected the premium
value on all levels. Until consolidation takes hold or market
penetration rates increase, continued price weakness in at least
some lines can be expected," he said.
Originally published in Arab news
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